When two or more homebuyers want to purchase the same home, a bidding war can occur. This is a situation where multiple buyers compete against each other with incrementally increasing bids on the same property. Bidding wars are common in competitive homebuying markets, but they can happen wherever a desirable property attracts enough interest. If you’re in the market to buy a home and are expecting competition, here are some strategies to help you win a bidding war for the home you want.
Get preapproved
Unless you’re planning to buy a home with cash, it’s crucial to show the seller that you have reliable financing for your purchase. At a minimum, this means obtaining a mortgage preapproval letter from a lender to show that they have reviewed your basic qualifications and issued you a conditional promise to provide financing. Getting preapproved is typically fast, easy and free. While a preapproval alone is unlikely to win a bidding war for you, it’s an important prerequisite to being seen as a serious buyer.
Get pre-underwritten
Most homebuyers get preapproved, but getting pre-underwritten is a much less common step that can better set your offer apart. When a lender pre-underwrites your loan, they go the extra mile to perform a complete analysis of your loan scenario and fully approve you for financing. This allows you to close your transaction faster, and you may choose to waive the financing contingency on your offer (your escape clause if you can’t get a mortgage) – two advantages that will make your offer more attractive to the seller. However, it’s important to note that pre-underwriting is not available from all lenders or for all situations.
Increase your offer amount
One of the most reliable ways to win a bidding contest is to simply submit the highest offer. To avoid a lengthy back and forth process of escalating bids, you may be able to add an escalation clause to your offer – a commitment to automatically increase your bid against any competing bids by a set amount up to a certain limit. Bear in mind that if you increase your bid by too much, you may have to pay the difference out of pocket due to a financing limitation called an appraisal gap. Another way to sweeten your bid is to increase your earnest money – the amount of cash you commit to pay if the deal falls through due to your fault.
Write the seller a letter
Some home sellers can be moved by more than just a competitive bid. By writing a letter to a seller about why you want to by their home, you may help convince them to choose your offer. This is most effective with a sentimental seller who wants to see that their home will be cherished and utilized well by its new owner. In your letter, introduce yourself to the seller, share what you love about their home, describe how you’d use the property, explain your offer and express your gratitude.
Be flexible with your offer terms
By adjusting the aspects of your offer to meet the seller’s specific needs, you can better position yourself to become the winning bidder. This could include simple concessions such as allowing the seller to keep their appliances, forgo any final repairs or choose a specific closing date. Waiving some of the contingencies in your contract (e.g., the financing contingency or the home inspection contingency) may also make your bid more competitive, but this typically exposes you to more risk.
Pay in cash
Although not everyone can afford it, paying in cash has a huge advantage over non-cash bids. This shows the seller that you’re serious and eliminates the appraisal and financing steps, typically making for a faster and more reliable transaction. If you wish to recoup your funds after your purchase, get in touch with a lender beforehand and ask about delayed financing, a mortgage option in which you may qualify to finance the home after you buy it and take out equity as cash.
Conclusion
Sometimes, raising your offer by a few thousand dollars is all it takes to win a bidding war. Other times, it may require escalating bids, significant contract concessions or extensive negotiations. And sometimes, it’s best to just walk away from a heated bidding war. Be sure to utilize your real estate team for guidance and advice on how to approach each situation.
If you’re planning to buy a home, get in touch today for a free mortgage consultation, so we can help prepare a winning homebuying strategy for you!
