Single family home in neighborhood. How to navigate real estate bidding wars.

For several years, the United States has seen a combination of a seller’s market and low inventory.

As a result, almost every home on the market ends up in a bidding war.

How do you navigate a real estate bidding war as a buyer so that you get the contract? How do you sort through all the offers as a seller and choose the best one? Let’s explore.

How to navigate real estate bidding wars as a buyer –

1. Make sure you have a preapproval letter in hand. Being prequalified is not equivalent.

Prequalification is a casual estimate of the mortgage loan amount you may get approved for. While it’s a good starting place, you need to be preapproved to stand out among other buyers.

You can get preapproved by submitting your tax returns, W-2s, credit score, bank statements, and other documentation to your mortgage loan officer. Then, you’ll get a preapproval letter that states the official mortgage loan amount you’re approved for.

A preapproval letter gives sellers the reassurance that a real estate transaction with you will go through because you’re able to get a loan for the price of the home in question.

2. Add an escalation clause to your offer.

An escalation clause gives you a foolproof way to present a competitive offer without overpaying. For example, you state in your contract that you will outbid all competing offers by $5000, up to a certain cap – say $325,000 on a $300,000 house.

That way, you won’t pay extra unless the competition requires you to increase your offer. If the bidding goes higher than your cap, you won’t be stuck in a contract for a home you can no longer afford.

3. Put in an all cash offer.

Sellers prefer cash offers because they don’t have to wonder about the outcome of appraisals, mortgage loans, or contingencies.

Most people can’t afford to pay for their next home in cash, but if you have the ability to do so, take advantage of the opportunity. It will set you apart from other buyers in a big way. The seller might even choose your offer over a higher one that isn’t 100% cash.

4. Make the highest bid.

This point doesn’t take much explaining. If you make the highest bid, the seller will be most likely to choose your offer.

You can’t know for sure what other buyers have offered, but an experienced Realtor will help you make a very good guess.

In a seller’s market, buyers typically have to offer over the asking price to be considered. If you present an offer that is below or at asking price and you have nothing else to make your offer stand out, you’re unlikely to get the contract.

5. Don’t include any contingencies.

Most contracts include some contingencies.

One contingency stipulates that if the home inspection reveals any major problems, the buyers can legally get out of the contract. Another says if the appraisal does not match the accepted offer, the seller may be required to reduce the price to match the appraised value.

Another common contingency is that your home must sell first in order for you to be approved for another mortgage loan. This raises a red flag for sellers. What if your home does not sell, or it doesn’t sell in time or for the amount needed to pay off your mortgage?

You can make your offer more appealing by leaving contingencies out.

While you can’t skip the appraisal if your offer is based on preapproval for a mortgage loan, you can agree to cover the difference in cash if the home appraises for less than your offer.

Similarly, if you need to sell your home in order to be approved for a new mortgage, perhaps you can sell it before putting in offers on new homes.

6. Waive your right to a home inspection (only in specific circumstances).

Be wary of this option. If you try it, you could win major brownie points with the seller, but you could also shoot yourself in the foot.

Sellers will quite often be relieved if you waive your right to a home inspection. You’ll definitely heighten their interest in your offer doing so.

However, you should not skip a home inspection unless you’re absolutely SURE the home has no serious problems. Otherwise, you could end up with disastrous and expensive repairs in the future.

7. Write a personal letter to include in your offer.

Before submitting your offer, write a personal letter to the seller. Tell them a little bit about yourself, what you love about their home, and why you want to live there.

Once you become more than just a number to the seller, they may be compelled to accept your offer. Most sellers like to imagine someone living in their home who will enjoy it just as much as they did.

How to navigate real estate bidding wars as a seller –

  • Decline any low or undesirable offers or offers from buyers who are not preapproved.
  • Ask for each person’s “best and final offer”.
  • If one offer in particular stands out as the best right away, go with it.

If there isn’t one that obviously stands out as the best, consider a few things.

Offers that don’t include any contingencies or all cash offers are far less likely to fall through.

Sometimes one offer has a closing date that’s better for you in comparison to the others.

Some of the offers might include a personal letter describing why they would like to buy your home. Do any of those letters resonate with you?

You’ll do best choosing an offer that brings you the best combination of profit, security, convenience, and peace of mind that you’re under contract with a buyer who really wants to live in your home.

Whether you’re the buyer or seller, working your way through a bidding war is complex.

To make sure results go in your favor, your best bet is to work with a knowledgable Realtor.

If you’re a buyer, contact me and I will help you prepare an unbeatable offer so you get a contract on the home of your dreams.

I work with sellers as well, so please don’t hesitate to reach out. I will help you market your house flawlessly and choose the best possible offer.