How to navigate and win a bidding war on a home
You finally found the right house to make an offer on — only to discover you’re not the only one. If you are competing against one or more prospective buyers for the same house, you have ended up in what is known as a bidding war.
A set-up like this obviously puts the seller at a major advantage, as they have their pick when it comes to offers. As a buyer in the running, putting up more money is likely going to be key, but it is not the only factor that will lead to landing the house.
How does a bidding war work?
Bidding wars are “common when housing supply is low and buyer demand is high — often referred to as a seller’s market,” said Zillow. This scenario, with more buyers than there are houses, leads to multiple buyers making an offer on the same house.
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Once they learn they are not the only one in the running, homebuyers will “go back and forth adjusting their offers to make them more appealing to the seller,” said Chase.
This usually means pushing up the purchase price of the home, with offers in a bidding war going above the asking price. But there are also other ways buyers can sweeten the deal, like making an earnest money deposit, limiting contingencies or trying to accommodate the seller’s preferred closing timeline.
How can you improve your odds of winning a bidding war?
Sellers are typically looking for the highest price they can get, particularly when a bidding war over their property emerges. “However, since potential buyers have no idea what other offers may be submitted, they can include escalation clauses,” which effectively “indicate that they are willing to bid higher if needed,” up to a specified ceiling, said U.S. News & World Report. You can also increase the amount of your earnest money deposit to demonstrate your seriousness as a buyer.
The amount you put up is not all that matters — how you are paying can also make a difference. For instance, “bidding with a cash offer may provide an edge over higher bids that require financing,” since cash offers “aren’t contingent on a lender approving a mortgage so they give the seller confidence that the deal will close,” said U.S. News & World Report. If you are not in a position to make a cash offer, it is important to have all of your ducks in a row with financing — namely, mortgage preapproval.
Sellers may additionally be assuaged by having greater certainty a deal will actually go through, which is why limiting or waiving contingencies, such as for a home inspection or appraisal, can boost your odds. Just make sure to think twice before doing this, as it can expose you to more risk.
Lastly, keep in mind how much flexibility can work to your advantage. For example, a “seller might be moving across the country for work and need to close by a specific date,” said SoFi. “So if you can get the appraisal and inspection done swiftly, that could be a huge plus.”
When should you walk away from a bidding war?
Buying a house is already an emotional process, and once the element of competition enters the equation, it can be easy to get carried away. But the reality is that “you don’t want to overextend yourself financially and can continue looking for a home you can afford,” said Rocket Mortgage.
If a home is moving out of your budget, or if you are taking on more risk than you are reasonably willing to stomach, it may be better to move onto the next house. There is bound to be another you will feel excited about.
