How to Win a Real Estate Bidding War
Real estate bidding wars happen when more than one prospective buyer is interested in a home for sale. Bidding wars are more common when there’s a low supply of homes for sale and high demand from buyers.
Admittedly, most buyers would prefer not to be involved in a bidding war, but if you’re keen on buying a house, then you’ll need to prepare yourself as best you can.
What is a real estate bidding war?
Many people assume that multiple offers and bidding wars are the same thing, but that’s not necessarily true.
In a multiple-offer situation, many potential buyers make offers.
In a bidding war, two or more potential buyers will be engaged in back-and-forth negotiations with the seller, often via their listing agent.
How do bidding wars work?
Bidding wars have few real rules. For example, the listing agent doesn’t have to let buyers know the current highest bid amount. They are required to disclose the number of competing offers. It’s up to buyers and their real estate agents or realtors to decide if they want to increase their offer or eliminate conditions.
The entire bidding-war process could take multiple rounds before things are finalised.
There’s nothing illegal about bidding wars, but they could give rise to ethical issues. Since the bid amounts aren’t disclosed, buyers could be enticed to increase their offer significantly when a lower number may have secured the real estate.
Likewise, bidding wars could create emotional urgency for buyers, leading them to abandon their budget just to win — a choice they may regret later.
How to win a bidding war
Offer more money
It may sound obvious, but the key to making a successful offer is choosing the right amount. Knowing what your maximum offer looks like is one tool to guide your decision. Another is putting your agent’s experiences to work; they might be familiar with common counteroffer increase amounts for the type of property you’re considering.
Add non-monetary perks
If a seller receives multiple offers or counteroffers of similar amounts, they might look at other elements of the offers to decide a winner. Examples include:
Flexible closing dates. Some sellers may wish to close as soon as possible while others may want more time. If you have the flexibility, indicating so could help.
A good rent-back deal. In some instances, a seller may want to sell the house but still reside in the home after closing, with the buyer becoming the landlord. If you know the seller would prefer this arrangement, be open to the idea or offer a great rental price.
Waive conditions. It’s typical to add conditions that would let you back out of a deal after the buyer accepts your offer: if the appraisal comes in lower than expected, if you can’t secure financing, if the home inspection reveals expensive problems. You can waive any of these conditions. That would be good news for sellers because it decreases the chance that a deal falls through. But you take on the risk of having a commitment with fewer offramps.
Offer to make a significant deposit
A deposit is money the buyer pays upfront, after they make an offer, as a show of good faith that the transaction will close as planned. If your offer is accepted and you fail to close on the property, the deposit is forfeited, and the seller could pursue legal action against you.
There’s no required deposit amount, but making a larger one could help convince the seller that you’re a reliable buyer, and may give you an advantage in a bidding war.
For example, let’s say there are two similar offers, but one has a deposit of 25% vs. one with 5%. The seller may favour the bid with the larger deposit.
Remember what winning means
Winning means finding a home that works for you and your budget. If you put aside your budget to “win” a bidding war, you haven’t won. Sometimes, winning means walking away from one property to achieve your larger goal.
How to avoid a bidding war
Get more info before making an offer
If you’re concerned about a bidding war, ask your real estate agent to gather some additional information before making a written offer. Although your agent won’t be able to find out what the bids are, they may be able to confirm how many offers are registered. If there’s already heavy interest and multiple offers, it may not be worth the time to add your bid, especially if the selling price is expected to be higher than your max budget.
Buy a new build home
Buying a house directly from a builder is one way to avoid a bidding war, since you won’t find yourself in direct competition with other buyers. Instead, you’d come to an agreement with the builder about a unit that’s in progress, or a pre-construction house that will be built to your specifications.
Consider a bully offer
Instead of waiting for the offer date, you could instruct your realtor to put in a bully offer. That’s where you would submit a bid ahead of the competition. Of course, for this strategy to work, you’ll likely need to make an offer that’s higher than what’s reasonably expected. It’s essentially a gamble. You might end up paying more than if you had entered into a bidding war, but you may also avoid a longer buying process.
DIVE EVEN DEEPER
Clay Jarvis
