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How to Win a Bidding War on a House

By Maryalene LaPonsie| June 7, 2021

Use these tips to come out on top in a real estate bidding war.

After a year of being cooped up at home, people are apparently ready for some new scenery. Home sales from January to April 2021 were up 20% from the previous year, according to data from the National Association of Realtors.

As demand for homes has increased, so have prices. The median selling price of existing homes rose 19.1% in April 2021 compared to the previous year, taking it to a record high of $341,600, according to the NAR.

To land the home of their dreams, buyers may find themselves in the middle of a real estate bidding war. "You're seeing multiple offers on homes that even need a lot of work," says Amanda Rogers, owner, and broker with Rogers Neighborhood Realty in Lowell, Michigan.

In Grand Rapids, Michigan, a market where she works, the average home receives five offers within two days of listing. A recent property listed by Rogers garnered 13 bids, including one offer to pay as much as $100,000 more than the asking price.

However, money isn't the only thing sellers are looking for when evaluating bids. If you want to know how to win a bidding war on a house, try using these steps:

  1. Pay cash or waive financing.

  2. Get preapproved for a loan.

  3. Line up an attorney and asset information.

  4. Remove contingencies.

  5. Include escalation clauses.

  6. Modify inspection requirements.

  7. Include an appraisal gap guarantee.

  8. Personalize your bid.

  9. Offer to pay seller costs.

1. Pay Cash or Waive Financing

When it comes to housing, bidding with a cash offer may provide an edge over higher bids that require financing. "Cash doesn't sway all sellers, but it does sway many," says Michael J. Franco, a broker with real estate company Compass in New York City.

Cash offers aren't contingent on a lender approving a mortgage so they give the seller confidence that the deal will close. In some cases, buyers are dipping into cash reserves so they can waive financing and then seek to refinance after closing to replenish savings.

"There have been instances where parents have cashed out their 401(k)s to pay in cash (for an adult child's home)," Rogers says. However, liquidating a retirement fund may not be the best financial move, and people should think twice before going to such extreme measures.

2. Get Preapproved for a Loan

If a cash offer is impossible, buyers should be preapproved for a mortgage to strengthen their offer. If possible, look for a provider who can be agile when it comes to finalizing the paperwork.

"I have lenders who can do a loan with a seven-day approval that ties into the inspection period," says Patrice Haftel, real estate associate with Re/Max Advisors in Boca Raton, Florida.

Even cash offers will have to wait for the inspection period to end before closing so the promise of a quick turnaround on a loan can put a financed offer on equal ground with a cash bid. Haftel has some lenders who are also willing to call the listing agent to get details of the seller's preferred terms so the loan and offer can be structured in that way.

3. Line Up an Attorney and Asset Information

Although not applicable in all states, if you live somewhere that a real estate attorney is required or traditionally used to oversee a transaction, have that person selected and ready to go.

"The seller wants someone who has shown they are going to sign a contract and close," Franco says.

That means showing that you have everything in place to complete the sale. For properties in New York City, which are often part of co-ops, that also includes having financial data and asset information available. Because regardless of whether the seller accepts your offer, a sale can't go through unless the co-op board approves.

4. Remove Contingencies

When bidding on a hot property, eliminate as many contingencies as possible.

For instance, in Haftel's part of Florida, "there are lines out the door" for single-family homes with pools. With so much interest, sellers aren't going to accept an offer contingent on the buyers selling their own house first or one that includes other restrictions.

"Throw in that you're very flexible," Franco says. Some sellers want to close and move out immediately while others may need some time to finish packing and putting their affairs in order. Buyers who are willing to adhere to a seller's timeline may have more successful bids.

5. Include Escalation Clauses

With housing, bidding is not usually a back-and-forth process. Instead, buyers are asked to submit their "best and highest" bid.

However, since potential buyers have no idea what other offers may be submitted, they can include escalation clauses. These clauses indicate that they are willing to bid higher if needed. For instance, a buyer may bid $300,000 and include an escalation clause saying they are willing to pay as much as $350,000 if higher bids are received.

If a seller uses an amount included in an escalation clause, they need to provide proof that a higher bid was offered by another buyer, Rogers says.

6. Modify Inspection Requirements

When bidding on a house, it can be tempting to waive the inspection requirement, but that comes with the risk of buying a property that has significant problems. "Not having inspections done puts the buyer in a lot of peril," Rogers says.

Instead of waiving an inspection completely, buyers can use a pass-fail inspection. This method promises that a buyer won't require a seller to make improvements to a home based on an inspection report, and if the inspection causes the buyer to walk away from the sale, the seller can keep half the earnest money.

"Here, you can cancel for any reason in the inspection period," Haftel says. Buyers offering a nonrefundable deposit may entice sellers who know they will end up with some compensation should the inspection go south.

7. Include an Appraisal Gap Guarantee

Including an appraisal gap guarantee, also known as an appraisal variance, is another way to win an offer on a house.

With homes in some markets selling above the asking price, there is a risk that a property may not appraise at the bid amount. Since lenders typically won't issue a mortgage for more than the appraised value, that means a seller either won't get the full bid price or the sale will fall through.

However, an appraisal gap guarantee promises that a buyer will pay cash, up to a certain amount, to cover the gap between the appraised value and the bid amount.

8. Personalize Your Bid

Making a personal appeal can also help win a bidding war on house or apartment listings. A common example is including a letter with the offer that introduces the buyer and explains why they should be selected. "Some people think it's odd, but I've seen it tug on (sellers)," Franco says.

Last year, NAR cautioned Realtors against allowing these letters since they could open the door to fair housing complaints. Since letters and photos can reveal a buyer's family status, race, or even religion, using them to make housing decisions could be deemed discriminatory.

As a result, some sellers simply will not accept buyer letters. However, there are other ways to personalize a bid. "I have heard of people noting the seller had a Peloton bike and offering to pay for a year's subscription," Rogers says as an example.

9. Offer to Pay Seller Costs

Covering closing costs such as commissions and title fees is a final way to consider how to win a bidding war. Knowing they won't have to pay as much out of their proceeds for these expenses can be appealing to some sellers. It may even tip the scales in favor of an offer that is not as high as competing bids.

While everyone wants to come out on top in a bidding war, don't get carried away with your offer. "Try to envision what it feels like if your offer is accepted," Franco advises. If you'll be excited, then your bid is probably good. However, if the thought of having to now follow through on your promises fills you with regret, reconsider making that offer.

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