How To Win A Bidding War On A House

Win A Bidding War On A House

Finding your perfect home isn’t easy. It can take a long time to find one that meets your exact requirements. While you will be happy to find the right home, your hopes can quickly be dashed if there are other buyers.

In housing markets with fewer homes than buyers, bidding wars on a house can be common. If you really want the property, winning a bidding war may be your only option. Fortunately, there are things you can do to improve your chances of success and beat the competition.

What is a Bidding War?

A bidding war can begin when multiple buyers are interested in a home. The potential buyers will compete with their offers, and the seller will choose between them.

When you have found a home you want to buy, you make an offer. If you aren’t the only buyer, the seller might ask you to improve your bid. If this happens, you will need to increase your offer, meaning you are in a bidding war.

You will need to offer your best price since you won’t know the other bids. After the initial offers, buyers can continue to improve their bids, increasing the price until all but one drops out. 

How to Win A Real Estate Bidding War

You might be tempted to walk away if you find yourself in a real estate bidding war. If you love the home, there are strategies you can use to increase your chance of winning the bidding war.

Be Preapproved For A Mortgage

Before you begin seriously searching for a home, getting preapproved for a mortgage is vital and sometimes essential. Some Realtors won’t show you a home without a mortgage preapproval letter. However, even if a preapproval letter is optional, having one shows you are a serious bidder.

Preapproval shows you are ready to buy with provisional approval from your lender. This should mean there’s a lower chance of financing falling through and give the seller more confidence in your bid.

The preapproval also shows how much you can spend on a home. This prevents you from wasting time searching for property that you can’t afford.

Making an Offer

If you know there are other buyers, making a good offer could put you in the lead. While the highest money offer doesn’t always win, it often does.

In these situations, bidding more than the asking price can be the right approach. When deciding on an offer, advice from your buyer’s agent can be very valuable. They can contact the seller’s agent to better understand the situation as well as use local sales data to help you choose the right bid price.

In a competitive real estate market, you can expect to have to offer between 1% and 3% above the asking price. Then, during bidding wars, you will need to outbid the competition by at least $1,000.

Whatever happens during the house bidding process, you should always remember to stick to your budget. While you can be drawn into a competitive bidding war, overextending your finances can lead to serious consequences later.

Cash is King

If you can make a cash offer, it’s likely to set you apart from the competition. Sellers have fewer things to worry about with cash offers, and closing can happen sooner. Without the need to include financing in the process, selling the home will be faster and less likely to run into problems.

Even if you have the cash available, you might not want to put it all into your home. However, you may be able to use cash-out refinancing after you have purchased to release the equity.

If you don’t have the cash for this type of offer, there are other options to improve your bid. Offering a larger earnest money deposit or a substantial down payment can be attractive to sellers. At the very least, these options will show you are serious about buying the home.

Limit Contingencies 

Home buyer contingencies are usually added to the purchase contract to allow the buyer to back out if certain issues arise. This can prevent the buyer from losing their earnest money deposit should there be problems during the buying process. Without these clauses, the buyer could be locked into a contract or face a financial penalty.

Common contingencies include:

• Home inspection – protection against buying a poor investment.
• Appraisal – required by lenders to confirm the home is worth the price.
• Home sale – giving the buyer time to sell their current property.
• Financing – to make sure the required mortgage is approved.
• Title – checks to ensure ownership isn’t disputed.

While you might not be able to waive the appraisal contingency, it might be something to consider with some of the others. It should always be remembered that you are accepting more risk when you do this, but it could make a difference.

The home inspection contingency ensures the buyer isn’t left with an expensive repair project on their hands. To make your offer more attractive to the seller, dropping this contingency could improve your chances of having the winning bid. This should mean that the purchase proceeds more quickly, with fewer issues for the seller to worry about.

However, without the inspection contingency, there are risks. It doesn’t mean that you can’t have the home inspected; it’s just that the purchase isn’t contingent on the results. If the inspection does uncover serious issues, it might be better to back out and lose your earnest money than buy a home needing significant repair. 

If you want to make an offer without a home inspection contingency, you need to be sure you aren’t making a big mistake. If you know the home has been well maintained or if you are buying from someone you know, you can feel more confident in doing this.

Even if the home looks great, it could be hiding some nasty surprises. Without an inspection contingency, your walk-through has to be very thorough. Use a checklist to help you uncover any potential issues before you make an offer without this contingency.

Be Available and Ready to Compromise

If the seller knows you are easy to contact and more flexible with purchase terms, you make it more likely they will choose your offer. Ensure that the seller has your details and can contact your real estate agent with any inquiries. You also need to be ready to respond quickly to questions from sellers. 

Your buyer’s agent should regularly check in with the listing agent. This will put you in the best position to respond as things evolve during the sale. 

Making compromises can be another way of improving your offer compared to the competition. Perhaps you can be flexible on the closing timeline. If you don’t need to move by a certain date, offering a more flexible timeline could make your offer more attractive.

Escalation Clause

If you find yourself in a bidding war, including an escalation clause in your offer can work in your favor. When you are outbid, this clause allows you to automatically put a better offer to the seller.

The way this is structured lets you bid up to a certain amount, preventing you from accidentally going over your budget. The clause could allow a bid that is $1,000 more than the opposing offer so that you put yourself in the winning position until your maximum is reached.

This clause can save you money as you don’t need to put the highest offer on the table with your first bid. Otherwise, your first bid could be unnecessarily high and way above what other buyers are willing to spend.

The escalation clause can only be triggered when the seller has proof of a better offer. This should prevent the price from being increased without any competition and stop you from offering more than you need to.

Backup Offers

If you find your perfect home but get outbid, there could still be a chance. If a contingent offer has been accepted, making a backup offer can sometimes pay off. While, most of the time, an offer will continue to closing, things can go wrong. This could still give you the chance to buy the house if you are prepared to wait.

Sometimes, when the seller has an offer, they are still accepting other bids. This might be because there is a kick-out clause. This clause allows the buyer to complete the stages of the process that have been agreed upon in the purchase contract. This can include a home inspection, appraisal, mortgage approval, and giving them time to sell their previous property.

If the seller receives a better offer during this time, the first buyer may only have a limited time to complete the buying process. They might need to meet the better offer and waive contingencies to continue with the purchase. If the first buyer is unable or doesn’t want to do this, the kick-out clause allows the seller to take the better bid.

There might still be an opportunity when there isn’t a kick-out clause. Your buyer’s agent will need to monitor the progress of the sale so that you can make an offer if the process falls apart. 

If you really want the home, it might be worth waiting to see if you get a chance to buy. However, most of the time, you won’t get the opportunity, and the sale will close.

If the buyer doesn’t continue with the purchase, your backup offer will come into play. This offer should be as good as or better than the offer they already had. This also might mean limiting your contingencies, providing a good earnest deposit, and being able to move quickly should you get the opportunity.

While waiting to see if a house you love becomes available, there’s a chance you will miss out on other suitable homes. You can’t make an offer on another home while waiting to see if the sale proceeds. 

Should You Walk Away from a Bidding War?

While you will want to succeed and get the home you want, it can be better to stop the process and move on. You might find a better property at a better price without the worry of a bidding war.

You should always remember to stick to your budget. If the price rises above your budget, it can be better to walk away rather than overstretch your finances. 

If you thought the asking price was near the top end of the range for that home and the area, a bidding war could quickly push the price much higher than the home is worth. In that situation, it will be easier to back out and let someone else pay over the value for the home.

Perhaps you have made some compromises, and the property doesn’t have everything you wanted. There are likely to be more suitable homes available elsewhere that you don’t have to fight a bidding war for.

How to Avoid a Bidding War

There are some things you can do to prevent entering into a bidding war. If you want to buy in a seller’s market, there will be more buyers than homes, and bidding wars are more likely. 

Looking for a home that isn’t in a hot seller’s market should help you avoid this situation. But if that isn’t an option, making an offer that is as attractive as possible improves your chances.

Placing a strong bid from the outset could prevent any competition from challenging you during the process. If you are near the top of your budget, offering more cash may not be an option. Instead, making an offer with few or no contingencies might achieve the same result if the seller wants to move quickly. 

Summing Up Tips To Win A Bidding War

There is often more demand for homes than available stock, making bidding wars more frequent. Dealing with competition when buying a house can be daunting, but there are things you can do to improve your chances of winning.

Simple things like getting preapproved and being ready to respond quickly, can go a long way. You might be able to make some compromises, offering more attractive terms to the seller even if you don’t have the highest bid. With the right approach to a bidding war, you will increase your chances of buying the home you love.

About the author: This article was written by Luke Skar of MadisonMortgageGuys.com. As the Social Media Strategist, his role is to provide original content for all of their social media profiles as well as generate new leads from his website.

We provide award-winning customer service to clients who need to purchase a home or refinance an existing mortgage.