You’ve fallen in love with a house, and you put in an offer—only to discover that you aren’t the only one to feel that way. A lot of markets around the country right now are experiencing high demand and low inventory, meaning bidding wars are common.
A bidding war just means that a seller receives multiple offers within the same short window of time.
It’s great from a seller’s perspective. They can wait around and see how much buyers are willing to sweeten the deal.
It’s tough for a buyer. It means you’re probably going to pay more than you thought, and it’s stressful to be in limbo.
The following are 5 tips to keep in mind to win a bidding war if you find yourself in that position.
Get Pre-Approved by Your Lender
One of the first things you should do if you’re going to be looking for houses in a hot market is get pre-approved by your lender. Then, your pre-approval letter tells the seller and their agent that you are going to be able to afford the house, and it minimizes the risk of your financing falling through.
When you have a pre-approval letter in your hand, it means that you are very serious and you are ready to buy. Without pre-approval, if there’s a lot of demand where you’re looking for a house, you might get passed over by the seller altogether.
Go All-Cash If You Can
Not everyone can do this, but if you can go all-cash with your offer, you’re likely to go to the top of the list. A seller again won’t have to worry about you having financing problems.
Cash sales save time throughout the entire process, too, because there’s no underwriting to go through.
Skip the Contingencies
There are ways to make your offer more appealing without over-spending.
For example, maybe you drop your contingencies. Contingencies are conditions that have to be met before a sale can go through.
What you’re saying when you drop contingencies is that even if something goes wrong, for example, with the appraisal, you cover the costs.
This isn’t always ideal because you might have to put less down on the house as a result, but if you’re set on a particular house, it can make you more competitive against buyers who have contingencies.
Offer a Big Deposit
If you want to show a seller you’re serious, another way to do so is to have a large deposit ready. Again a seller doesn’t just want to make the most money for their house—they’re probably also motivated by a fast, easy sale.
Anything you can do to make things easier and smoother is going to help you win a bidding war.
Along with showing you’re serious, a bigger deposit or down payment means you’ll need less money from the bank. This can be key if a bidding war is putting a home’s price above what it may end up appraising for.
Use an Escalation Clause
An escalation clause is something you can add to your offer that will outline exactly how much you’re willing to increase your bid if someone else offers the same or even a higher amount as you.
An escalation clause is beneficial for the seller but also for you because it gives you a limit so you don’t overspend.
A final takeaway note when it comes to bidding wars—don’t get so caught up in the heat of the moment or the love of a certain house that you make a financial mistake. It’s easy to get wrapped up in a bidding war and want to win at all costs. Above are things you can do to give yourself an advantage and hopefully avoid overspending.
You need to know when to walk away from a deal as well, as hard as that can feel at the time.