When a buyer should walk away from a bidding war
In a competitive real estate market with limited inventory, bidding wars between buyers may be inevitable. If you’re a buyer frustrated by the lack of homes on the market or feel pressured to make an offer, you may find yourself involved in a bidding war. While sometimes a bidding war is unavoidable, it’s also critical to know when it’s time to walk away. Read on for signs it's time to walk away from a bidding war.
You’re bidding on an overpriced home
In markets with low inventory, homes on the market may be overpriced. If you make an offer that results in a bidding war, it may be in your best interest to walk away from this home. Your real estate agent can review the local comparable houses or comps with you to offer guidance on a fair market value for this property. If the asking price is overpriced and the bidding war increases the cost, the home may not appraise for the purchase price, impacting the mortgage. Additionally, overpaying for a house means you may never recoup this overage when it's time to sell.
You aren’t in love with the home
If you’re under pressure to buy a home based on the timing of selling your previous home, moving, or any other high-pressure circumstances, you may panic buy and make an offer on a home you don’t love. However, if you make an offer on a home that doesn’t meet your must-have home requirements and results in a bidding war, it’s a good sign to walk away and wait until you can find a home that meets all your needs.
It’s a multiple-buyer bidding war
A bidding war is a highly stressful situation if you’re bidding against another buyer. However, if multiple buyers bid on one home, this may be your sign to walk away. More buyers involved in the bidding war means the price will go even higher, which could result in the price going over your budget range, the home not appraising, and the house eventually selling high over its value, which means the buyer could take a significant loss when it's time to sell.
Factors to consider when you’re in a bidding war
If you find yourself in a bidding war, there are several factors to consider that will help you guide you as you make your decision to either engage or walk away.
Gauge how comfortable you are going over your budget
Knowing what you can comfortably afford should guide your decision. You may consider offering more if you can afford to make a higher bid. However, if you’re stretching yourself too much, walking away is smart.
Familiarize yourself with the comparable
If the home is well beyond market value and a bidding war drives the price well beyond the comparable houses or comps, this is a risky financial choice, as you may take a significant financial loss when it's time to sell.
Consider the intangible benefits
If the house you’re bidding on has intangible benefits, such as your ideal school district, a rare amount of land, being close to family or friends, or a neighborhood you unquestionably want to live in, overpaying for the house may be worth it to you.