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- A bidding war is when multiple potential buyers compete to purchase a single property by offering more money and other perks.
- Buyer tactics include raising the price they are willing to pay and concessions such as waiving an inspection.
- Bidding wars, like auctions, can proceed rapidly, causing buyers to make rash decisions in order to win.
In real estate, when the demand for homes in a particular area exceeds the available supply, you have what's known as a seller's market. This can be very difficult for buyers, who might find themselves competing with several others who are all interested in purchasing the same property.
These situations frequently lead to bidding wars, which can push the final sale price much higher than what the seller was initially asking. So how do you win a bidding war?
Prepare for the bidding war
A bidding war is a competition between two or more potential homebuyers for the same property. Buyers offer increasingly higher amounts of money and other perks for the right to purchase the home.
The combination of a lack of housing stock, multiple buyers, a desirable location, and a growing number of real estate investors who can pay cash help foster a bidding-war environment. Bidding wars are common during seller's markets and in markets with certain traits such as low turnover, or where the home is significantly undervalued.
If you think you might be involved in a bidding war, you should:
Get pre-approved for a mortgage
A mortgage pre-approval means a lender considers you a good candidate for a loan and gives you an idea of what loan amount you might be able to borrow. Including a pre-approval in your offers can help you stand out from other buyers.
"House shopping without a pre-approval is the quickest way to lose the bidding war," says. "Preapprovals are a step up from a prequalification and say that the lender has physically verified what was verbally discussed. It shows that you've done the work and are serious about your home purchase."
Matthew Arakelian, a real estate attorney with Ligris & Associates, says providing a precommitment rather than a preapproval could give you more of an edge. "Some lenders are underwriting a loan at the time of pre-approval so the buyer is already essentially approved at the time of offer submission (except for an appraisal)," he says. "This gives a buyer a leg up on those with regular preapprovals."
When shopping for mortgage lenders, ask them if a precommitment is an option for you.
Know your budget and limits
You should also have a clear idea of what you can and can't afford. In a bidding war, you can expect to make increasingly higher offers if you want to beat out other bidders. You'll want to have a maximum price in mind before you begin this process.
Work with an experienced real estate agent
An experienced agent can guide you through the process and be your eyes and ears during the bidding war. They'll also help you make your offer more attractive and can negotiate on your behalf.
Making a strong offer
The key to winning a bidding war is to make the strongest offer possible — the one that's most attractive to the sellers you're targeting.
To do this, it's important to learn more about the sellers before you start. Do they want a quick closing? Do they want to occupy the home for longer than normal (30 days)? Are they concerned the home appraisal won't support the selling price? Find out the answers to these questions and plan accordingly.
Prices
A bidding war almost always requires offering above the asking price. You can also think about adding an escalation clause into your offer. This essentially says you will automatically increase your bid above the highest competing bid by a set amount, up to a maximum limit.
Earnest money deposit
This is a security deposit to show you're committed to buying the house. Often, making a larger deposit can help you stand out to sellers.
"If you have to finance, put more money down for the deposit — rather than 10%, put 20% down," says Talia McKinney of the real estate firm SERHANT. "It can show to the seller you are willing to risk more of a deposit should something happen with your financing and shows more confidence in your offer."
Contingencies
Contingencies are safety clauses that give buyers an "out" of the sales contract. They allow you to back out of the deal if you don't like something on the inspection, your mortgage loan falls through, or the home doesn't appraise for the price you've offered. These are all a risk to the seller and increase the chances they'd have to re-list their home and start from square one.
By waiving these contingencies, you make the offer more attractive. Just be sure to talk to your agent about this first, as it can be risky. If you waive the appraisal contingency, for instance, you'll need to be ready to cover any gap between the appraised value and the offer price out of pocket.
Closing timeline
Being flexible with your closing time can often be helpful for sellers, who are often trying to buy (and close on) a new home of their own as well. You can also offer sellers a lease-back, which allows them to rent the home from you after closing for a certain period of time while they wait on their new home to close.
Cash offer
If you can, skip the mortgage loan, and make a cash offer instead. This might be possible if you have plenty in savings or just sold another property. Either way, it makes for an easier, faster, and more rise-free transaction for the seller and can make your offer much more attractive.
Pre-approval letter
Make sure you include your pre-approval letter with any offers you submit. This shows you're serious about the home and that you're a good candidate for a mortgage loan. It tells the seller that you're financially capable and ready to buy the home.
Making your offer stand out
There are other ways to make your offer stand out from the pack, too. For instance, you can:
Write a personal letter to the seller
Some would-be buyers write a personal note to the seller, making their case for why their offer should be accepted.
Polly Watts, vice president of sales at Sundae recalls one such note: "A buyer wrote a note explaining that they had a few children in the household with special needs, and the letter detailed how that house met all their specific needs. It helped to get additional eyes on their offer and they were able to secure the home."
Be responsive and easy to work with
Bidding wars can often move fast, so be sure to respond quickly to anything your agent or the sellers do. Failing to respond to questions or requests quickly can leave room for other bidders to swoop in and win the bidding war.
Work with a responsive lender
You also want a lender who's responsive and can move quickly. They may need to change your pre-approval amount or quickly offer documentation if your seller or their agent requests it. Talk to your loan officer if you think you may enter a bidding war so they can be properly prepared.
Home bidding war FAQs
Though offering the highest price is one of the best tactics for winning a bidding war, it isn't always necessary. If you're wondering how to win a bidding war without overpaying, get to know the sellers. Some sellers value other factors — like closing time flexibility or contingencies — more than price. Talk to your agent about how to make your offer more attractive.
An escalation clause automatically increases your bid up to a certain amount if another buyer outbids you. It will increase your bid over and over again by a certain amount, up to your maximum limit.
Waiving the home inspection can make your offer more attractive, but it's a risky move. Before doing this, consider a limited inspection or getting a pre-offer inspection instead.
If you're wondering how to make your offer stand out in a bidding war, offering a higher price, waiving contingencies, or being flexible with your closing date are also effective strategies to explore. What sellers look for in a winning offer can vary, so it's important to learn about their priorities before making an offer. Your real estate agent can help you do this.
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