Bidding Wars: Tips For Home Buyers On How To Win

After months of searching, you’ve finally found your dream home. You’re financially secure and ready to take the next step in buying a house. But if you’re searching for a home in a seller’s market, one thing stands between you and the home of your dreams: other home buyers.

You may find that your perfect home is perfect for several others. And, you may even find yourself in a bidding war for the home you want. Understanding what a bidding war is and learning a few strategies you can use in a bidding war can help you avoid heartbreak and ensure victory.

What Is A Bidding War And How Does It Work?

A bidding war occurs during the home buying process when there are multiple buyers trying to purchase the same property. During a bidding war, each home buyer continues to submit a higher or better offer, driving up the price of the home. This means that the buyer who wins the bidding war will likely pay more for the house than it was originally listed for.

When Do Bidding Wars Occur?

Bidding wars are the hallmark of a seller’s market. When there are more home buyers than there are properties to buy, buyers are more likely to compete for a property they love in hopes of being the lucky one to get it. Ultimately in a bidding war, the seller determines which offer they want to go with.

How To Win A Bidding War: 7 Tips

Finding yourself in a bidding war can be discouraging. However, armed with the right information, you can employ strategies to help maximize your chance of winning the bidding war and getting the home you love. Here are some tips to consider if you enter a bidding war with other home buyers.

1. Have Your Preapproval Letter In Hand

If you qualify, you can get a mortgage preapproval before you start shopping for a home. Note that prequalification and preapproval are different. Prequalification is an estimate of the loan amount based on verbal confirmation of your income and often relies on self-reported details about your personal finances.

A preapproval, on the other hand, offers a precise mortgage amount based on your W-2s, bank statements, credit score and more official documentation. It's important to remember that this initial approval of your finances is just a first step – your ability to close on your home loan will still depend on passing underwriting, which is a more rigorous vetting process.

2. Make The Highest Offer

Traditionally, the best way to win a bidding war is to offer the most money. Although the highest offer isn’t always the one that the seller chooses, money does talk.

Under no circumstances should you throw caution to the wind and ignore your budget. Bidding wars can get emotional, but you must be able to walk away, secure in the knowledge that a home that fits your budget awaits elsewhere.

How can you tell how much competition you have for a home? Ask your real estate agent to get in contact with the seller’s listing agent, who should have some key insights. Your real estate agent can also use local housing market data to help you strike the perfect balance between saving money and securing your home with a strategic final offer.

3. Offer An All-Cash Deal

Can you buy the home with cash? If you don’t need to apply for a mortgage, your offer will usually jump to the top of the pile. The seller doesn’t need to worry about you running into problems with financing. But don’t worry. You may be able to use delayed financing after you close on the sale to help you regain access to the cash you have in the home.

A cash sale saves time for everyone and can close much sooner because there’s no underwriting process to wait on. If the seller wants to sell their home as soon as possible, a cash offer can be very powerful.

4. Drop The Contingencies

Sellers don’t want their homes to sit on the housing market forever. They also don’t want to have to relist their home because a contingency resulted in the sale falling through. You can make your offer stronger by dropping your contingencies. Contingencies are specific conditions that must be met before the sale can be completed.

Example: Dropping The Appraisal Contingency

Let’s say you have a contingency in your offer letter that says the home must meet or exceed your offered price during the appraisal. This is because mortgage companies won’t lend out more money than the home is worth. You’ll still need the appraisal because your lender requires it.

By dropping the appraisal contingency, however, you’re telling the seller you’re willing and able to pay an additional amount in cash at closing if the home appraises for less than the agreed-upon purchase price. As an example, you may be willing to pay up to $5,000 extra at closing to make up for the low appraisal. This allows you to fill the gap between the appraised value and the purchase price.

Remember Your Budget

When debating whether to drop contingencies from your offer, it’s important to be careful. Even if you’re paying cash for the difference between the appraised value and loan amount, you’ll probably still need to pay at least part of the closing costs, depending on whether seller concessions are still on the table. You’ll definitely need to have enough cash to cover your down payment.

Otherwise, you’ll end up either having to walk away without your earnest money deposit or putting less down on the house. This might force you into buying private mortgage insurance (PMI).

5. Skip The Inspection

Most offer letters include a contingency that says you can cancel the sale if a home inspection reveals major problems with the property. Although you can make your offer stronger by agreeing to skip the inspection contingency, you’ll be taking an enormous risk.

Unless you know for a fact that the property has been properly maintained – which might be the case if you’re buying from a family member or close friend – you might be purchasing a house whose great looks hide some urgent and expensive repairs.

Items To Check Before Skipping An Inspection

If you feel able to shoulder the potential risk and want to make as clean of an offer as possible, do a thorough walkthrough of the home. Here are some things to mark off your walk-through checklist before submitting your offer:

• All lights and outlets in each room work.
• Toilets, showers and faucets aren’t leaking or emitting foul odors.
• All home appliances are functioning as they should.
• Gutters are clean, secure and are directing water away from the home.
• The garage door closes and opens correctly.
• The home security system arms and disarms as it should.
• There are no cracks or other issues with the foundation.

You can also ask the homeowner for repair and home improvement records, as well as any home warranties for work completed. These documents will give you a closer look at the condition of the home and how well the owners have been taking care of it.

6. Be Available

Another key to remaining competitive on a home sale is to keep yourself available. Leave your information with the seller and invite them to contact you or your agent with any questions about your offer.

Respond to any inquiries quickly and have your real estate agent or REALTOR^® regularly check in with the listing agent to monitor the seller’s progress. Be as flexible as possible and stay on the seller’s radar. When they decide, you’ll want to be the first to know.

Again, to make sure you’re available from the very beginning of the process, make sure you get initial approval so you’re able to put in an offer as soon as your dream home hits the real estate market.

7. Make A Backup Offer

What if your dream home’s seller accepts a contingent offer from another buyer? Likely, it means it’s time to move on, but if your heart is set on a property, here are two strategies you can use to try to beat another offer. Who knows? You may get lucky.

If There’s A Kick-Out Clause

First, have your real estate agent find out if the seller is still accepting offers while the sale is pending and if they included a kick-out clause in the sales contract. A kick-out clause allows a seller to continue accepting offers while the potential buyer awaits the home inspection, appraisal or financing needed to close.

If the seller gets a better offer, and depending on how the offer is structured, the kick-out clause allows them to notify the first potential buyer and encourage them to do one of the following:

• Match the competing offer or exceed it (the escalation clause).
• Agree to waive all contingencies in the contract.
• Agree to waive some contingencies.

If There’s No Kick-Out Clause

If no kick-out clause is included in the sales contract, all you can do is have your real estate agent keep an eye on the contingent or pending sales process. It’s possible that buyers will back out before the closing date after reading the home inspection report or they won’t be able to get the financing they need.

If your need for a new home isn’t urgent, and you love that house, you could wait it out. Just know that most sales contracts successfully close. Should the sale fall through, be ready to act and make an offer that matches or exceeds the last offer. Otherwise, the seller may decide to simply put the home back on the market.

Know What To Include In Your Backup Offer

If you’re serious about proposing a backup offer, make it worth the sellers’ time and effort to invoke the kick-out clause. Make the offer price tantalizing, the earnest deposit large and the contract as contingent-free as possible.

Keep in mind that while you are awaiting a resolution between the sellers and the first potential buyers, you won’t be able to make an offer on another home. If you’re in the middle of house hunting in a competitive market, this may cause you to miss another great opportunity.

Bonus Tip: Get An Advantage In Your Next Bidding War With A Verified Approval℠

In a competitive home market, you might need an edge over other buyers who want the same property. For the best chance at winning a bidding war, be sure to get a Verified Approval from Rocket Mortgage^®.

How Does A Verified Approval Work?

When you get a Verified Approval, you give your lender access to more accurate information on your income, assets and credit. You’ll share documents like bank statements and pay stubs with your lender so they can verify the data on your application.

Once your lender finishes looking at your documentation, they’ll return a Verified Approval Letter to you. Your letter will give you a very accurate estimate of how much you can get in a loan because your assets have already gone through verification.

A Verified Approval Letter ensures a seller that you won’t struggle to find financing. This makes your offer much more appealing, which in turn can mean the difference between winning and losing a home.

The Bottom Line

Several factors can make or break whether you win a bidding war on a house. Getting preapproved for a mortgage, making the highest offer on the home and dropping your contingencies are a few ways you can show the seller that you’re a serious buyer and, hopefully, encourage the seller to accept your offer.

Want to show sellers you’re ready to buy a home? Apply for your initial mortgage approval with Rocket Mortgage today.