Bidding War on House

What is a Bidding War?

Bidding wars are real estate terms for situations in which two or more buyers drive up the price of a home. They are common in competitive housing markets involving low inventory and high buyer demand, but they may also occur in a desirable real estate market with a significant influx of buyers.

Causes of Bidding Wars

Bidding wars most commonly occur in competitive housing markets, which means limited inventory and many buyers. Also referred to as a seller’s market, buyers compete against each other for their chance to purchase a home. Low supply encourages other buyers to submit offers for the same property, increasing the bid.

These may happen for various reasons, but they are extremely common among people who want to move quickly. For example, a parent may want to get settled in before the school year starts. They may also happen because a person just sold their house and needs to move. 

How Bidding Wars Work

This works similarly to a real estate negotiation, only with multiple buyers. Rather than the seller and buyer negotiating, the potential buyers submit updated offers, aiming to be the highest-priced option. 

Here are a few key components of a real estate bidding war.

The Offer Process

Bidding wars start like any traditional real estate transaction, in that individuals submit a purchase agreement to the seller. To learn more about the timeframe involved in such negotiations, check out how long does a seller have to respond to an offer. 

If the interested party knows there will be multiple offers, they might submit an offer with an escalation clause, which allows them to increase their price if the seller receives a higher-price offer.

Factors Sellers Consider

When comparing multiple offers, homeowners may consider more than the offer price. The closing date may factor into their decision, especially if they aim to sell quickly. Certain contingencies can also further impact a deal. Sellers are less likely to accept multiple contingencies when they have a competing offer without them.

Buyer qualifications can determine how easily and quickly the home sells. A seller presented with multiple offers will usually choose the person with the best chance of closing the deal. For example, for a person with FHA funding, the sale will be contingent upon appraisal and inspection requirements. 

A conventional loan, however, has less strict financing rules. Cash buyers waive all requirements, giving them an advantage.

Winning the Bidding War

Here are a few strategies to help win a real estate bidding war:

• Offer More Money: Offering a higher price than the list price is the easiest way to win a bidding war. An escalation clause allows buyers to increase their offer to a certain amount, only paying the increased price if the seller receives multiple bids.
• Waive Contingencies: Waiving contingencies can also help your offer stand out against your competition.
• Submit a Larger Earnest Money Deposit: Submitting a larger earnest money deposit shows the seller you are serious about purchasing. Work with your realtor to determine an appropriate amount.
• Share Your Emotional Connection: Break through the competition by sharing your connection with the property. Write a letter to the seller or approach them at the open house, telling them what the property means to you and your family. Some sellers may be willing to accept one offer over another if the house means more to someone.

Advantages and Disadvantages for Buyers

A bidding war has advantages and disadvantages, which are important to know about.

Advantages

A bidding war allows buyers the opportunity to secure a desirable property in an otherwise competitive housing market. It informs other buyers of the current offer price, allowing each to beat it. A potential buyer in a bidding war for a certain home purchase also shows a strong commitment to the sellers.

Disadvantages

A bidding war, however, can lead to buyers overpaying for a property. Winning a bidding way may also require waiving contingencies, leading to a more stressful and less favorable sale.

Navigating a Bidding War

Buyers should create a plan before entering into a competitive bidding market. Navigating a bidding war is possible with the following tips.

Set a Budget and Stick to It

You can avoid an overly competitive bidding situation by setting a budget and sticking to it. Buyers should determine the highest bid they will pay before entering a bidding war. 

It’s also important to understand mortgage requirements before submitting a bid that you may not be able to afford. Lenders will typically only finance up to a specific percentage of the home’s final price, meaning the buyer would have to pay the difference out of pocket.

Buyers should also consider the contingencies they’re willing to waive ahead of time. Some contingencies, such as an appraisal or home inspection, may be required when obtaining a mortgage to pay for the property.

Work with an Experienced Real Estate Agent

Working with an experienced real estate agent is extremely important when shopping for a house in a competitive market. Check out if you need a realtor to sell a house for insights on the value a professional can bring. 

Your agent’s knowledge helps you submit a competitive offer while understanding how many offers the seller has received. Your agent will help you create a strategy that may determine whether or not you win the bidding war.

Make a Strong Offer

Make your offer stand out by starting the bidding war with a strong offer. A competitive offer above the asking price, accompanied by a personal letter and proof of financing, can help avoid a bidding war. Submit your earnest money payment promptly to show the listing agent and seller you’re a serious buyer.

Be Prepared to Walk Away

Know when to walk away from a bidding war. In extremely competitive markets, a bidding war may drive up the purchase price of a home way beyond the initial selling price. Too many buyers with escalation clauses in their offers can make the house sell far above its value. 

Buyers who continue to bid on the house outside their financial comfort levels may end up with a home or mortgage outside their budgets.

Sell to a Cash Home Buyer to Avoid Bidding Wars

Homeowners selling a property in a highly competitive market with limited housing stock may attract multiple bids, leading to a bidding war. However, mortgage requirements can slow the closing process and lead to numerous sales falling through. 

Selling to a cash buyer may be a great idea if you aim to sell quickly with few contingencies and on your own schedule. Cash buyers allow sellers to set their own terms and closing dates.

Call A-List Properties today at (972) 526-7042 to sell your home to a cash buyer. Use our online form to receive a fast cash offer.