What Is a Bidding War?
Deciding to purchase a home is an exciting time. But there are a few steps between looking for the perfect location and getting your keys. First you should get pre-approved with a lender and find a local real estate agent you can trust. With the right team behind you, you’ll be ready to make an offer on a home and continue with the financing process.
Once you make an offer, you and the Seller may go back and forth negotiating different aspects of the deal. In a seller’s market, when demand is high and inventory is low, buyers often have to go above and beyond to make sure their offer stands out from other offers that the Seller may receive. This can result in what is known as a bidding war.
DefinitionA bidding war is when two or more buyers are bidding against each other to buy a home. |
How to Compete in a Bidding War
While there’s no science behind winning a bidding war, there are things you can do to increase your chances.
- Be prepared and fully pre-approved - A pre-approval will show the seller that you are ready to buy the home and silence any concerns about your offer. Find a local Loan Officer near you to get started.
- Trust your real estate agent - The most important thing you can do is work with a great real estate agent and listen to their expertise. Find a local agent that knows your market and recent trends.
- Raise your offer - A bidding war often comes down to who’s offering the most money, so this tactic is a bit of a no-brainer. But before you raise your offer, calculate how the new price may affect your monthly payment, and ask your agent if you are in danger of overpaying what the home is really worth. Your Loan Officer will be able to help you figure out what you can afford and what you can expect to be approved for.
- Understand your options around contingencies - Contingencies are certain conditions that must be met in order to close on a property. If they’re not met, the buyer is allowed to back out without losing any money. In a seller’s market, some buyers will waive contingencies to make their offer more attractive. Be cautious though. Waiving a contingency like an inspection can cause some serious financial headaches down the road if something is wrong with the home. Only explore this option after speaking to your agent.
Common Contingencies
Home Inspection Contingency
The home has to pass a professional inspection.
Mortgage Contingency
The buyer has to secure a mortgage loan.
Appraisal Contingency
The home's appraised value must be at or above the sales price.
Title Contingency
The title of the home must not be in dispute.
Home Sale Contingency
The buyer has to sell his or her home before the sale is final.
- Line up your dates - Find out what is important to the seller in terms of timeframes. Some sellers want to close quickly. Others need time to find a house themselves or pack up and move. Have your agent find out what timeframes work best for the seller and tailor your offer to their needs.
- Offer earnest money - When a seller takes their house off the market when they’ve received your offer, they’re taking a risk on you. Earnest money, usually somewhere around 1% or 2% of the purchase price, shows sellers you’re serious about buying their house. If the sale falls through for certain reasons, they could get to keep your earnest money.
- Be careful writing a personal letter - This practice is now frowned upon as it can lead to issues with fair housing standards. Instead of writing a letter, you could let the seller know how much you love the house through your agent.
- Know when to say no - A final important tactic is to know when not to enter a bidding war. Know how high is too high to go for you personally and financially and then stick to it. It is difficult to walk away from your dream home, but there are other options out there.
Wrap Up
No one wants to end up in a bidding war, but having the right real estate agent and Loan Officer on your side can help ease the stress. We want you to navigate through your homebuying journey with a team you can trust.
Getting pre-approved is a great first step. Start the process here or find a local Loan Officer near you to talk through your goals.