How to Win the Bidding War For Your Next Home

Finding the right home is only half the problem for many homebuyers. Reaching an accepted offer is the next major hurdle. This hurdle can become even taller if you are pulled into a bidding war.

Fortunately, there are real strategies you can use to increase your chances of winning the competition and securing your dream home. And some of these strategies don’t actually cost more money!

What is a Bidding War?

Before we look at how you can win a bidding war, it helps to understand what they are and what they are not. Bidding wars don’t have an official definition by real estate organizations, and some groups define them differently. However, there is a generally-held definition of when real estate buying offers become a bidding war.

A bidding war occurs when there are multiple offers from buyers who are competing for the same property and the seller attempts to use the competition to drive up the price of the home. When each buyer makes a more attractive offer, the price is driven upward.

For example, suppose Mr. and Mrs. Seller have listed their home for $750,000. Andy Adams thinks this is a great home, and he knows there will competition, so he offers to buy at the full asking price of $750,000. However, at virtually the same time, Brittany Brands, who also toured the property, comes along and makes an offer of $740,000. The Sellers, hoping to get the best deal, would likely have their agent explain to Ms. Brands that, although the offer is excellent, they currently have a buyer who is willing to purchase for the full asking price. Would she, they ask, be willing to go to $760,000? If she says yes, we have ourselves a bidding war.

Functioning essentially like an auction, only at a much slower pace, a bidding war can drive up the price of a purchase. In general, bidding wars are good or sellers and neighborhood property owners, but not good for buyers.

Multiple Offers are Not Bidding Wars

Just because a buyer has multiple offers does not mean that a bidding war is taking place. Multiple offers simply means that a home has more than one offer (a pretty obvious statement), but if there is no attempt by the seller to increase future offers through competition, then it really can’t be considered a bidding war.

This is a subtle yet important distinction, and one that should be considered when discussing how to win a bidding war.

How to Win a Bidding War

If you find yourself on the fighting side of a bidding war, you have a variety of options. But first, you need to decide whether this is a fight you want to go into. If you are in a market with multiple homes and a relatively low number of buyers, you may want to consider if a bidding war is worth it. Even if you live in a hot market, it may be best to simply avoid a bidding war and move on to the next available home. Remember, there are always more homes available, and making a rushed emotional decision only leads to poor choices.

However, if you decide to proceed with the bidding war, there are some ways you can increase your chances of success…

Up Your Offer

The most obvious, and often the most effective, way to increase your chances of winning the bidding war is to simply offer more money. The motivation of the seller is, after all, to get as much money as possible for their property. Just any seller would, they will be more likely to select the highest offer, regardless of other factors.

Obviously you don’t want to go too high, but if you can afford it, and the purchase is actually worth it, you may consider upping your offer in an attempt to successfully win the bidding war.

Remember, however, that just because you are willing to spend more doesn’t mean the bank is willing to lend more. Your mortgage terms are still limited, and (in almost all cases) banks are not willing to loan money above the appraised value of the home. For this reason, if you are going to offer more money, you may need a larger downpayment to make up the difference, not a larger loan. 

Waive the Contingencies

With almost every purchase offer, there are contingencies. Essentially, they say that the home will be bought assuming certain details are met. For example, there may be an offer for $750,000 to buy the home, on the contingency that all electrical outlets in the bathrooms and kitchen be updated. If the outlets are not updated, the offer is removed. Contingencies can include updates to the roof, repairs for cabinets, replacement of pipes, or virtually any detail the buyer chooses. The seller, of course, does not have to accept these contingencies, and can counter offer.

Sellers love offers that are contingent free. They increase the convenience and speed of selling the home, but removing them creates obvious risks and financial costs for the seller. However, if you are in a bidding war, making an offer with no contingencies could increase your chances of winning the home.

A buyer’s letter, describing how you and your family will enjoy the home, could motivate a seller even if your offer is lower.

Write a Buyer’s Letter

Sometimes warm emotions move a seller better than cold finances. With that in mind, you might consider writing a buyer’s letter to the seller. Essentially, this letter outlines what you will do in the home, how you will live, and how your family will grow. Describing your growing family in the home, hosting holiday parties and playing in the backyard could tug at the heartstrings of even the most financially-motivated sellers.

Include an Escalation Clause

This is a part of the financial offer saying that if another buyer were to go above your offer, you would be willing to purchase for a higher amount. For example, you could make an offer of $750,000, with an escalation clause stating that if there is an offer above that, you would be willing to go to $775,000. Be sure to work with your real estate agent to reach an escalation clause that will suit your bidding strategy and your budget.

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