You’re ready to buy a home and you find the perfect one. There’s just one problem: you’re not the only one who loves it. If you find yourself in a situation where there are multiple offers on a property, it’s important to know how to win a bidding war on a house.
In today’s competitive real estate market, it’s not uncommon for homes to receive multiple offers. While there’s no surefire way to win a bidding war on a house with multiple offers, there are certain strategies to increase your chances for success.
Here are 12 tips on how to beat other offers on a house.
Offer the Highest Price
One of the most common pieces of advice you’ll hear when it comes to winning a bidding war on a house is to offer the highest price. With many sellers, their net proceeds are their top priority, so they will often choose the buyer who offers the most money.
If you offer the highest price, be sure to include a large earnest money deposit to show that you’re serious about the purchase. A good rule of thumb is to come in at least 7-12% above the asking price.
Make an All-Cash Offer
It can be a very attractive proposition for sellers if you have the cash on hand to make an all-cash offer. It means sellers won’t have to wait for a loan to go through, but it also eliminates the risk of the deal falling through because of financing.
While an all-cash offer may not be enough on its own to win a bidding war against a higher offer, it can be a deciding factor in close contests.
If you have the cash but don’t want to use it, you can offer cash with the right to finance. This type of offer can be attractive to sellers because it gives them the security of an all-cash offer while still allowing you to finance the purchase. Keep in mind, if the financing doesn’t come through, you must use your own cash to buy the home.
Financing comes with risks that could kill a sale. When there is no financing contingency, the sale is more likely to close. As the saying goes, cash is king. When there are multiple offers on a property, a cash offer has its advantages.
Remove the Appraisal Contingency
If you’re getting a mortgage to buy the home, one of the contingencies in your offer will likely be a home appraisal.
This contingency protects you if the home is appraised for less than the purchase price, giving you the option to back out of the deal or renegotiate the price.
While this is a standard contingency, you may be able to win a bidding war on a house by removing it from your offer. Doing so shows that you’re confident the home will appraise for at least the purchase price.
However, there is a risk involved, especially if you are bidding over the list price. If the home does not appraise, you’ll be on the hook for the difference between the accepted price and the appraised value.
When financing a home, this means that you will need this amount in cash to close the deal.
Offer an Appraisal Gap
In today’s market, with properties selling significantly over the list price, it’s not uncommon for appraisals to come in below the accepted offer price.
If you’re worried about this happening, you can offer to cover the appraisal gap to ease the seller’s mind that you won’t back out or try to renegotiate the price.
In other words, if the appraisal comes in $10,000 below the agreed-upon purchase price, you agree to make up the difference.
This type of offer can often win a bidding war on a house because it removes the risk for the seller that the deal may fall through due to a low appraisal.
Add an Escalation Clause
If you really want a particular property, you can win a bidding war on a house by adding an escalation clause in your offer.
An escalation clause is when you agree to increase your offer price by a specified amount if another buyer comes in with a higher offer. For example, you might include an escalation clause stating you’re willing to increase your offer by $5,000 if another buyer comes in with a higher offer.
If you use this strategy, make sure to put a cap on how high you’re willing to go. For example, you’re willing to increase your offer by $5000 over the highest bid up to $500,000 (maximum purchase price).
If you plan to add an escalation clause, it is only worth doing so if you increase your offer by a reasonable amount. It is not worth utilizing this clause if you only plan to increase your offer by $1000.
It’s also not worth adding an escalation clause if you do not do a high cap rate. If a home lists at $480,000 and has multiple offers, it is not worth putting in a cap rate of $500,000 when the average home is selling for 7-10% over list price.
Some listing agents frown upon escalation clauses. This is unfortunate. This is a great way to get their buyer the best possible price for the home.
Some listing agents don’t understand these clauses. What happens if they don’t understand something?
If the agent doesn’t realize what it is, the seller is even less likely to. This means your first offer is the only one they consider because neither the agent nor the seller understands that you are willing to go higher.
Escalation clauses are a great way to win a bidding war on a house but only if the agent and seller understand them.
When adding an escalation clause, make sure the listing agent knows what it is and that you’re willing to increase the price by a reasonable amount.
Waive the Financing Contingency
A financing contingency means that your offer is contingent on being approved for a mortgage. If you can’t get financing, you can back out of the deal and get your earnest money deposit back.
While this is a standard contingency, you may be able to win a bidding war on a house by removing it from your offer.
Buyers who can not do this are often at a disadvantage when competing against all-cash offers or buyers who don’t need financing.
While waiving the financing contingency does make your offer stronger, there is always a risk involved. For example, if you cannot get approved for a loan after the inspection period has ended, you could lose your earnest money deposit.
If you choose to waive the home inspection contingency, make sure you’re confident that you will be able to get a loan for the property.
Some lenders will pre-underwrite the loan. This means that they will get you to the loan committment stage before you make an offer on a property. Not every lender offers this option. You will need to do your research to find a lender who will pre-underwrite your loan. When this tactic is combined with other creative options on this list, it can be very effective.
The loan commitment is the beginning of the last stage in the financing process. A pre-loan commitment significantly lessens your risk of the loan falling through.
Having the cash available to pay for the property outright is another way to lessen the risk of waiving the financing contingency.
Waive the Home Inspection
A home inspection aims to make sure there are no major problems with the property before you buy it. In some cases, buyers use inspection reports as means of renegotiation.
While this is a standard contingency, you may be able to win a bidding war on a house by removing it from your offer.
By waiving the home inspection contingency, you’re essentially saying that you’re willing to buy the property as-is
If you’re not concerned about the property’s condition, waiving the inspection contingency can make your offer more attractive to sellers.
However, there are risks involved in waiving the inspection contingency. For example, you could end up purchasing a home that needs significant repairs.
If you decide to waive the home inspection contingency, this can be an advantage in a bidding war. Make certain you’re comfortable with the risks involved.
New construction homes are often a good option if you decide to waive the inspection contingency. This is because they will come with a warranty from the builder. If there are any issues with the home, you should be covered by the warranty.
When choosing to waive an inspection contingency, it’s good to have a professional inspect the property before you make an offer. This may not be a good option in this fast-paced market where properties go under contract in days.
Some sellers will do a home inspection before listing their home. Your real estate agent can ask the listing agent if the seller has a home inspection report. They can also confirm a reputable home inspector conducted the inspection.
Shorten the Home Inspection Period
Real Estate contracts in Florida default to a 15 -day home inspection period.
A 15-day home inspection period gives buyers plenty of time to have the property inspected and negotiate repairs with the seller if needed.
In a bidding war, you may be able to win by shortening the inspection period to seven days. This conveys a message to the seller that you’re serious about buying their home and don’t want to waste time.
If you decide to shorten the inspection period, make sure you’re comfortable with this timeline. You’ll need to find a reputable inspector who can quickly get out to the property and make sure there are no major problems.
The inspection period should be as short as possible, ideally no more than one week.
Close on the Seller’s Time Frame
The closing date is the date on which the transaction will be finalized and the property officially changes hands.
In most cases, buyers choose a closing date that works for them. You may be able to win a bidding war on a house by being flexible with the closing date and agreeing to close on the seller’s time frame.
This sends a message to the seller that you’re willing to work on their schedule and makes your offer more attractive.
If you’re not in a rush to move, closing on the seller’s time frame may not be an issue. But if you have a specific timeline, this could be a problem.
You’ll need to weigh the pros and cons of being flexible with the closing date before deciding.
Offer a Leaseback
Some sellers are having difficulty finding a new home to purchase or rent in this competitive market.
If you’re not hurried to move into the property, you could offer the seller a leaseback. A leaseback would allow them to stay in the property for a specific period of time after the sale has closed.
Leasebacks can be an attractive option for sellers who need time to find a new home. It’s important to note that you would be responsible for maintaining the property during the lease period.
You’ll need to decide if you’re comfortable with this arrangement before making an offer. If you decide to offer a leaseback, make sure it’s for a reasonable period of time. You can sweeten the deal by offering below-market rent. I recently had a listing where a buyer offered a complimentary 8-month leaseback.
Other Creative Ways to Win Multiple Offers
Try thinking of creative ways to beat other offers on a house. You can offer a week’s stay at your timeshare as an example. If you find out their favorite sports team, offer tickets or your box seats to a game. The key is to be creative and think outside the box.
You could also offer to pay for their movers, title insurance fees, storage unit, or even their first month’s rent at their new place. These are just a few ideas, but the possibilities are endless.
The important thing is to make your offer stand out from the rest.
Find Out Offer Deadlines
In today’s competitive market, many listing agents will request highest and best offers by a certain date and time. But, this does not mean that the seller is obligated to wait until the deadline to choose an offer.
A seller can make a decision at any time. The listing agent may also present offers as they come in instead of waiting for the deadline.
Find out offer deadlines as soon as possible to make sure your offer is submitted on time. Submit your strongest offer. Chances are, the seller will look at all the offers and make a decision based on the one that’s the best fit for their needs.
Summary – Win a Bidding War on a house
In a competitive market, winning a bidding war on a house takes more than just a high offer. You’ll need to be strategic and consider all your options before making an offer.
If you’re not sure what you’re doing, it’s best to work with a real estate agent who has experience with bidding wars. They can help you navigate the process and put together a winning offer.
By following these tips, you’ll be in an excellent position to win a bidding war on a house.