You’ve been house hunting for weeks, possibly months, and now you’ve finally found a beautiful home that would be just perfect for your family. Already familiar with how to make an offer on a house, you submit what you believe is a competitive offer and anxiously wait for a response. After all, this could mean the end of your search if the home sellers accept your offer. But because of the high demand in the current housing market, your real estate agent comes back with the unexpected news that several other homebuyers have also submitted offers on the home. The seller’s final decision may come down to who can win the bidding war.
What is a bidding war?
A bidding war is a real estate term for when a seller receives multiple offers on their home in a short amount of time. Unfortunately, it also means the seller can wait to see whether buyers are willing to raise their offers – and by how much – along with other concessions to make their offers more attractive.
It’s a tight spot for a homebuyer. However, with representation from an experienced real estate agent, you can navigate the bidding war process wisely and win the house.
When should you stay out of a bidding war?
There are times when it may not make sense for you to get drawn into a bidding war on a house. Such as when there are multiple cash offers way above asking price. When that’s the case, keep a steady check on your emotions and allow your dreams to evolve so you can move on to find another house that will fit your needs.
How do you know when to walk away from a bidding war?
The home needs major repairs: If the house is not move-in ready and a few updates are required, that may be okay. But if you anticipate a significant outlay of cash to update the property or make major repairs, you are better off looking for another house. A bidding war could tempt you to make an offer outside your budget that would eat up any funds you may have earmarked for home improvements.
The home is already at the top of your budget range: If you made your best offer right out of the gate (which may make sense if it’s a competitive market), and you have no more wiggle room to increase the amount of your offer, you should stay out of any bidding war. If you have been pre-approved for a specific amount, the house may not appraise for a higher price bidding wars often get to. If that’s the case, the bank could reject your mortgage. Hold firm to your budget and walk away if necessary.
There’s no housing inventory in or near your desired neighborhood: When there are several houses in your desired neighborhood, it’s easier to walk away if a bidding war materializes and you’re not willing to go any higher on your price. After all, there are other houses you can consider. However, when it’s a seller’s market, with more homebuyers looking to buy than available houses listed for sale, this creates a perfect storm for multiple offers and a bidding war on a property. Luckily, we have some tips and tricks to help you win out over the competition.
11 tips that can help you win a bidding war on a house
1) For real ammunition, get pre-approved for a mortgage
Smart homebuyers do their research and get pre-approved for a mortgage before beginning their house search. Your pre-approval letter is a signal to the seller and their agent that you are in the pipeline for mortgage approval for how much house you can afford and a good prospect to close on the purchase.
2) Avoid a bidding war in the first place
Ask your real estate agent to see if they can find out about the seller’s real wants and needs so you can position an offer accordingly. If you can accommodate relatively simple asks – such as their wish to keep their appliances or not replace the 15-year-old carpet – your offer becomes more attractive. Working these accommodations into the offer to give the seller more of what they want can help you win you the deal.
3) Present an all-cash offer
Real estate investors know this trick, and it’s one that homebuyers can also use to their benefit if you can afford it. A cash offer eliminates the need for an appraisal and bank approval for a loan, contingencies most homebuyers are required to include in an offer. A cash offer shows the seller you are serious about the house and ready to buy it today.
4) Increase your offer
If you have room in your budget to increase your offer, ask your real estate agent for guidance about an appropriate amount for your counteroffer. Remember, this new, higher amount will increase your mortgage payments for the term of the loan. Be careful to keep your counter offer within your budget.
5) Eliminate contingencies
Most of the time, real estate agents will tell you not to remove contingencies, but this tactic can possibly help you beat out another offer. Contingencies protect you from issues involving the home’s structure, systems, and safety likely to be identified during a home inspection, as well as discrepancies in value that affect your mortgage terms. If you want to come out on top in a bidding war, you should eliminate as many contingencies as possible. However, the more contingencies you eliminate effectively takes risk off the home seller (which is why it’s attractive to them) and puts it instead on you the homebuyer.
6) Use an escalation clause in your offer
Another tip in the offer arsenal is to include an escalation clause to tell the seller how much you are willing to raise your offer if competing bids come in. The escalation clause would set a cut-off price that you won’t exceed. Real estate agents don’t typically recommend this, since it tips your hand for future negotiation, but it can help you cut to the chase in an extremely competitive market.
7) Work with an experienced real estate agent
An experienced, reputable agent can help you gain the upper hand as you navigate a bidding war. An agent with a track record of helping other homebuyers win bidding wars can be your best offense. Their experience sets them up to do reconnaissance and understand all the angles, and they can help you consider options that will be win-win.
8) Be flexible on your closing date
Flexibility around specific details in a real estate deal is nearly as good as coming to the table with cash. If you don’t need to move by a specific date or can give the seller more time to fix repairs, being flexible on a closing date can be as attractive to the seller as a higher offer. It can especially work in your favor if the competing offers come in with hard deadlines.
9) Increase the amount you’re willing to put down
If the bidding war heats up and you can’t increase your offer amount, perhaps you can increase your down payment or the amount you put down in earnest money. This shows the seller that you are very serious, and your lender will not need to approve you for a higher loan amount. This tactic can put you ahead of other homebuyers who may appear less serious about buying the home.
10) Write a personal letter
There are times when your sincere expression of how much you appreciate the house, and how you can see you and your family living there happily for many years can tip the scales with the seller. In a bidding war, when you can genuinely align with the seller’s feelings and even their family history living in the home, a personal real estate offer letter could earn you enough goodwill to move you to the front of the pack.
11) Talk to the seller (if you can)
When all else fails, you may want to talk directly with the home seller. This is not a typical situation, as both parties hire agents to serve as intermediaries for any negotiations. If you can swing it, however, a face-to-face meeting with the seller to personally express your goals for buying their house might put the odds in your favor.
Engaging in a bidding war for a house is stressful, plain and simple. But, hopefully, with these 11 tips in your back pocket, you’ll know when it’s time to fold and when it’s time to play a new card from your hand. Prepare well in advance, keep a level head and your emotions in check, and you may find that you can triumph in a bidding war, placing you and your family in that perfect home.