You don't need someone else to do your bidding to win a bidding war
In a competitive real estate market, it's possible, and even likely, that you'll get into a bidding war with other motivated buyers over the same for-sale home. So how do you ensure you don't lose your dream house to another buyer? Here are ten ways to increase your chances of winning a real estate bidding war.
When starting the home buying process, the first step you should take is getting a preapproval letter from your loan lender. Take your financial paperwork to your loan lender—credit score, paystubs, W-2s, taxes, and so on—and the lender will calculate how much they're willing to lend you.
A preapproval letter has two profound benefits: one, it lets the seller know you're serious because you've already gone through the rigorous financing process; and two, it shows that you won't have trouble getting financing for their property, which is how a lot of deals go south once a buyer makes an offer.
An experienced local real estate agent will know the neighborhoods you're thinking about buying in, and they'll have knowledge about the average home value. Experienced agents know the market inside and out, so they know what homes in the area are selling for. A seasoned agent can keep you on track during a bidding war and ensure that you protect yourself in real estate and don't overpay.
If you submit a strong initial bid and put a time limit on the offer, you may be able to bypass a bidding war. You should discuss how to apply this tactic with your real estate agent, but if you're willing to make a very competitive offer, a limited time window could prevent the seller from fielding other offers.
If you have the flexibility, there are a few ways to leverage your finances to win a bidding war.
If another buyer makes a higher offer than yours, consider upping it. While sellers don't always take the highest bid, increasing an offer can show you're serious about the house and make you the most financially attractive option. However, it’s essential to go into the bidding process knowing your exact price ceiling. Bidding wars can be stressful and fast-paced, so you don't want to get swept up in the moment and offer more than you intended.
When you're in a bidding war, increasing your down payment amount can push your offer over the edge. You'll need less money from the bank on a mortgage, which can make the difference if the house sells for more than the appraised amount. Don't only tell the sellers you'll increase your down payment—bring documentation to prove that you have the means to do so.
Earnest money works like a security deposit on the house you're buying. Usually, you put down between 1% to 5% of the home price in earnest money, the seller takes the house off the market, you move onto the home appraisals and inspections, and the earnest money goes toward the price of the home. However, you could offer additional earnest money to make your offer more attractive. Ensure you have appropriate contingencies in your contract so that if something goes wrong, you can get the money back.
Closing costs can add up quickly, and offering to pay seller closing costs could give you a leg up during a bidding war. Since closing costs are taken out of the sale proceeds for a house, the seller gets to pocket more profit if you pay them.
Usually, sellers request that buyers put in their best and highest offer on hot properties upfront. But how do you know what other buyers are going to offer? You don't.
An escalation clause allows you to put in a starting bid, and if other buyers offer more, your bid increases or escalates. Say you put in a bid of $200,000, but you're willing to go as high as $250,000. If you don't want to start at $250,000, you could offer $200,000 but include an escalation clause saying you're willing to go as high as $250,000 if other offers are higher.
Realistically, an all-cash offer is not in the cards for most home buyers. However, if you have the flexibility, bidding with cash could give you an edge over other buyers who are financing with mortgages. Lenders require inspections and contingencies before they approve funding, but the seller doesn't have to worry about jumping through those hoops with an all-cash offer.
Eliminating contingencies from an offer could help you move to the top of the list because it eliminates steps for the seller. However, waiving contingencies is very risky because these legal clauses protect the potential buyer in case there’s hidden issues within the home. If you skip the home inspection contingency, you could end up with a home with more problems than you anticipated.
When the real estate market is hot, some properties list for more than their appraised value. However, lenders don't like to offer mortgages for more than a home's appraised value. The deal will fall through if a buyer makes an offer higher than the appraised value but doesn't have the cash to close the gap between the appraisal and the offer. Offering an appraisal gap means you guarantee a certain amount of cash to the seller to bridge the gap between the appraised amount and the purchase price.
Sometimes sellers have an ideal date on which they'd like to finish their transaction, especially if the seller is moving into a new home and selling their current home. If you can work with their timeline, you may have an advantage in the bidding process.
Real estate transactions can be complicated, and if your seller has questions, they must be able to reach you promptly. Provide them with yours and your agent’s contact information, and respond to any inquiries quickly. You'll stay in the seller's line of sight, and they'll know they can trust you not to ghost them.
Transactions fall through in real estate all the time. If you're interested in a home but lose the bidding war, let the seller know that you're still interested if the deal doesn't work out. The seller will know that you're serious about the home, giving them a potential backup plan if their buyer doesn't get approved for financing, backs out, or something else comes up.
