Imagine you’ve been searching for a home. You find one and it ticks all the boxes: price, location and design. You make an offer, excited to take the next step, only to discover that another buyer – or maybe even several – has already submitted a competing bid. Suddenly, you’re caught in a bidding war for the house.
If this happens to you, try not to get discouraged. Just because other buyers are in the mix doesn’t mean your offer won’t be accepted. Sellers often consider more than just the highest bid. With the right strategy, you could walk away with an accepted offer.
Understanding what drives a bidding war and how to respond effectively can help you make smart, confident decisions when you are in the middle of one.
Key Takeaways:
- A bidding war happens when there are multiple offers on one house. This phenomenon occurs most often during times of low inventory and high demand for housing.
- There are several strategies buyers can use in a bidding war, from making an all-cash offer to waiving contingencies.
- Winning a bidding war often comes down to who can offer the highest price, but not always. There are strategies for buyers to appeal to sellers without exceeding their housing budget.
- In a bidding war, knowing when to walk away is just as important as competing. Having a plan and staying grounded in your financial and personal priorities can help you avoid overpaying or making a decision you’ll later regret.
What Is A Bidding War?
A bidding war is a real estate term that describes a situation where multiple buyers make offers on the same property. When this happens, the seller has to decide which offer to accept. If the offers are similar, the seller may ask prospective buyers to increase their offers, remove contingencies or remove other contract stipulations (like asking for a specific appliance) to outbid each other for the house.
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Why Do Bidding Wars Happen?
Bidding wars commonly occur in a hot housing market where housing demand exceeds the supply of homes. When inventory is limited, competition for homes can result in multiple offers on a single property.
Bidding wars benefit sellers, often resulting in a sale over their initial asking price. These competitive situations have become increasingly common since 2020, primarily due to high housing demand and a relatively low housing supply in sought-after urban and suburban markets. Bidding wars usually occur during a seller’s market, when sellers have the upper hand and can be selective about offers.
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How To Win A Bidding War On A Home
Don’t let bidding wars discourage you from making an offer on a house you love. Here are eight strategies that can boost your chances of winning after you’ve made an offer on a home.
1. Get Preapproved For A Mortgage
Whether or not you expect to end up in a real estate bidding war, mortgage preapproval is a critical step in the home-buying process, signaling to agents and sellers that you’re a serious buyer with financing in place to afford a home—and most offers won’t be considered by a listing agent without it. Ask your lender how they approach the preapproval process and what steps you must take for a final approval on a mortgage loan when you’re ready to buy the house.
2. Work With An Experienced Real Estate Agent
A local, experienced real estate agent can be a valuable asset during a bidding war because they will be familiar with the area’s housing market, can determine if a home is fairly priced and provide strategic guidance on crafting a competitive offer. If bidding wars are common in the neighborhood, your agent can recommend how much over asking you might need to go to improve your chances of winning. Agents also are knowledgeable about other real estate agents; these relationships may help during the bidding process.
3. Make A Competitive Offer
If you’re trying to win a bidding war on a house in a seller’s market, your offer needs to stand out from the competition. Unfortunately, you won’t know exactly what other buyers are offering, which is why your offer should be a competitive one – usually over the asking price. Why? Because in a competitive market, low-ball offers typically are rejected right away.
However, it’s important to stay within your budget. The last thing you want to do is make an aggressive offer that you can’t afford. Consider using an online home affordability calculator to help you decide on the amount your housing budget can realistically handle.
You’ll also need to keep the major upfront costs involved with a home purchase in mind, which include closing costs and the down payment.
4. Consider Paying In Cash
Many prospective buyers can’t afford to make a cash offer on a house, but if you can, paying in cash may be worth considering if you really want the house. All-cash offers are often attractive for sellers because they can reduce delays from mortgage approval, though sellers also consider the reliability of financing and contingencies.
However, there are other ways to make your offer a bit more tempting, including offering a larger earnest money deposit or a larger down payment. These actions can signal to a seller that you’re a serious and financially stable buyer.
5. Limit Or Waive Contingencies
A contingency is a clause in a purchase agreement that allows you to walk away or renegotiate your deal based on an agreed condition(s). Contingencies may include the home inspection revealing major issues, your current home failing to sell or an appraisal that doesn’t meet your expectations.
Limiting or waiving contingent offers is common in bidding wars because doing so may make an offer more attractive to the seller, but there are risks to this strategy. It’s important to understand the implications of not including certain contingencies. Let’s look at some examples:
Waiving The Home Appraisal Contingency
Waiving the appraisal contingency can risk paying more than the appraised value on conventional loans; some government-backed loans may not allow waiving this contingency.
If you have extra savings and are sure you can cover all the fees and closing costs, waiving the home appraisal could give you an edge over the competition.
Waiving The Home Inspection Contingency
You might consider waiving the home inspection contingency to make your offer more competitive. While it’s still a good idea to schedule an inspection to understand the property’s condition, if you waive the contingency, the sale won’t be dependent on the outcome. Waiving the home inspection contingency lets you buy the property ‘as is,’ but it could lead to costly repairs. Only consider this if you are financially prepared. In a multiple-offer situation, a seller may favor a buyer who waives this contingency, as it reduces the likelihood of delays or renegotiations over repairs.
Consider this strategy with care. Contingencies protect you as a buyer, and dropping them from your offer could result in costly out-of-pocket costs, like spending a lot of money to replace a roof.
6. Add An Escalation Clause
In a hot housing market, when a home has multiple offers on it, it may be tempting to escalate your bid to more than you can afford. Adding an escalation clause is a helpful tactic to keep you from overspending in a competitive bidding situation.This clause allows the buyer to automatically increase their offer price by a set amount above any competing offers up to a specified maximum.
How does it work? Let’s say you put in an offer on a $310,000 house. You can add a provision (an escalation clause) to your offer that indicates you’re willing to pay $1,000 above any offer up to $320,000, but no more. When you do this, your bid won’t go above your absolute best offer, so you can stick to your budget.
Some sellers appreciate escalation clauses because they automatically raise your offer above competitors, but preferences vary by seller. They can be beneficial for buyers, too, since an escalation clause only takes effect if the seller provides proof of the competing offer, helping ensure you’re not overpaying.
7. Be Flexible On The Closing Date
Sellers can’t always time a home sale to perfectly fit their personal schedule, so they often prefer offers with flexibility on the closing date. Timing needs can vary. Families with children may want to close sooner so the kids can start at a new school, or later so they can finish the school year. An individual moving into a new home might need extra time if they can’t move in right away. Being flexible with the closing timeline can make your offer more attractive, especially when it aligns with the seller’s specific needs.
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FAQ
Have more questions about bidding wars? These answers may come in handy when you’re preparing to win a bidding war on a house:
-The home already felt overpriced before the bidding started.
-The property lacks key features on your must-have list.
-The highest offer exceeds your budget to buy a home.
Staying realistic in your priorities (and your finances) can help you avoid overpaying or ending up in a home that doesn’t truly fit your needs.
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The Bottom Line: With The Right Moves, You Can Win A Bidding War
In a competitive housing market, when demand is high and inventory is low, bidding wars are common. And more often than not, they drive prices up. The best way to come out ahead is to make your offer stand out from the rest. Start by getting preapproved for a mortgage so that you can approach sellers with confidence and a strong financial position.
Once you’ve made an offer, you’ll need to be financially ready to offer more or walk away if the bids get too high. With the right plans and preparation, you can compete well – and win – in a bidding war.
Ben Shapiro
Ben Shapiro is an award-winning financial analyst with nearly a decade of experience working in corporate finance in big banks, small-to-medium-size businesses, and mortgage finance. His expertise includes strategic application of macroeconomic analysis, financial data analysis, financial forecasting and strategic scenario planning. For the past four years, he has focused on the mortgage industry, applying economics to forecasting and strategic decision-making at Quicken Loans. Ben earned a bachelor’s degree in business with a minor in economics from California State University, Northridge, graduating cum laude and with honors. He also served as an officer in an allied military for five years, responsible for the welfare of 300 soldiers and eight direct reports before age 25.
