You found what seems to be the perfect home and you’re ready to make an offer, but you also know there are other interested parties. Competing offers are one of the biggest things that can get in the way of you and your new home. If you’re looking to make your offer stand out during a bidding war, keep reading.
What is a bidding war?
Bidding wars are common in a seller’s market when there are more buyers than homes available. A bidding war is when multiple people make an offer on the same home and go back and forth adjusting their offers to make them more appealing to the seller. If a seller has received several offers, instead of negotiating with each buyer separately, they may request a “best and final offer” from all parties. That means each bidder submits their final and ideally most competitive bid. Typically speaking, the highest bid wins. However, there are other potential ways to make your offer competitive if you find yourself in the middle of a bidding war.
How to handle a bidding war
There are a few ways to appeal to the seller when you’re stuck in a bidding war over a home:
1. Be ready to increase your offer
Increasing your offer may be an effective way to win a bidding war, as sellers are typically looking to receive the highest price possible. But no home is worth a price you can’t afford. It’s best to be cautious when you’re upping an offer, and make sure it’s a number you’re comfortable with that doesn’t potentially jeopardize your financial health or your mortgage approval. For example, if you offer more than the home is worth, a lender may perceive this as risky and potentially amend your mortgage preapproval
2. Consider paying cash
An all-cash offer is often more desirable because the seller doesn’t have to worry about a buyer’s financing falling through and possibly having to start the selling process over again. Cash offers are a way for both the buyer and seller to get in and out of the deal faster than they might if financing is involved.
A possible downside to a cash offer, however, is that you miss out on financing options that allow you to spread the cost of the property over time. It also ties down otherwise liquid cash into the home, making it more difficult to mobilize those funds for other purposes or financial goals.
3. Write a letter
Writing a personal letter to the seller and attaching it to your offer adds a unique and personal touch — especially if you can’t afford to increase your offer. Some buyers mention why they’re not able to increase their offer but why they’d still be a good candidate for the home. Bear in mind, however, that there are varying schools of thought about attaching a letter to your offer. Consider speaking to a real estate professional for guidance prior to taking this step.
4. Have your documents in order
Having your documents in order, particularly a mortgage preapproval letter, is helpful during a bidding war. A mortgage preapproval is a lender’s detailed summary of a borrower’s mortgage, based off a hard credit inquiry and official financial documents (like W2 forms and employment verification). A preapproval letter helps show the seller that your offer is serious and that your lender is prepared to give you the mortgage listed.
5. Limit your contingencies
Contingencies are contractual requirements that must be met for a deal — in this case, a home sale — to go through. For example, many borrowers have a home inspection contingency stating that if the home inspection reveals findings contrary to the contingency’s provisions, then the buyer may have grounds to back out of the purchase. While it may not be in the buyer’s best interest to continue without an inspection contingency, there may be other contingencies you might consider dropping from your offer during a bidding war. Consulting a real estate professional before waiving any contingencies is best practice to help ensure you’re making a safe purchase.
After submitting your offer, you’ll wait to hear whether it has been accepted by the seller. You may find out they’ve gone with another bidder, are accepting another round of offers or are asking for “best and final.”
What to do if you lose a bidding war
If you lose a bidding war, don’t fret. The winning offer most likely needs a mortgage approval for the sale to proceed. In some cases, if the sale falls through, the second-highest bidder may be contacted. In the meantime, you may want to explore other houses, or wait until the market quiets down if you have the luxury of time.
Bidding wars are incredibly common in a seller’s market because there are more buyers than houses for sale. Although increasing your offer is typically the most direct means of winning a bidding war, there are other savvy ways to make your offer stand out without putting your financial safety in jeopardy.