Tips for Winning a Bidding War on a House You Really Want
Ever found that perfect house only to get out-bid on your offer? In seller’s markets, when demand is high and inventory is low, buyers often have to go above and beyond to make sure their offer stands out from the competition. Sometimes, multiple buyers vying for the same property can end up in a bidding war, both parties trying to sweeten the deal just enough to edge out the other. And while there’s no science behind winning a bidding war on a house, there are things that you can do to up your chances. Here are eight of them.
Up your offer
Money talks. Your best bet if you’re set on a winning a bidding war on a house is, you guessed it, offering more money than the other person. Depending on the home’s price, location, and how high the demand is, upping your offer doesn’t have to mean ponying up to pay another ten thousand dollars or more. Sometimes, even going up just a few thousand dollars can make the difference between getting a property and losing out on it.
One important thing to keep in mind when upping your offer, however: just because you’re ready to pay more for a house doesn’t mean the bank is. When it comes to your mortgage, you’re still only going to be able to get a loan for up to what the house appraises for. So if your higher offer gets accepted, that extra money might be coming out of your own pocket.
Be ready to show your pre-approval
Sellers are looking for strong buyers who are going to see a contract through to the end. To let them know how serious you are, it helps to have a pre-approval from your lender clearly stating that you’ll be able to borrow enough money to purchase the house. Make sure that the pre-approval document you show is specific to the property in question (your lender will be able to draft a letter for you; you’ll just have to give them a heads up). If your goal is winning a bidding war on a house where there is just you and another potential buyer and you can easily present your pre-approval, the seller is going to be more inclined to go with the sure thing.
Increase the amount you’re willing to put down
If you’re up against another buyer or buyers, it can be incredibly helpful to increase your down payment commitment. A higher down payment means less money will be required from the bank, which is ideal if a bidding war is pushing the price above and beyond what it might appraise for.
In addition to a verbal promise to increase your down payment, back up your claim with financial proof. Presenting documents such as pay stubs, tax forms, and your 401(k) balance shows that not only are you prepared to put more down, but you also have the funds to do it.
Waive your contingencies
Contingencies are certain things that must be met in order to close a deal on a property. If they’re not met, the buyer is allowed to back out without losing any money. By waiving your contingencies—for example, your financial contingency (an agreement that the buyer will only buy the property if they get a large enough loan from the bank) or your inspection contingency (an agreement that the buyer will only buy the property if there aren’t any dealbreaker issues found during the home inspection)—you show just how badly you want to move forward with the deal. It is still possible to back out after waiving your contingencies, but you’ll lose your earnest money.
There is a risk in waiving contingencies though, as you might imagine. Your contingencies give you the wiggle room you need as a buyer to renegotiate terms and price. So if you waive your inspection contingency and then find out during inspection that the home has serious foundational issues, you’re either going to have to sacrifice your earnest money or pay for expensive repairs once the title has been transferred. However, waiving one or more contingencies in a bidding war could be the extra push you need to get the house. You just have to make sure the risk is worth it.
Pay in cash
This obviously isn’t going to apply to everyone, but if you have the cash to cover the purchase price, offer to pay it all up front instead of getting financing. Not only are you eliminating the need for a third party to get involved in the deal, you’re also showing the seller that you mean business. There’s a risk any time a lender has to get involved—when you eliminate their presence, you eliminate the risk. Again though, very few standard buyers are going to have the necessary funds to buy a house outright. If this option doesn’t apply to you, skip it.
Include an escalation clause
An escalation clause can be an excellent asset when trying to win a bidding war. Simply put, the escalation clause is an addendum to your offer that states you’re willing to go up by X amount if another buyer matches your offer. More specifically, it dictates that you will raise your offer by a specific increment whenever another bid is made, up to a set limit.
There’s an argument to be made that escalation clauses show your hand in a way that you might not want to do as a buyer, informing the seller of just how interested you are in the property. However, if winning a bidding war on a house is the end result you’re looking for, there’s nothing wrong with putting it all on the table and letting a seller know how serious you are. Work with your realtor to come up with an escalation clause that fits with both your strategy and your budget.
Have your inspector on speed dial
For both the buyer and the seller, a home inspection is a hurdle that has to be jumped before a deal can close, and there’s a lot riding on it. If you want to edge out another buyer, offer to do your inspection right away. This way, the seller doesn’t have to worry that by accepting an offer and taking their property off the market they’re wasting time that could be spent getting something better. You can do this in conjunction with waiving your inspection contingency if you’re really confident you want the house no matter what, or you could agree to a shortened contingency period. The goal here is to speed up the process as much as you can, in turn providing a benefit to both yourself and the seller.
Get personal
While money is pretty much always going to be the final deciding factor in a real estate decision, it never hurts to humanize your offer with a personal appeal. If you love a property, let the seller know in a letter. Be open and honest regarding why you feel so strongly about their home and why you think you’re the right buyer for it, and don’t be afraid to get a little emotional. This tactic isn’t going to work on all sellers (and almost certainly not on investors), but on a seller who themselves feels a strong connection to the property, it may make a positive impact.
Winning a bidding war on a house takes a bit of strategy and a bit of luck. Your realtor will be able to help guide you through each step of the process so that you know you’re making the right decisions at the right times. Be confident, be calm, and trust that if it’s meant to happen, it will.
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