Are you thinking about buying a home? Have you been scouring the internet looking for that perfect home at a great price? Yep! You’re excited—we get it.
Before you go any further, it would be in your best interest to develop a home buying strategy first. A home buying strategy that will help you win that perfect home at a great price if it comes to a bidding war with multiple offers.
How you ask?
We are going to give you several exceptional tips for how to win a bidding war when buying a home.
Let’s get started!
1. The Highest Price Doesn’t Always Win
Yes, the whole concept of a bidding war is to drive up the price. However, most people have, to some extent, an emotional attachment to their home. They might have lived in that home for years, raised a family, and have many fond memories of living in that home. So, when it comes to deciding on the winning bid when there are multiple offers, ultimately it might not come down to the highest price bidder. Many times, it will also depend on which person that seller thinks will love that home as much as they do.
Of course, there are other factors that will also play into a seller’s final decision on which bid to choose when there are multiple offers.
Let’s talk about those other factors.
2. Present an All-Cash Offer
Yes, cash is definitely KING when it comes to buying a home. Ask any real estate agent and they will tell you that they have lost more home offers when their offers are competing with an all-cash offer. This isn’t always the case, but nine times out of ten, a seller will choose the all-cash offer over all others even if it is for less money.
This is because an all-cash offer is almost a done deal pending the home inspection, etc. The seller doesn’t have to wait to see if their buyer will be approved for a mortgage, come up with the down payment, and to see if the house will appraise, etc. because those things don’t matter in an all-cash offer deal.
3. Submit a Pre-Approval Letter with the Contract
A pre-approval letter, not a pre-qualification letter, but a pre-approval letter will show the seller you are financially able to buy their home. If other buyers haven’t started the approval process yet, you will have a better chance of getting that home. This is because those other buyers might not be able to qualify and could ultimately be declined for a mortgage causing the seller to have to start the process all over again. So, having a pre-approval letter is a must regardless of whether there is a bidding war occurring or not.
4. Don’t Discuss Changes to the Home
The last thing a seller wants to hear is that you don’t like that upgrade or other cosmetic change or amenity they painstakingly installed and loved. If they hear the first thing you are going to do is change it, they might be less inclined to accept your offer.
Yes, this seems a bit strange because why should they care if that house isn’t theirs anymore? Just remember, many people have an emotional attachment to their home, and like it or not—when you say negative things about their home, it could very well cost you winning the bid.
So, the bottom-line is…don’t say anything except how much you love that home. Keep all your negative thoughts and comments to yourself until later. In fact, it would be a good idea to over-emphasize just how much you love the home and not mention any of the negatives. Doing so might be just the thing that sways the seller’s decision in your favor regardless of the price.
5. Present an Offer Without Contingencies
A contract that is submitted with contingencies creates obstacles for the seller whether that be time, money, or just an emotional obstacle. So, in essence, you are giving that seller a reason to choose another offer over yours. A seller is more likely to choose an offer without contingencies that are going to cost them time, money, and give them an inkling that you don’t love that home as much as they do. The seller already has enough on their plate without adding more to it. An offer without contingencies is extremely attractive to most buyers because they can move forward without any delay.
6. Up the Ante
If you are in a bidding war and have the financial ability to offer more for that home, then it doesn’t hurt to do so. Just remember, if you are financing that home, it will have to appraise for the amount you agreed to pay for it. If it doesn’t appraise for that amount, you will either have to put more money down or the seller will have to lower the price of the home in which case, he or she might not be willing to do. This could cause you to lose that home to someone else who has enough cash on hand to make up the difference between what the house will appraise for and how much the buyer is paying for that house.
7. Include an Escalation Clause in Your Offer
A great way to win a bidding war when there are multiple offers is to include an escalation clause in your offer.
What is an escalation clause you ask?
An escalation clause lets the seller know that you are willing to pay an escalating amount for their home if they receive another offer that is higher than yours. This escalating amount will go up to whatever pre-determined amount you included in that clause.
If you submitted an offer for $300,000 for the home and the seller receives another bid that is higher than that, the escalation clause you submitted with your contract states that you are willing to increase the amount of your offer in increments of $5,000 (or whatever amount you specified) above the competing offer until it reaches the maximum amount you agreed to pay.
Sellers usually prefer this method because it motivates buyers to outbid each other in a bidding war. However, with that being said, a buyer should only consider agreeing to an escalation clause when they are fairly confident there will be multiple offers presented.
So, what if there are no other offers, and you submitted your offer with an escalation clause? If there are no other offers, the contract remains at its original price and the seller can choose to accept it or reject it at that time.
There are a few drawbacks when using an escalation clause though. The real estate agent representing the seller will know you are willing to pay more; therefore, could encourage the seller to make a counteroffer. Additionally, when including an escalation clause, you also give up most of your negotiating power.
However, you, as the buyer, don’t have to accept the higher counteroffer. How the seller responds could give you some idea about where they stand. Does the seller anticipate multiple offers, or does it seem as if the seller might be willing to go ahead and accept your initial offer so they don’t lose you as a potential buyer?
Another thing to consider with an escalation clause is how the seller will be accepting other offers. Find out of the seller will be accepting offers for a one-day review or a longer period that will include multiple rounds of offers. This will help you determine how high you are willing to go. Should you give your highest and best offer now or wait for the back-and-forth negotiations to take place since the seller stated there could be multiple rounds of offers over a set period such as one week, etc.
It’s common at this stage for the seller’s agent (with the seller’s permission) to tell all potential buyers what the top original bid was so they can beat it.
8. Choose an Experienced Real Estate Agent
An experienced real estate agent will have the know-how and negotiating experience to navigate a hot bidding war. Additionally, an experienced real estate agent will know how to use their best judgment based on their knowledge, previous sales, bidding wars, and the current competition to help you with every angle needed for a winning bid versus an agent that doesn’t have enough experience to effectively help you win.
9. Offer a Flexible Closing Date
This one is huge. Offer a flexible closing date. If the seller needs extra time for whatever reason before moving, they might need a flexible closing date. Therefore, if you offer them that they might award you the bid because you were the only one willing to wait and give them the time they need to move.
10. Make a Larger Down Payment
If you can, come up with a larger down payment. Doing so will show the seller you are serious about buying their home. It will also give the seller the peace of mind knowing that your mortgage is more likely to be approved without a hitch because you have more money invested in that home This makes you less of a risk to the mortgage company.
11. Skip the Home Inspection
Now, please note that we don’t recommend this option. However, if you really want the home and you have enough money in savings to fix anything that might go wrong, you could let the seller know that you are willing to skip the home inspection. This will definitely give you an edge over other bids especially if the home needs work. You can still have a home inspection performed so you know what to expect, but you won’t be able to cancel the contract based on its findings.
You should also ask the homeowner for the home’s repair and maintenance records. This will give you a general idea about whether or not that home has been properly maintained and cared for.
How to Know When You Should Avoid a Bidding War?
There are certain circumstances when you should not engage in a bidding war regardless of how bad you want that home. Remember, there will always be another home out there if you lose this one—always! You never know, the next home might be even better!
Here are a few circumstances when you should avoid a bidding war.
- If the home is already at the top of your budget.
- If the home needs extensive or major repairs.
- When there are plenty of other available homes in your desired area.
- If the home already has multiple cash offers or other offers that are significantly above the asking price.
Your real estate agent will be able to help you navigate the waters while making recommendations about whether you should participate in the bidding war or move on to another suitable home that doesn’t have all that competition.
If you need an experienced REALTOR® to help you find your next home and win a bidding war if it comes to that, then please Contact Lakeland Real Estate Group today. We have been helping buyers find their dream homes and skillfully negotiating the best possible price for our clients for more than 20 years. And we would love to do the same for you!
Don’t forget to get your free Buyers Guide here.
Other Valuable Resources to Consider
Every transaction is different as Sharon Paxson goes into details in her article “4 Distressing Mistakes Buyers Make in Multiple Offer Situation.“
Bill Gassett’s guide should give you the information you need to navigate contingencies in real estate deals successfully.
Contracts to purchase a home contain many different terms and requirements that are binding to both the buyer and the seller as Paul Sian explains in his article, “Anatomy Of A Real Estate Offer“.
About the author: The above real estate article “11 Tips on How to Win a Bidding War When Buying a Home” was written by Petra Norris of Lakeland Real Estate Group, Inc. With over 20 years of combined experience of selling or buying, we would love to share our knowledge and expertise. Petra can be reached via email at email@example.com or by phone at 863-712-4207