How to Win a Bidding War on a House

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Bidding wars on houses are all too common these days. How do you win when there are multiple offers on the home you love? Winning a bidding war on a home isn’t always easy.

You may find that out quickly if you plan to buy a home.

When making a home purchase now, whether a new home or a resale, the chances are high that there will be competing offers on the property you love.

High demand coupled with low inventory has created bidding wars in many markets.

If you are trying to buy, especially in a competitive real estate market, there is a chance you will run into competing offers.

It’s not ideal, but it’s also not the end of the world. With some strategic thinking, you can come out on top against other buyers. You have to take the right approach and be somewhat lucky.

So, how do you win a bidding war? In most cases, the key is to choose a strategy that fits the seller’s needs.

I wrote an article a while back to help sellers handle multiple offers and bidding wars when selling a house.

Now it’s time to give potential buyers a hand and explain what can be done to increase the odds of winning when you are up against multiple bidders.

From three decades of experience in real estate and being involved in numerous bidding wars, there are always things that can give a homebuyer an edge.
The best advice is meeting the requirements that are most critical to the seller.

Dealing with multiple offers and a bidding war as a buyer is not ideal, but it’s a reality in a strong seller’s market.

Read on for tips on overcoming the competition and landing your dream home.

Table of Contents For Homebuyers to Close a Deal on Properties They Want

Making the highest offer
Pay cash
Offer appraisal gap coverage
Use an escalation clause
Write a love letter
Waive your financing contingency
Waive your home inspection contingency
Keep time frames short
Close when the seller wants
Let the seller rent the house back.
Offer something of value to the seller
Consult with a real estate pro for the best strategies

Advice and Statistics Worth Knowing

1. Research recent sales in the area to understand the market value.
2. Get pre-approved for a mortgage to show sellers you are a serious buyer.
3. Make a competitive offer by considering the current market conditions.
4. Consider including an escalator clause in your offer to outbid other buyers.
5. Work with an experienced real estate agent who can guide you through the bidding process and negotiate on your behalf.
6. Give the seller confidence by limiting contingencies.
7. Homes with a 20% down payment have a 65% higher chance of winning a bidding war.
8. Bidders who submit offers within the first 48 hours have a 75% better success rate.
9. Offering $10,000 above the asking price increases the chance of winning by 80%.
10. Approximately 90% of successful bidders include an escalation clause in their offer.
11. Homes that receive at least three competing offers are 50% more likely to sell above the asking price.

Steps on How to Win a Bidding War on a House

Here are all the options I and other experts recommend to come out ahead in a home bidding war.

1. Offer The Highest Price.

When someone asks how you win bidding wars, offering the most money should be obvious. I am only mentioning it for the sake of creating a complete list. It should go without saying that one of the best ways in any offer situation is to offer a higher price.

The easiest way to win a bidding war in real estate or any situation is to outbid the competition. If you can pull together just a little more money than the other guy or gal, you will most likely be the top choice of the seller.

A higher offer price usually holds a lot of weight. Offering the list price usually doesn’t cut it.

Most homeowners want to make as much money as possible, and the seller you are dealing with most likely has similar goals. In crazy seller’s markets, many buyers find out the hard way that there are buyers who will go the extra mile for homes they love.

It is not uncommon in many real estate markets for buyers to bid tens of thousands higher than the asking price. As a buyer bidding to win in this market, you must come to grips with it.

2. Remove Appraisal Contingency Language

Many real estate agents put language in real estate contracts that say “subject to the home appraising for the purchase price or higher.” Adding contingencies like this is a surefire way to lose.

If you want to win a bidding war on a home, removing an appraisal contingency is paramount to increasing your odds of success. Adding this kind of clause defeats the purpose of trying to beat another buyer.

If you are bidding tens of thousands over the asking price, there is a distinct possibility the house does not appraise. The appraisal results should be YOUR risk, not the seller’s! Adding a clause like this to the contract decreases the odds you’ll be the winning bidder. Please don’t do it.

The right decision in a real estate transaction with a multiple offer is taking on the risk of a low appraisal. Keep in mind your goal is to be the winning offer. The seller will no longer worry about an appraiser ruining the sale.

Eliminating contingencies will be your best bet to trump others.

3. Offer Appraisal Gap Coverage

While removing the appraisal contingency is a good move, you can go one step further by offering an appraisal gap guarantee. An appraisal gap is the difference between what you have agreed to pay for the home and what the appraiser says it’s worth.

By offering appraisal gap coverage, you are letting the seller know that if the appraisal comes in low, you’ll agree to make up the difference in the form of a higher down payment.

Having an appraisal gap guarantee written into the real estate contract will ease a seller’s mind and increase your chances of winning a housing bidding war.

When there are bidding wars on houses, offering appraisal gap coverage is the next best thing compared to paying cash. Many appraisals have killed sales that are bid way above the asking price.

4. Show Some Cold, Hard Cash.

Sometimes, when you want to write a strong offer, you need to think like a real estate investor.

Real Estate investors often write a “clean offer,” which includes paying cash!

Cash is king. A cash offer has significant advantages when multiple offers exist on a property.

It easily knocks all other bidding war strategies out of the water (except maybe offering the highest bid). All-cash offers will light up the eyes of most sellers. It screams, “I am a serious buyer.”

Not only because stacks of bills ignite the hearts of all reasonable human beings but because of the many hurdles it lets the seller skip in the buying process.

Mortgages are complex lending agreements with a lot of potential to go wrong.

Countless home sales have gone down the gutter unexpectedly due to financing issues between the lender and the buyer. Financing problems can kill sales and leave sellers scrambling to find another solution.

Prospective buyers are offering all cash. Let the seller know you can and will take the house soon.

No questions, no roadblocks, no third-party denials. There will be no mortgage preapproval issues due to a financial institution discovering the borrower’s low credit score at the last minute.

Of course, to make an all-cash offer, you have to have the cash. Most buyers don’t, so it is usually necessary to try an alternative strategy.

Waiving your financing contingency is beneficial. However, it is not the same as having cash available. If you NEED to get a mortgage, there is still a risk for the seller.

While getting a mortgage is a common real estate contingency, the phrase cash is king couldn’t be more accurate in a bidding war.

5. Use an Escalation Clause in Your Offer.

When used correctly, an escalation clause can be a fantastic tool for securing a home. Unfortunately, many buyer’s agents don’t know how to use them.

Additionally, many sellers’ agents are unfamiliar with how they work. Guess what happens when you don’t understand something?

You would be correct if you think the real estate agent counsels their clients against it. Frankly, it’s a shame. You can see a detailed explanation of using an escalation clause in the link provided.

For simplification, an escalation clause says a buyer will agree to outbid other offers by a certain amount of money up to a specified price cap.

To Come Out on Top, Write Escalation Clauses Properly

You tell the seller you want their property badly and are willing to outbid other buyers to make it happen. An escalation clause is often misused with the “escalator” or the amount of money the buyer will trump the highest bidder.

Many real estate agents will make the escalator $1000, which is dumb. The escalator should be something more substantial, like $5000. When evaluating the best offer, $1000 doesn’t mean much.

There are so many other factors that could trump getting an extra grand. With the escalator being $5000, you are at least giving the seller something to weigh heavily.

The other problem is having a low cap price. For example, say you were bidding on a home listed at $500,000. If it’s expected that there could be many offers and the house will sell way over asking, there is no point in putting an escalation clause with a cap of $515,000.

See how to write an escalation clause for helpful tips.

Your buyer’s agent should be speaking to the listing agent to find out how many offers are on the table. Getting as many clues as possible can help you craft the winning bid in a bidding war.

An escalation clause can be a wonderful tool for winning when there are multiple offers on the table for your dream house!Click To Tweet

6. Write a Personal Letter.

It may seem surprising, but a personal letter to the seller can put you ahead of other buyers in a big way. Not always, but predictably enough, you should try it if you want the home.

A personal letter allows you to pull on the heartstrings of the seller. You can highlight things you have in common, like hobbies or family life.

It is a personal touch that is often a good way to make a positive impression on the seller.

You can explain how the home will be ideal for your children to grow old in, to help you serve the local community, etc.

There are thousands of approaches you can take. The one you choose should be dictated by the information and the feel you get from the seller and your circumstances.

When touring the home, look at some of the seller’s pictures, trophies, memorabilia, etc. You may have common interests that strike a chord.

If you are uncomfortable writing the letter, find a friend or family member more adept at writing and work together to craft the message.

Try to be honest and put a little heart and soul into the letter. Think about consulting your Realtor in the process as well. With a few heads working side-by-side, you can create a letter delivering your best effort at winning the home.

It’s always nice to put in your picture so the buyer can connect with the names they see on the contract.

One thing to note about this strategy is that it will only be helpful if you buy from a regular person. Investors are much less likely to be moved by personal messages. They are focused on the bottom line.

You can still try a letter; don’t expect too much.

The Tactic Works Best With Emotional Thinkers

Remember that a letter will probably work better with an emotional thinker than an analytical thinker. The analytical thinker is more apt to think about their bottom line and not much else.

Here is a sample letter from a buyer to a seller that Housing Wire provides. It is also important to note that “love letters” in real estate have become somewhat controversial.

Many are now recommending sellers not to look at a love letter from a buyer in a bidding war due to the potential for housing discrimination allegations to be made.

For example, one couple could have a different ethnic background, submit their family picture of their family, and then claim the seller didn’t accept their offer because of their nationality.

Real Estate agents and sellers must think twice about whether they will accept a buyer’s love letter. Many seller’s agents, including myself, are considering counseling sellers against seeing them when submitted with the purchase agreement.

7. Waive Your Financing Contingency.

The financing contingency is the agreement with the seller that you’ll only purchase the property if your home loan comes through. As mentioned above, sometimes loans don’t come through even when preapproved.

In a standard agreement, you would have to say, “Sorry,” and walk away from the transaction if the lender denied you the money.

But with a waiver, you tell the seller you’re confident you’ll get the loan no matter what. If the mortgage is denied, you’ll lose your earnest money deposit, which is typically five percent of the purchase price—naturally, quite a bit of money for a buyer to lose. Having earnest money in escrow ensures a buyer is committed to purchasing the property.

Waiving the financing contingency can seem scary, but it can be done with minimal risk. You must find a lender who will accept a fully underwritten loan pre-approval.

If you can get one of these, you can be confident that the lender will approve your loan and get you through the transaction in one piece.

Not every lender offers these kinds of agreements, however. You will need to do some shopping around to find lenders. They exist. Just be persistent and reasonable—you have to have the finances to justify this kind of agreement to get one successfully.

Keep in mind there is a HUGE difference between pre-approved and pre-qualified. A mortgage pre-qualification means nothing.

8. Waive The Home Inspection Contingency.

Waiving a home inspection can be a significant advantage for buyers willing to do this in a bidding war. In a standard real estate purchase agreement, the buyer retains the right to back out of the contract if they find unacceptable home issues.

After accepting your offer, sellers don’t want to hear about work needed or repairs.

One strategy to make your offer more appealing is to waive this right, referred to as the inspection contingency.

Waiving a home inspection can offer an advantage in a bidding war in many circumstances, especially if the seller knows the home inspector will discover some problems.

The home inspection is often a second opportunity for a buyer to bargain with a seller. It is not unusual for the home inspection to be a point of renegotiation.

If the home has some flaws, especially ones that could be significant monetarily for the seller to address, waiving the inspection is a big plus. However, keep in mind that waiving a home inspection can be a significant risk on your part. Nobody wants to buy a lemon.

If the home looks well-maintained visually, it might be worth the gamble. If the home is older with little updating, not so much.

Sellers in competitive markets will sometimes inspect the home before putting it on the market. They will share the information from the inspection with buyers so everyone is on the same page about the state of the home.

In such a situation, you can at least see a professional inspecting the home. Your Realtor will verify that a reputable inspector conducted the inspection. You should feel at least a bit more comfortable in waiving the inspection.

9. Keep the Home Inspection Time Frame Short.

If you are too afraid of waiving the home inspection, keep the contingency time frame short! Every contingency in a real estate contract is a potential roadblock to a seller.

Making the home inspection contingency a short time will relieve one hurdle off the seller’s plate.

When the seller accepts an offer, their home is off the market. In a strong seller’s market, the last thing an owner wants is to wait for an extended period for the inspection to happen.

Make the contingency period no more than a week.

10. Find Out The Seller’s Desired Closing Date and Give it to Them.

When buyers ask how to win a bidding war, one of the more common things to ask the seller’s agent will be the seller’s preferred closing date.

For most sellers, the time to close the home will be a significant factor in their decision process. Timing is often crucial to homeowners.

Paying attention to the seller’s needs can go a long way.

If the seller is buying and selling at the same time, the close date will probably be even more critical.

Most of the time, the seller will want to coordinate the buy and sell on the same day or at least the same general time frame.

The coordination of buying and selling can be very stressful. Giving the owner the close date they want can often be the difference between getting the house.

Write the purchase contract accordingly.

11. Let The Seller Rent The House Back

With bidding wars on houses increasingly common, sometimes you need to think outside the box. If the seller has not found a house yet and doesn’t want to make a double move, offering to let them rent the home back could be a difference-maker.

Not many sellers want to rent temporary storage space, find a rental property, and make a double move. Not only is it costly, but it adds a significant amount of stress to a real estate transaction.

12. Keep Other Contingency Time Frames Tight.

If you have other contingency time frames in your contract, keep them tight. For example, some states have two contracts: an initial offer and a purchase and sale agreement. We have that here in Massachusetts. An initial offer is made, spelling out the agreed-upon time frames buyer and seller agree to.

Typically, 10-14 days later, a “purchase and sale” is executed, a more detailed version of the offer. As a seller, you never want to see dates protracted longer than they should be.

13. Offer Something Else of Value

Believe it or not, some buyers go above and beyond to make a competitive offer. In the past year, some prospective buyers have offered other things of value, such as an inclusive vacation, instead of extra money.

Other buyers have offered to fork over their timeshare vacation to a seller. One agent told me their client offered a car. One of the best tips for winning is to think outside the box. When the housing market is crazy, you need to sometimes.

14. Find Out How The Seller’s Agent Will Handle Offers

It’s worth mentioning that it is critical to determine how the seller’s agent will handle offers as they come in. Will they ask all the agents for the best and final offer, or will the buyer get one shot?

Sometimes, you get no shot at making a counteroffer. Quite often, you will need to make your most substantial offer right off the bat. It will be essential for your agent to find out upfront.

Talk to Your Realtor About A Multiple Offer Strategy

Deciding which bidding war strategy is right for you can be challenging. Have a careful discussion with your Realtor to determine what path is the clearest one to winning the home you want. There could be some local customs you are not aware of.

Formulate a plan with your real estate agent on what it will take to land the house. Have your agent speak with the listing agent to find out what, if anything, can be done to make your offer more attractive. A great buyer’s agent will go out of their way to increase a buyer’s chances of success.

If, for some reason, you come in second place, have your agent stay in touch with the seller’s broker. There is always the chance that the sale will fall apart. Keep yourself ready to pounce if that happens.

You might even ask if you can put in a backup offer to be first in line if the sale falls through. Patience, determination, and communication are three traits that can help

Final Thoughts

As a buyer, getting caught in a bidding war is no fun. Emotions are almost always running high in your attempt to be the winning bidder. There will be crazy thoughts going through your mind like “Did I make the best offer?” or “Could I have done something more to win”? These are all-natural thoughts.

The key to winning bidding wars on houses is to put your best foot forward and not look back. You can do nothing about that if you don’t have cash and need a mortgage. Don’t sweat it. There will be other homes that come along.

Following the guidance and recommendations should put you in a much better position for success.

Hopefully, you better understand how to win a bidding war on a house. Best of luck!

15 Tips on Winning a Real Estate Bidding War