Tips For Winning A Bidding War On A House
Article can be found on Qucken Loans webiste and it is written by Erin Gobler. Click here to view it.
Imagine that you’ve been shopping for a home and you’ve finally found the perfect one. You make an offer, only to find out that another potential buyer has also bid on it. Suddenly, you find yourself in a bidding war on a house.
With the housing market trends over the past year, plenty of buyers have found themselves in this very situation. Housing demand has far exceeded the supply, creating a seller’s market. And because of that, the majority of homes end up in a bidding war.
Just because other buyers are bidding on the same home doesn’t mean you can’t still have your offer accepted. Keep reading to learn what steps you can take to make your offer stand out and ultimately win a bidding war on a house.
What Is A Bidding War?
One of the most important steps of buying a home is making an offer once you’ve found the home you want to buy. But if one or more other prospective buyers also make an offer on the same home, you may find yourself in a bidding war.
A bidding war is a term used in real estate to describe multiple interested parties making offers on the same home. The seller can decide which offer to accept. And if the offers are similar, the seller may ask prospective buyers to up their offers to outbid each other.
There’s no doubt that bidding wars benefit the seller, and often result in them getting more than the asking price for their home. Bidding wars have become increasingly common in 2020 and 2021 since the high housing demand and relatively low supply have created a seller’s market.
In fact, data from Redfin shows that 59% of offers in August faced bidding wars. And while this number might seem high, it’s down from a high of 74.3% of offers earlier in the year.
How To Win A Bidding War
Bidding wars have become increasingly common, which can be discouraging for prospective buyers. Luckily, there are plenty of ways to make your offer stand out to sellers and help you win a bidding war.
Get Preapproved For A Mortgage
Mortgage preapproval is one of the most important steps of the home buying process, regardless of whether you expect to end up in a bidding war. Getting preapproved for a mortgage is a signal to sellers that not only do you want to buy their home, but you have the financing to do so.
Not only does preapproval help your odds of having your offer accepted, but it can also help avoid problems later on. Make sure your lender explains how they approach the preapproval process and what it means regarding the likelihood that your loan gets fully approved when it’s time to close on your new home.
Finally, preapproval can also be beneficial for you as the buyer, since it gives you a better idea of how much home you can actually afford. The last thing you want is to put an offer in on a home and then find out it’s above your budget.
Make A Competitive Offer
For your offer to be accepted by a seller, it has to stand out among the rest. Unfortunately, there’s no way to know for certain what other bidders will offer. When you’re making your offer, consider bidding above the asking price in order to stay competitive. Remember that many homes have sold for well above the asking price over the past year, and a low offer is likely to be rejected.
This step of the process is where an experienced real estate agent can be a huge asset. They can help evaluate the real estate market and determine whether the home is fairly priced. Your agent can advise you on how much above the asking price to offer to remain competitive.
If you decide to make an above asking price offer, just be aware of your budget and ensure the amount you’re bidding is still affordable for you.
Pay In Cash
Buying a home with cash isn’t feasible for most prospective buyers. But if you are in a position where you can pay in cash, it’s worth considering. All-cash offers can be attractive for sellers, partially because they eliminate much of the waiting that comes with mortgage approval.
If you can’t afford to pay in cash, don’t worry. There are still ways to make your offer a bit more lucrative, including offering an earnest money deposit or a larger down payment. Just like paying in cash, these strategies can show the seller that you’re a serious buyer.
Limit Or Waive Contingencies
A contingency is a component in the home contract that allows you to walk away or renegotiate due to certain factors. Plenty of home bids are contingent offers. These clauses often allow buyers to walk away if the home inspection reveals major issues, if their own home doesn’t sell or if the appraisal doesn’t come back as expected.
One way to make your offer more attractive is to not include these contingencies. But make sure you’re aware of exactly what that means. For example, if you forego the appraisal contingency, you’re bringing the difference between the appraised price and the agreed-upon purchase amount to the closing table in cash. If you have extra savings, this could be one way to give your offer a leg up. Just be careful not to stretch your budget too thin – you still have to come up with the down payment and closing costs as well.
You might also consider dropping the home inspection contingency. While you should still have an inspection done if you care to know what potential issues may arise with the house down the line, you might consider not having the sale be contingent on the inspection – a contingency that might make sellers pass on your offer if the other ones they’re considering have waived it.
Just remember that these contingencies protect you as a buyer. Dropping them from your offer could result in considerable out-of-pocket costs for you, which you should be aware of before you make a clean offer.
Add An Escalation Clause
Another thing that can be helpful in a competitive bidding situation is to insert an escalation clause. Let’s say you put in an offer on a house for $310,000. You then insert a provision in the offer that says you’ll go $1,000 above any offer up to $320,000. That way, your bid doesn’t go above your absolute best offer, but you don’t have to overpay by putting in the super high bid no one is likely to match as your first offer.
This makes the seller happy as well. Even though they have likely done their homework on how much the house is worth to decide on a price, they’re always pleased to get more than they listed for. The good news is that for the escalation clause to go into effect, the seller will have to provide proof of the competing offer so you know you aren’t paying more than you actually have to.
Be Flexible On A Closing Date
Another way to make your offer more attractive to a seller is to be flexible on the closing date. Sellers might have any number of reasons they want to close on a particular date. A family with children might want to move up the closing so their children can start at their new school. On the other hand, they may want to push back the closing to allow their children to finish the year at their current school.
Whatever the seller’s reason for wanting a certain closing date, they’ll be more likely to accept an offer that provides the flexibility they need.
The Bottom Line
The past year has been an unprecedented time for the housing market. With high housing demand and a relatively low supply, home sellers have enjoyed a seller’s market where most home sales have led to bidding wars. And bidding wars usually mean a higher price.
Entering into a bidding war can be overwhelming, especially when you feel you’ve found your dream home. The steps in this article can help your offer stand out to sellers and give you a better chance of approval.
And if your offer has been approved, be sure to learn about the closing process so you know what’s next.