Tips To Win a Real Estate Bidding War
Are you trying to buy a house and want to know some tips on how to win a real estate bidding war? Here are some tips to help you win the bidding war by buying a house.
After a long search, you have found your dream home. You are ready to take that next step to purchase your house, but one thing may stand in the way: other home buyers, especially in a seller's market.
In real estate, when the demand for homes in an area exceeds the available supply, you will be in a seller's market, which is not very favorable for buyers because you might find yourself competing with several other potential buyers who are trying to purchase the same property as you.
Multiple buyers wanting the same property leads to bidding wars, which can raise the final sale price much higher than the initial asking price. A bidding war is when multiple potential buyers compete to purchase a single property by offering more money and other perks.
Buyers' tactics in these bidding wars include raising the price they are willing to pay and making other concessions, such as waiving an inspection. Bidding wars are like auctions and can proceed rapidly, causing buyers to make more rash decisions to win.
Finding yourself in a bidding war can be stressful. However, if you understand how bidding wars work, as well as strategies to help maximize your chance of winning the bidding war, then you have a higher chance of winning your dream home you love. Keep reading to learn some tips to consider if you are in a bidding war with other buyers.
Here are the tips to win a real estate bidding war.
1. Have Your Preapproval Letter Ready
To qualify, you can get a mortgage preapproval before you start shopping for a house. A preapproval offers a precise mortgage based on your W-2a, bank statements, credit score, and other official documentation.
House shopping without a preapproval is the quickest way to lose the bidding war. Preapprovals are a step up from a prequalification. It shows that you have done the work and are more ready and serious about the home purchase than verbally.
Whether you expect to end up in a real estate bidding war or not, mortgage preapproval is one of the most important home-buying steps and must be done.
Preapprovals improve the odds of your offer being accepted. Having a lender explain the approach and process will help you be prepared for when it is time to close. Overall, a preapproval will help you get a better idea of how much you can afford, which can also help you in the bidding war, so you know your limit.
2. Make The Highest Offer
In a bidding war, your offer must stand out from the rest of the competition for a seller to accept it. There is no real way to know what the others are bidding, so when you make an offer on a house, consider bidding above the asking price to stay competitive. A lower offer will most often be rejected.
Having a trustworthy real estate agent in this process is essential because they can help evaluate the real estate market and determine whether the home is priced fairly or not, whether you should offer above market value, and how much above market value you should offer.
It is also important to consider your budget before you make the offer. You need to feel good about whether you can afford the amount you are bidding and whether it is worth it. Traditionally, the best way most people know to win a bidding war is to offer the most money. The highest offer is not always the winner, but most of the time, it will.
3. Offer An All Cash Deal
Many potential buyers can not make a cash offer on a house, but it is worth considering if you can make an all-cash deal. All-cash offers are attractive incentives for sellers because they eliminate much of the waiting that can happen with mortgage approvals.
If you are not able to make an all-cash deal, that is okay. You can make your offer more attractive to the seller by offering an earnest money deposit or even making a larger down payment.
When you pay an all-cash deal, fewer things can go wrong with the transaction, allowing you to speed up the process more. This is highly attractive to sellers and can give a buyer an advantage, but if you are not able to do so, do not worry because there are so many other ways you can win a bidding war.
4. Drop The Contingencies
Contingencies are specific conditions that must be met before the sale can be completed. This clause allows you to walk away or renegotiate your deal based on agreed-upon conditions. For example, a home inspection reveals major issues that will lead to your home failing to sell or an appraisal that does not meet your expectations.
Sellers do not want their homes to sit on the housing market forever, and they also do not want to have to relist their homes because a contingency caused the sale to fall through. Dropping your contingencies can strengthen your offer on the house.
Here are two types of contingencies that can make your offer more attractive.
Waiving Home Appraisal Contingency
If you waive a home appraisal and the appraisal is lower than expected, you have to bring the difference between the appraised price and the agreed purchase price to the closing table in cash. If you have extra savings, this may be the perfect way for you to have an advantage. Be aware not to stretch your budget, though, because you will still have down payments and closing costs.
Waiving Home Inspection Contingency
It may be in your cards that you waive the home inspection. You should still get an inspection to identify any potential issues, but you do not have to make the sale contingent on the inspection results. However, keep in mind that contingencies protect you as a buyer, so dropping them may result in a significant out-of-pocket cost.
5. Skip Inspection
Most offer letters include a contingency that says you can cancel a sale if a home inspection reveals major problems with a property. You can make an offer stronger if you agree to skip the inspection but remember, you will also be taking a huge risk.
Unless you know that the property has been well-maintained, you might be purchasing a house that looks good but has some hidden, expensive repairs. Here are some things you should check before you skip an inspection.
- All lights and outlets in each room work
- Toilets, showers, and faucets are not leaking or giving off odors
- All home appliances are functioning
- Gutters are clean, and water is secure
- Garage door closes
- Home security arms and disarms
- No cracks or issues with the foundation
You may also ask the homeowners for repair and home improvement records and any home warranties for completed work because these documents can help you better understand the home's condition.
6. Be Flexible
Sellers might prefer offers that are flexible on a closing date. They may choose to close on a random date for many reasons. A family with children may request to move up the closing so their kid can start school or even push back so they can finish their previous school.
Whatever the reasons for this closing date are, they will be more likely to accept an offer that provides the flexibility they want, and you will have a better chance of winning.
7. Multiple Offer Strategy
When handling multiple offers, sellers are more likely to accept the most attractive offer, especially if the offer goes above the asking price and includes extra perks. Making sure you plan out your actions before offering a home will help you more in a bidding war.
Discussing your price budget, what perks you're willing to include, and which things you are willing to waive are the main things you should consider ahead of time because it will make the seller want your offer more than competing ones.
8. Add An Escalation Clause
Including an escalation clause is another helpful tactic in a competitive bidding situation. For example, if you make an offer on a $310,000 house, you can add a provision to your offer stating you are willing to pay $1,000 above any offer up to $320,000 so your bid does not go above your best offer and you do not overpay because your first offer was not super high.
This way, you are making the seller happy. Most of the time, sellers are usually pleased to get more than they list for. If the escalation clause goes into effect, the seller must provide proof of a competing offer so you know you are not overpaying.
9. How To Beat A Contingent Offer
To beat a contingent offer, have your real estate agent determine if the seller accepts the offer while the sale is pending. If the seller gets a more enticing offer, they can use a kick-out clause, which allows them to let the first potential buyer know they can either match or exceed the competing offer or agree to waive contingencies.
If there is no kick-out claim, you can ask your agent to watch the process because the buyer may back out after receiving an inspection or not having enough finances.
If a sale falls through, you can make an offer that matches or exceeds the previous offer once the seller relists the home on the market. There are many ways around this, but it is important to keep an eye out on the market and homes, even if they are pending.
10. How Bidding Wars Work
Bidding wars are fast-paced, and buyers usually increase offers instead of negotiation. Sellers have an advantage in this and usually sit back and wait for each buyer's highest and best offer. Bidding wars are often over in days.
Here are some things buyers want to consider when putting an offer together during a bidding war.
- Offer Price: It is a good idea to approach your offer with an escalation clause, which will automatically raise your offer if a competitor beats you.
- Financing: You will need to know your financing before you engage in bidding so you know how much you can offer
- Closing Cost: you will also need to prepare to pay for your and maybe your seller's closing costs at the end
- Contingencies: Dispensing with contingencies could give you an edge over other bidders and make your offer more favorable
- Home Warranty: A home warranty will likely be up to the buyer in a bidding war, especially if there are any improvements and repairs needed
Methodology
We used information from different sources and our data to create this guide about tips to win a real estate bidding war. There were various data to use, so we put them together to help you understand bidding wars and tips to win.
Above are a few sources we used to gather most of our information about tips to win a real estate bidding war.
FAQS
What is the best strategy when bidding on a house?
The main things you should consider when bidding on a house are having your preapproval ready, increasing your offer, increasing your down payment, paying in cash, and waiving contingencies. There are many other ways to make your offer more attractive to a seller.
Why do I keep getting outbid on a house?
Real estate markets are competitive and often result in bidding wars with all cash offers and offers above the asking price. If your offer is under the asking price, you may always get outbid. Make sure you consider everything before entering a bidding war to help your chances.
What is considered a strong offer on a house?
The deposit amount varies depending on the purchase price, but a strong offer is usually between 2-3% of the purchase price. A strong offer shows the seller that you are serious and motivated to buy the house.
Tips To Win a Real Estate Bidding War - The Bottom Line
With high housing demand and low supply, home sellers are earning the many benefits of a seller market. Many home sales have entered bidding wars, leading to higher sellers' prices.
Several factors will either make or break your ability to win a bidding war. It is essential to have a plan and everything laid out for what you can offer when you make a bid on a house.
When you are a buyer searching for your dream house, getting caught in a bidding war can be annoying, especially if you do not know if you have made the best offer. If you do not get the house you want, do not feel discouraged from buying. Home buying takes a lot of time, money, and effort, but it is ultimately worth it.
If you are considering moving or selling, contact us or visit our website. Our team at Raleigh Realty is here to help you with any home buying or selling needs.
