10 Ways to Win a Bidding War
Home sales typically heat up during spring, leading to bidding wars by homebuyers that can leave them empty-handed even after offering much more than the seller's asking price.
In March 2013, three out of four offers that Redfin real estate agents wrote faced bidding wars, and it wasn't unusual for dozens of buyers to bid on a single home, according to Redfin.
It can be a frustrating experience that leaves buyers shaking their heads and wondering what they could have done to get the house of their dreams. What a buyer needs to do is convince the seller through their offer that their bid will be a smooth transaction, says Alex Conti, a real estate agent at Whissel Realty in San Diego.
Here are 10 tips for winning a bidding war. You don't have to implement all of them, though the more the better:
1 - Offer the most money
This is an obvious way, and it's often the ultimate result of bidding wars. Offering $20,000 above the asking price can still mean you're getting a good deal, Conti says.
"Buyers get caught up in thinking they're only getting a good deal if they get an offer accepted below listing price," Conti says. Sometimes the seller and listing agent undervalue the property and an offer of $10,000 to $20,000 above the asking price is getting the buyer a good deal, he says.
2 - Pay in cash or have a large down payment
Financing is important, Conti says, and while cash is the quickest way to get an offer approved, a conventional loan with a large down payment of more than 20 percent is preferred to FHA and VA buyers, which have lengthier escrow periods. For an FHA buyer who can come up with the money for a conventional loan, they could become a stronger buyer in the seller's eyes.
Have the paperwork from your lender available to submit with your offer, such as a pre-approval letter. If you're offering cash, you'll also need paperwork to prove you have the money. Having a higher earnest money deposit can also help.
3 - Add an escalation clause
If you don't mind laying all of your cards on the table and are willing to compete with other motivated buyers, then an escalation clause could help you get the house, says Sep Niakan, a real estate agent at HB Roswell Realty in Miami, Fla.
For example, if the buyer makes an offer at $500,000, the escalation clause could go to $5,000 over the highest offer price but to no more than $550,000, Niakan says. If another buyer offers $525,000, the buyer with the escalation clause automatically has their offer become $530,000.
4 - Tighten the Timeline
Instead of a 15-day inspection contingency, make it seven or 10 days, Niakan says. If you run into an issue and need to extend it, you can ask for an extension later, he says.
5- Waive the appraisal contingency
"If you know the property is unlikely to appraise," Niakan says, "and you can afford to pay the likely difference between the purchase price and appraised price, then waive the appraisal contingency and make your offer almost as good as cash."
6 - Waive inspections
If you're well enough versed in home construction, a personal inspection may be enough to convince you to make an offer on a home with no termite or inspection contingency. Having fewer contingencies can help a lot in a bidding war, says Blayne Pacelli, a real estate agent at Rodeo Realty in Studio City, Calif.
"Listing agents and sellers love to know that we are not going to beat them down in escrow 10 days after we open escrow, Pacelli says.
7- Pay for the home warranty
This is often offered by sellers to give the buyer some peace of mind. Pacelli says he has his clients pay for the home warranty if he's going into a bidding war.
8 - Write a letter
Explain your situation as a buyer, and how much you love the house and will take care of it. It sounds corny when dealing with such a major purchase, but it can make a difference.
"Many sellers have an emotional attachment to their house, and if they know who will be moving in and can relate to their circumstance or story, it may give that buyer the edge," Niakan says.
9 - Give sellers more time to move
Leasebacks, long escrows, and other terms can help home sellers who may need more time to move, says Aaron Scott, a real estate agent at Rodeo Realty in Calabasas, Calif.
"Understanding the seller's motivation is critical," Scott says. "Everyone is motivated by dollars and cents but things like the school calendar, finding the right home of choice, or the luxury of not having to move twice have great value to sellers."
10 - Be second inline
Coming in second place in a bidding war is just as good as being in last place - until the winning bidder bows out. It can pay off to let the seller's agent know that if you don't win the bidding war, you'll still be available as a backup offer if the winning offer falls through.
"Frequently, the buyer in the winning position might get cold feet from fear of overpaying, or have an inspection issue which is too costly," says Bob Gordon, a real estate agent at Re/Max Alliance in Boulder, Colo.
For first-time buyers with enough money to win a bidding war, the second most important factor they may have in their favor is that they're flexible and not tied down to a mortgage and have to buy in a certain time. Having that flexibility to remain second in line can give them an advantage that other buyers may not have.