Bidding War Strategies for Homebuyers & Sellers

Posted by Justin Havre on Tuesday, July 16th, 2024 at 9:08am.

Navigating a bidding war demands a strategic approach that can make all the difference in securing a property in a competitive market. Buyers must be prepared to deploy tactics like offering above the asking price, making cash offers, and potentially waiving contingencies to gain an edge. Sellers must be prepared to analyse multiple offers to choose the most advantageous one.

Both buyers and sellers need careful strategies to win a bidding war on a house. Here’s what to consider to get the ideal outcome.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

Quick Bidding War Tips for Buyers and Sellers

For buyers:

Obtain a preapproval letter to showcase financial readiness.
Consider waiving contingencies to strengthen the offer.
Collaborate with a real estate agent for a strategic approach.

For sellers:

The highest offer is not necessarily the best offer.
Set clear deadlines for offers to prompt competitive bids.
Include backup options for security in negotiations.

What Is a Bidding War?

What exactly triggers a bidding war in the real estate market? A bidding war occurs when multiple buyers compete for the same property by submitting increasingly higher offers to outbid one another. This scenario is common in seller's markets and is often a result of supply and demand. In these situations, well-priced properties tend to attract multiple bids, escalating into bidding wars.

To win a bidding war on a house, buyers typically need to submit compelling offers that stand out among the competition. Strategies such as offering based on comparable sales, timing the offer strategically, and understanding the needs of the sellers can increase the chances of success. Navigating a bidding war on a house requires buyers to be proactive, well-prepared, and strategic in their approach to outshine other potential buyers.

Bidding War Strategies For Buyers

Buyers in a bidding war should prioritize several strategies to enhance the appeal of their offer, increase competitiveness, and potentially secure the desired property. Buyers must act decisively and strategically when navigating a bidding war.

Be Pre-approved

Being pre-approved for a mortgage shows sellers you are committed and financially capable. A pre-approval not only demonstrates that you can afford the property but also accelerates the buying process.

In a bidding war, a preapproval strengthens your offer and assures sellers that you have the means to follow through on the purchase. This can give buyers an edge over less-qualified buyers, making their offer more attractive in a competitive market. Having a preapproval letter ready before submitting an offer sets buyers apart and shows they’re prepared.

Make a Cash Offer

What’s stronger proof of funds than a mortgage pre-approval? Making a cash offer on the house.

Cash offers can significantly increase a buyer's chances of securing a property in a bidding war. A cash offer is appealing to sellers as it eliminates financing contingencies. Sellers often prefer cash offers due to the faster closing process, especially when looking for a quick sale.

Additionally, offering cash can give buyers leverage to negotiate a lower purchase price, as the lack of financing gives sellers confidence that the deal won’t fall through due to loan approval issues. In some cases, a seller will choose a cash offer over a higher financed offer simply due to the certainty and simplicity of not dealing with a lender.

Waive Contingencies

Cash offers are good for sellers because it eliminates the financing contingency. However, there are other common homebuying contingencies you can leverage. Waiving contingencies can enhance a buyer's offer in a bidding war by showing commitment and streamlining the closing process.

By forgoing inspections, financing, appraisals, or other contingencies, buyers demonstrate a commitment to proceed with the purchase regardless of potential pitfalls. This makes their offer more appealing to sellers seeking a straightforward transaction.

However, buyers should weigh the potential risks, such as potential post-purchase issues, without an inspection safety net. Real estate agents can help buyers assess which contingencies are safer to waive based on their circumstances.

Increase Your Offer

Buyers can strengthen their offers by increasing their bid above the asking price. In competitive markets, offering above the listed price helps your offer stand out. Including an escalation clause can also automatically raise your bid if necessary. Additionally, submitting a larger earnest money deposit showcases your commitment to the purchase. A low deposit is one of the biggest buyer red flags a seller will be looking for.

Buyers should develop a plan with their real estate agent to maximize their offer's competitiveness. By implementing these tactics, buyers increase their chances of securing their desired property.

Be Flexible on the Closing Date

If you have more money constraints than you’d like, or you’re unwilling to waive some contingencies, you can find other ways to sweeten your offer. One way to make your offer stand out is to adapt to the seller’s timeline. If they need to be out of the house quickly, do what you can to offer a faster closing. If they want to stay in the house for a while, such as to close on a new house before moving or finish out a school year, consider offering a rent-back agreement.

The more convenient you can make the deal for the seller, the more likely they will be to choose your offer over the competition.

Bidding War Strategies For Sellers

How to Deal With Multiple Bids When Selling a Home

Sellers who want to succeed in a bidding war should consider pricing their home just below its value to spark competition. They should carefully evaluate the buyers’ offers and financial capabilities before making a decision. Sticking to a set schedule and having backup options in place can help sellers manage the stress and competitive nature of a bidding war.

Price Home Just Below Value to Start War

Pricing a home slightly below market value is a strategic tactic to incite a bidding war among potential buyers. By setting the price around 5% below the property's market value, sellers may attract bargain-seeking buyers and spark competition. However, the success of this approach depends on the market conditions and the advice of a knowledgeable real estate agent. Lowering the price can create a sense of urgency among buyers, prompting multiple offers that may surpass the initial listing price, but the dangers of underpricing can still be present.

This strategy requires careful consideration and a thorough understanding of the local market dynamics. Consulting with a real estate professional to assess the feasibility of pricing below value is crucial to ensure a successful outcome. While this tactic can lead to a bidding war that drives up the final sale price, sellers must be prepared to handle negotiations effectively and evaluate offers beyond just their monetary value.

Carefully Consider Buyer's Offers & Finances

To make informed decisions during a bidding war, sellers should carefully assess buyers' offers based on the offer price, contingencies, and financing. Requesting proof of funds or pre-approval letters helps in assessing buyers' financial readiness and commitment. Factors such as cash offers or high down payments give insight into a buyer’s ability to secure the purchase.

To determine the best offer, you should review the terms of each offer and how they interact with your priorities as a seller. Working closely with a real estate agent to compare offers helps sellers navigate the bidding war effectively.

Stick to Your Schedule

Setting clear deadlines for offers is crucial in motivating buyers and creating urgency during a bidding war. By establishing a timeline, sellers can prompt potential buyers to act fast and be decisive. This helps create a competitive environment that will drive up offers.

Sellers should wait for at least two offers before setting a deadline. This increases the likelihood of receiving competitive bids. Deadlines for offers not only streamline the bidding process but also generate excitement and stimulate competition among buyers, potentially leading to a successful bidding war and optimal outcome for the seller.

Have Backup Options

Having backup offers gives sellers a safety net in case the original deal falls through. Multiple offers not only provide leverage but also ensure a sense of security during negotiations. This strategy can protect sellers if the primary offer doesn’t work out, ensuring a smoother transaction. By having backup options in place, sellers can navigate the uncertainties of a bidding war with more confidence and flexibility. This helps increase their chances of achieving a successful sale.