In competitive markets, it’s not unusual for a house to get multiple offers. With a large pool of home buyers bidding on the same limited inventory and homes getting snapped up the second they come on the market, common sense often goes out the window.
However, overpaying can result in regret, not to mention higher mortgage payments. Learning how to win a bidding war on a house without overpaying requires patience, strategy, and good guidance from a skilled real estate agent.
When and Why a Bidding War on a House Happens
Unless you’ve been in one, it can be hard to understand what a bidding war is and why they happen. A bidding war happens when two or more interested buyers compete to purchase the same property by repeatedly increasing their offers. This often escalates to above the asking price as buyers attempt to outbid each other. When you’re learning how to win a house bidding war, these events can serve as a cautionary tale.
A bidding war on a house is more likely to happen when the home is well located, priced competitively, and shows beautifully, especially in a low inventory spring market. These events often happen during the first 24 to 72 hours of a listing going live.
Preparing for a Bidding War on a House
Positioning yourself for success is the first step in how to win a bid war on a house. Here’s how to strengthen your offers before you enter the arena:
Get Pre-approved, Not Just Prequalified
Pre-qualification is based on self-reported financial information, whereas pre-approval involves the lender actually verifying your financials and giving you a range that you can comfortably afford to spend. The lender will also give you a pre-approval letter, which you can use to show sellers that your financing is pending.
Build Cash Reserves Beyond Your Down Payment
Having substantial liquid assets shows lenders and sellers that you have financial stability and flexibility. When you have more than your down payment available, sellers know that you’re less likely to have financial issues that could sink the deal.
Research Properties Thoroughly and Tour Them as Soon as Possible
An important part of how to win a bidding war on a house is to move quickly. Tour properties as soon after they hit the market as possible, but research comparables, the neighborhood, and the schools in the area beforehand. By doing this, you walk into showings with a clear idea of the home’s value, and you can make a confident offer right away.
Build a Competitive Offer
The key to how to win a bidding war for a house is a strong offer that goes beyond a good price. Sellers aren’t only looking for the best sale price; they’re also looking for a serious offer with few contingencies that is less likely to fall through. To put together a strong offer:
Submit Your Best First Offer
Avoid low-balling with the expectation that you’ll go back and forth with counteroffers. When you’re in a bidding war on a house, there are other interested buyers, and the seller could just as easily accept one of their offers if you come in too low.
Minimize or Eliminate Contingencies
Proceed with caution, and only eliminate the contingencies where you’re truly covered.
- Waiving the home inspection contingency can be risky, but you can shorten the window to make the process faster.
- Having a pre-approval will make final approval quicker, making for a shorter financing contingency window.
- For the appraisal contingency, consider offering to cover appraisal shortfalls yourself up to a specified amount.
- Do not include a home sale contingency. Part of how to win a bidding war on a house is removing uncertainty. If you have to sell your home, look into bridge financing in advance.
Include an Escalation Clause
Escalation clauses automatically increase your offer above competing bids up to a maximum price. These clauses can work well when you want to be competitive, but you want to avoid overpaying.
Sweeten the Deal
A few additional terms could make your offer more attractive if you’re in a bidding war on a house:
- Offer more earnest money than the standard 1 or 2%
- Match the seller’s ideal closing timeline, even if that means getting a bridge loan for your current home.
- Offer to help with closing costs.
- Include a personal letter to the seller. This is not always effective, but it can tip the scales in your favor. Check with your agent to make sure these letters are permitted in your area, and have them read the letter before passing it on.
How to win a bidding war for a house includes a strong initial offer that sellers can feel confident about. Review your strategy with your real estate agent and revise it as necessary.
Know When to Walk Away
A key factor in how to win a bidding war on a house without overpaying is knowing when to walk away. This can be challenging in a high-stakes environment, so set some rules in advance and rely on your real estate agent to keep you from making serious mistakes.
In these situations, you should walk away from the bidding war on the house:
- Your spending cap has been exceeded. Set a cap in advance and stick to it.
- You’re tempted to remove contingencies that you actually need. If competing effectively means waving inspection or financing contingencies that you’re not comfortable waiving, it’s time to leave.
- You’ve gotten too emotionally invested. If you find yourself thinking “I must have that house,” or “I can’t lose that house to another buyer,” you may not be thinking objectively.
- Other options exist. If there are several similar homes available in your target area, and only one has multiple offers, consider pursuing the others instead. You could get a better deal, and it will almost certainly be less stressful.
- The property has significant issues, such as poor location or condition issues. When you’re in a bidding war on a house, you may be tempted to compromise, but don’t overlook these serious problems; there will be other homes.
Knowing when to walk away is a key aspect of how to win a bidding war on a house. If you wind up with a house that you paid too much for, or that you later regret buying, you haven’t won the bidding war.
Winning a Bidding War On a House
Learning how to win a bidding war in a house without overpaying requires discipline, strategy, and sometimes losing out on a home you really want. Set your strategy with your real estate agent in advance so that you’re on the same page. They will help you craft competitive offers and negotiate intelligently while keeping you within your limits.
