Mortgage Daily

Published On: January 19, 2021

When supply is low and demand is high, it’s important to arm yourself with an awareness and expectation that the house of your dreams may enter into a bidding war.

Competing for a house, with multiple offers pushing the price higher, may seem like a less than an ideal situation. Unfortunately, in a booming real estate market such scenarios happen more often than not.

Responding with a counteroffer of more money might seem like the best strategy to beat out the competition, there are other ways to increase your chances of ending up on the winning side.

Here are some tips and strategies to consider when venturing into a bidding war.

How does a bidding war work in real estate?

A bidding war arises when there are multiple offers competing for a single property.

The seller can wait to see if buyers are willing to raise their offers beyond the listing price or grant other concessions, in hopes of winning the home.

They are more likely to occur in a seller’s market when inventory does not meet the level of buyer interest.

It’s a difficult spot for a homebuyer to be in, but there are several negotiating tactics to help navigate a bidding war within a seller’s market.

How to win a real estate bidding war?

When it comes to winning a bidding war and real estate negotiations more generally, knowledge, preparedness, and restraint are all key.

If a buyer finally finds their dream home, after weeks, months, or possibly years of searching, the thought of someone else ultimately getting it can be extremely frightening.

This fear can cause a buyer to enter into negotiations leading with their heart, instead of their head. Commonly, this hypothetical ends with a purchase price significantly over asking, and potentially over what the property is actually worth.

On the contrary, there are several savvy tactics that will make an offer more competitive, without exceeding the set budget on the final purchase price.

Here are a few ways to win a bidding war:

Make an All-Cash Offer

In a cutthroat real estate market, cash is king.

If you have enough capital to opt out of financing, you can make your offer more appealing by altering the terms and presenting an all-cash bid. This is one of the most effective ways to win a bidding war.

The funding behind your offer is not subject to an appraisal or loan approval. Lenders are extremely cautious when approving a loan type as big as a mortgage. They will not give money to a buyer who is not fiscally ready or responsible.

Additionally, if an appraisal comes back lower than the offer amount, the chance of a lender giving the green light is highly unlikely. This lack of financing is a common reason residential property deals fall through.

An all-cash offer avoids these risks and gives the seller assurance that the deal is likely to close hassle-free. Plus, the turnaround time for closing is much shorter compared to a buyer who is trying to secure proper financing on a mortgage.

It’s a win, win in the eyes of a seller.

Adaptability

All sellers have a story and motive for moving. Presenting your offer with the courtesy to accommodate their needs will go a long way.

They may prefer additional time to move out, or conversely, they may want to close by a specific date. If you’re willing and able to adapt to their desired timeline, it may push your offer to the top of the list.

The seller will be tempted by the patience and convenience of the bid, even if there is a higher dollar amount on the table. That offer could be subject to a strict closing date, causing the sellers to feel pressured.

The ability to work around the seller’s schedule will be a huge bonus, helping your offer standout among the rest.

Limit Contingencies

In a multi-bid scenario, the seller has the leverage. They want a clean, stress-free deal.

You should avoid making too many demands. In fact, you can waive certain contingencies to make your offer more competitive.

For example, most transactions are contingent on an approved mortgage loan, a solid home inspection report, etc. You can offer to forgo these contingencies.

While this strategy is riskier for a buyer, it will make the offer much safer and more appealing to a seller. When you waive those standard conditions, you are telling the seller that you intend to close no matter what.

However, you are giving yourself no outs or opportunities to renegotiate, so it’s important to consider the peril and subsequent consequences when going down this path.

This is not a recommended strategy for older homes. There are likely several hidden problems that will show up on the inspection. They may be quite costly, decreasing the home’s overall value and soundness of the initial listing price.

Increase Your Earnest Money Deposit

An earnest money deposit shows the seller that you’re a serious buyer.

Offering to increase your earnest money deposit once the purchase agreement has been signed will make your offer more attractive.

Keep in mind – this will not increase the down payment amount or overall purchase price. You are simply offering more money to be held in escrow, showing the seller that you fully intend to purchase the home.

Get an Expert Real Estate Agent

An experienced real estate agent will have unparalleled knowledge and skills when it comes to winning a bidding war.

Buyers can get wrapped up in the back-and-forth and make risky financial decisions to win the house of their dreams.

A seasoned agent will provide an expert’s perspective based on the fair market value of the home, cool-headed advice, and the best negotiation strategies for the current environment.

This will ensure all future decisions, in regard to increasing the purchase price, waiving contingencies, etc., are all made in your best interest.

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