If the homebuying process isn’t complicated enough, when you do find your dream home, you may need to compete with other buyers for it. Enter: Bidding wars.
A bidding war is when a seller receives multiple offers for their home and will choose which to counter and, ultimately, which to accept.
However, there are steps you can take early in the process to prepare for a bidding war so you’re not left coming up with ideas to compete when your offer is already in. Here are a few examples:
To arm yourself for a potential bidding war, the first thing you may want to do is get preapproved from a mortgage lender.
A preapproval is a lender’s formal, written statement of the maximum amount they’ll loan you, assuming you meet all the conditions of the loan. It’s an informal notice from a lender saying that you will be able to take out a loan to buy the house. (More on preapprovals in our post on the seven steps to take out a mortgage.)
If a seller receives several offers, they may feel most comfortable accepting one from a buyer who is preapproved for a mortgage.
“We like to get the preapproval upfront so all of our ducks are in a row when we send the offer in,” says Rob de la Grange, with Chase Pacific Property Management & Real Estate Services in San Diego, California.
So, what are some other strategies you can use?
Use an escalation clause
If you think you’ll be in a multiple bid situation, an escalation clause can make your offer seem a little more eager.
An escalation clause says you’re willing to increase your offer incrementally up to a specific amount when other offers match or are higher than yours, and can show strong interest in a home while allowing you to stay in your budget.
Jennifer Suemnicht, a RE/MAX Realtor and broker in Seattle, Washington, recommends offering 1% above the purchase price as a guide, “especially if you’re in love with the home and not willing to lose it over that 1% difference.”
Hold up! What’s a contingency? A contingency is a condition you can add into a contract to require something to happen for the sale to go through. Contingencies specify the conditions under which you can cancel the purchase agreement and get your earnest money back.
(Ah right, earnest money. Wait … what is that? Earnest money has different names depending on where you are. Some folks call it a good faith deposit, others refer to it as a down payment. Earnest money is an amount of money you put into escrow when your offer is accepted. It shows that you’re serious about purchasing the home.)
Some contingencies are fairly standard, such as how soon you’ll have a general inspection performed. Others are a little less common, like stating you’ll buy a home if an old hot tub in the backyard is removed before closing (maybe you’re just not a hot tub person). If you keep contingencies to a minimum, it can reduce the seller’s concerns about how stressful the sale will be.
Offer a pass/fail inspection
To make your offer more attractive, you can also stipulate a pass/fail pre-inspection. With a pass/fail pre-inspection, the deal moves forward with a pass, without the seller having to make repairs. If the home fails, you can back out of the offer.
Sellers may appreciate this approach since it assures them that they won’t end up with a list of small repairs to make.
We mean flexible like with the closing date, not your ability to do advanced yoga poses. (King pigeon pose, anyone?)
Being flexible with a closing date can help you stand out with a seller who either needs to move quickly or needs some extra time.
Meanwhile, Maria Velazquez, a real estate agent with Douglas Elliman Real Estate in New York City, says she’s seen buyers snag their dream homes because they were either willing to wait longer for a closing date or let the sellers ”rent back” the home from them after closing.
However, if a home is already vacant, your offer might stand out if you can close quickly — like within 14 days.
“That can help you have an edge over buyers who haven’t been pre-approved or have to sell their current home to buy a new one,” Velazquez explains.
Lose the battle, win the war
Even if the seller chooses another bid, your agent should keep in touch with them if you’re still interested in the house.
De la Grange recently worked with a buyer who was outbid on a home being sold directly by its owners — but his client was eventually able to buy the house anyway. Because there was no seller’s agent, he met directly with the sellers to present an offer, which included a personalized letter from his buyer, and asked them to hang onto it as a backup.
A few days later the seller called to accept his buyer’s offer: “They felt my client was the right fit based on her letter.”
The lesson is, don’t give up.
“Put your best offer out there and be patient,” Velazquez says.
After all, if an offer falls through, a seller just might revisit others they received rather than starting over with showing their home to new buyers.
Update: This post has been edited to remove a section recommending homebuyer “love letters,” due to their risk of violating fair housing laws.
Interested in more tips to navigate the homebuying process? Check out these posts:
- Looking to buy a home but not seeing many homes for sale? Here’s how to buy a home when there aren’t many to choose from.
- Planning to move during COVID-19? Our readers share their experiences.