How to Win a Bidding War When Buying a House

In a seller’s market, many buyers are competing for a limited number of homes. This creates fierce competition amongst buyers and ideal selling conditions for sellers. Sellers will commonly receive multiple offers for their home, often over their original asking price. As the offers stack up, bidding wars will ensue, since only one buyer can ultimately win.

So, how can a buyer rise to the top in these highly competitive situations? First and foremost, it’s important to work closely with your agent to discuss your strategy when buying in a seller’s market. If you find yourself in a bidding war, the following methods may help you secure the home you’re after.

Get Pre-Approved for a Loan

Not only is getting pre-approved for a mortgage an important step early on in the buying process, but it’s also a prerequisite for having your offer considered in a bidding war. Without pre-approval, your offer is likely to fall to the bottom of the stack of offers the seller is considering if not tossed aside entirely. Pre-approval gives you credibility as a buyer. It shows that, should your offer be accepted, you have the necessary financing in place to successfully purchase the home. This assurance is key to sellers prioritizing your offer. Pre-approval also helps to speed up the closing process, allowing you to move swiftly through mortgage approval and onto other steps to finalize the transaction, such as the home appraisal and home inspection.

Put More Money Down or Pay Cash

Putting more money down on your offer is one way to differentiate yourself during a bidding war. This may be just what sellers are looking for to put one offer over the top of the others. If you’re able to make an all-cash offer—meaning you have the funds available to purchase the house in a liquid account—you stand to seriously strengthen your candidacy. Because an all-cash buyer can make the purchase without having to go through the process of securing a home loan, it streamlines the buying process, reduces risk, and may persuade the seller to select their offer.

Be Flexible About the Inspection and Your Contingencies

In highly competitive markets, buyers are more likely to waive contingencies to sweeten their offer. So, if you find yourself in a bidding war, you may have to consider doing so to keep up with your competition. If you’re buying and selling a home at the same time, know that making an offer contingent upon the sale of your current home—what is known as a “sale contingency”—won’t be as appealing to sellers during a bidding war, since other buyers will likely be waiving contingencies left and right.

When it comes to the inspection, being lenient can give you a leg up on your fellow bidding war buyers, but it can open you up to added risk as well. Waiving the inspection requirement entirely is an even riskier proposition, as you could end up purchasing a home that needs serious repairs that may not be evident at first glance. When forming your offer strategy with your agent, take time to discuss how you’re willing to modify your inspection requirements.

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Escalation Clause

Imagine an auction where multiple buyers are going back and forth, upping each other’s offers. The auctioneer accepts each new price, only for it to be surpassed by the next offer that comes flying in seconds later. This is the essence of an escalation clause in real estate. This clause states that if the seller gets a higher offer, the buyer will raise theirs. The specifics of this clause will spell out how much the buyer is willing to go over the higher bid, as well as their price limit. Including an escalation clause in your offer shows you’re willing to participate in the bidding war, so it’s important to understand what you’re signing up for beforehand. In highly competitive markets, escalation clauses can lead to homes selling for significantly higher than their listing price.

Closing Date Flexibility

Showing that you’re flexible when it comes to the closing date may help put your offer over the top. Remember that the best offer for a seller isn’t just about the price; it’s about which offer removes risk and aligns with their goals. For example, let’s say the seller is in a pinch trying to find a new home. If another buyer’s offer comes in higher than yours, but they are rigid when it comes to the closing date and you’re willing to give the seller more time to find their new home, the seller very well may choose your offer, simply because it works better for them.

Appraisal Gap Guarantee

Sometimes there can be a gap between a home’s appraised value and its purchase price. Many real estate contracts will contain an appraisal contingency, which states that the buyer can back out of the contract. In these situations, an appraisal gap guarantee may be helpful in making your offer stand out. Including an appraisal gap guarantee means that, if there is a gap between the appraised value and the price of the home, the buyer will cover the difference.

For more information on understanding competitive markets and what they mean for both buyers and sellers, read our blog on seller’s markets:

What is a Seller’s Market?

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