A bidding war occurs when a seller receives multiple offers on their home in a short amount of time. Sellers can wait to see if any other offers come in, or if any of the original buyers increase their offers. Redit.com talks about bidding wars and how to avoid them.
There are times when you should avoid bidding wars altogether. Such as:
When there are multiple cash offers way above asking price.
If you anticipate a significant outlay of cash to update the property or make major repairs.
If you have already made your best offer, and you have no more wiggle room to increase it.
If the neighborhood you has very little inventory.
If you find yourself in a seller’s market there is a higher likelihood that you will end up in a bidding war. To prepare for this scenario, you can do the following:
Get pre-approved for a mortgage, and then communicate that through your agent to the seller.
Ask your real estate agent to see if they can find out about the seller’s real wants and needs so you can position an offer accordingly. If you can accommodate relatively simple asks, your offer becomes more attractive.
Present an all-cash offer, which eliminates the need for an appraisal and bank approval for a loan.
Increase your offer if you’re able to do so, but keep your offer and the corresponding mortgage payment within your budget.
Eliminate contingencies. Contingencies protect you from issues involving the home’s structure, systems, and safety likely to be identified during a home inspection as well as discrepancies in value that affect your mortgage terms. If you want to make your offer more attractive, you should eliminate as many contingencies as possible. But understand that when you remove a contingency, you take risk off the home seller (which is why it’s attractive to them) and put it instead on you the homebuyer.
Add an escalation clause to your offer, which tells the seller how much you are willing to raise your offer if competing bids come in. The escalation clause would set a cut-off price that you won’t exceed. Doing this may tip your hand for future negotiation, but it can help you in an extremely competitive market.
Work with an experienced real estate agent.
Have a flexible closing date.
Put down more money for the mortgage, or increase your earnest money deposit to show that you’re serious.
Engaging in a bidding war for a house is stressful. But, hopefully, with these tips, you’ll know when it’s time to continue bidding, and when it’s time to walk away.
If you’re looking for a home to buy, or if you have a home to sell, let us help. We specialize in buying homes that have seen better days, rehabbing them to enhance their beauty, and selling them to new owners.