How To Win a House Bidding War
November 18, 2021
You’ve gone through the house hunting process, found a house that is right for you, made an offer, and now you are waiting to see if it has been accepted or not. It can be frustrating to discover that your offer has been rejected. However, rejection is a natural part of the home buying process. There will be times when other buyers make better offers in the seller’s eyes. There will also be times when you are simply outbid on the house.
In one of our recent blog posts, we discussed how you can make a good offer on a home that has a high chance of being accepted. In this blog post, we will go through what you can do to win a bidding war in a competitive housing market.
Expert Tips That Can Help You Win the Bidding War
1. Make a High Bid
In a real estate bidding war, money does talk. Although sellers traditionally don’t only choose the offer with the highest amount of money, it improves your chances of winning the war against other offers.
However, making a high bid isn’t about offering as much money as possible. You have to be mindful of your budget and make reasonable increases to your bids. This will help you win the bidding war while staying in a price range that you can afford.
It’s also important to remember that the mortgage loan will only cover the appraised value for the house. Any amount more than that will be covered out of pocket.
2. Add an Escalation Clause
An escalation clause is a section used in a real estate contract, which states that the prospective buyer is willing to raise their offer on a home in case the seller receives a higher competing offer.
An escalation clause is a great way to stay ahead of competing bids without overpaying and offering too much money upfront. Escalation clauses are generally added to the offer when prospective buyers are bidding on a house in a competitive market.
For example, if you are making an offer on a house at $200,000. You can add an escalation clause that states you will outbid any competing offers by $1000 until reaching $225,000.
It’s best to work with a real estate agent when creating the escalation clause. Agents will help you create the specific language in the contract so that sellers have to provide verification of any competing bids. That way sellers cannot just “create” competing bids to raise yours.
3. Waive Off Contingencies
Home contingencies are the specific set of conditions that a seller must meet for the sale to go through. Failing to meet any of the contingencies could mean that either party, buyer or seller, can exit the deal. There are multiple types of home contingencies involved in a usual real estate transaction – you can get to know more about them here.
Although home contingencies are designed to protect both buyers and sellers, too many of them can make an offer unappealing to sellers because contingent offers are more likely to fall through.
For instance, buyer may add an appraisal contingency to the purchase contract, which is a provision that allows potential buyers to back out of a deal if the house is appraised at a lower value. This can prove to be very inconvenient for sellers.
You can also waive certain contingencies as a way of making your offer more appealing.
4. Drop The Home Inspection Contingency
A home inspection is one of the most common contingencies in real estate contracts. Sellers usually sometimes prefer prospective buyers who are willing to waive the home inspection contingency as it reduces the back and forth during negotiations.
Waiving off your home inspection may make your offer more appealing to sellers but you’ll be risking having any potential wear and tear or hazards in the house that could become huge expenses in the future.
Here’s a quick checklist of what to look out for when performing a self-inspection of a house.
- All lights and power outlets working
- No leakage in faucets, pipes, and toilets
- Fully-functional home appliances
- No cracks in the home foundation, or visible damage on the roof and floor
- Clean gutters
Get a full list of things to look for when self-inspecting a house by reading this blog post.
5. Write A Personal Letter
In a competitive real estate market, sellers tend to get multiple offers on a home and buyers have to think of ways to make their offer stand out among the rest. One way to stand out is by including a personal letter that adds an emotional touch to your offer. After all, sellers want to pass their property down to people they feel a connection to.
Here are some tips that can help you draft an emotional personal letter to accompany your offer:
- Make it personal by adding details of who you are as a person and also introduce your family.
- Talk about the specific features that you love in the property, and how you envision it as the perfect home for your family.
- Share details of your life if you are making an offer below the asking price. E.g. medical bills, the stress of childcare, or any other circumstances that might be affecting your financial health.
Writing a personal letter will not cost you even a dime, and it can be the make or break factor in getting a seller to choose your offer over others.
6. Be Prepared For an All-Cash Offer
A cash offer speaks volumes over mortgage loans. Making an all-cash deal will make the home seller differentiate your offer from the rest. Offering to pay cash is attractive to sellers because it minimize the financial risk for the seller, it saves them time, and simplifies the financing for the house by eliminating third-party mortgage loans.
In multiple offer situations, offering an all-cash deal can be your best resort to win the bidding war.
Knowing When To Walk Out Of The Deal Is The Key
It’s frustrating to be so close to buying a house only to lose it in a bidding war. Some people get carried away in this process and they end up bidding a lot more than they budgeted for. It’s okay to participate in a bidding war but you have to know when to walk out of the deal. Here are 3 signs that it’s time to walk away…
1. You are already at the top of your budget
As already highlighted at the beginning of this post, you should stay within your budget in a bidding war. Winning is not worth putting you and your family in a financial hole.
2. The house has some structural problems
Buying a house that has a need for immediate repairs after you move in not the smartest move. Repairs and maintenance fees can add up to a hefty amount. Instead of dealing with these extra fees, it’s smarter to pull out of the deal entirely and continue your house search for better options.
3. There are other good houses available in the neighborhood
The last thing any home buyer wants is to find a similar house to the one you bought at a lower purchase price. Explore all of your options. You never know what houses could be available in the same neighborhood and the perks that might come with them.
Looking for a real estate agent? Then you’re in luck because Negotiator Recognized Partners consist of some of the best real estate agents in the country. As a real estate expert, an NRP will put extensive effort into making sure you find the right house at the right price. Learn more about Negotiators here.