Bidding Wars on Houses: What They Are & How to Win Them
Generally, a bidding war is when at least two people are trying to outbid each other in the hopes of buying and obtaining an item for themselves.
In a bidding war, you’ll have to match whatever amount the other buyer is offering for the product and exceed it. There’s no limit to the amount you can offer for the product, as long as it follows the bid increments.
Set a limit for yourself, though. It’s easy to get absorbed in a bidding war just to win something over. But you always have to make sure the product is still worth the price you’re willing to offer. If it exceeds the limit, walk away and just let the other person have it.
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How Do Bidding Wars on Houses Work?
Bidding wars also happen in real estate. How do bidding wars work on houses, you ask? Essentially, it’s just like any auction out there—except it’s for homes.
Bidding wars on houses usually happen in a competitive seller’s market. This is when the housing inventory is low but the housing demand is high.
A lot of people get into bidding wars to try and secure the house for themselves. The more people bidding on a home, the quicker they drive up the house price.
A seller could receive multiple offers or bids on their property. If they’re selling the home for $500,000, there could be buyers who offer a little more than that to try to secure the home.
In these cases, the seller has two choices: give the house to the buyer with the highest offer or start a bidding war. In most cases, the second option is more favorable.
Some buyers include an escalation clause when they put up an offer for the home. This will usually contain your bid increments and maximum offer price on the home.
You’re in the bidding war as long as the bids don’t exceed your maximum price. But once another buyer’s bid exceeds it, you’re out of the game and the property will go to them.
How to Win a Bidding War on a House
Here are six ways to maximize your chances of winning a bidding war on the house that you like.
Get a Mortgage Pre-approval
Being pre-approved for a mortgage instantly makes you more attractive to sellers.
A mortgage pre-approval lets the seller know that you’ll be able to pay for the home. It means there are fewer chances that the sale will fall through or that you’ll default on your mortgage.
Having your mortgage pre-approved implies that the seller will pretty much not run into a lot of issues (if there ever will be) when they decide to sell the property to you. It’s much less of a hassle for both you and the seller. And it gives you a competitive edge over other buyers who might not have a mortgage pre-approval just yet.
Make a Competitive Offer
You’ll also have to make sure that you place a highly competitive offer for the property. If you can, make sure you offer the highest price possible. Nothing is more attractive to sellers than an offer that’s much higher than the house’s current selling price.
Be careful, though. You’d still want to make sure you’re not overpaying for the property.
If you’re not sure what amount you should offer for the home, ask for help from a real estate agent. You’d want someone who knows the local market well enough to determine the most competitive offer to place on a home. This is all while still making sure that your offering price is worth the value of the home.
Otherwise, you should be prepared to walk away anytime. Surely, there are other properties out there that will fit your budget. If buying a home isn’t urgent, try to wait it out instead of giving your all to a property that you might not get in the end.
Include an Escalation Clause
As we mentioned above, an escalation clause helps you have a bigger chance of getting the home for yourself. Make sure you include a maximum price and bid increments.
The advantage of having an escalation clause in your offer is that it only kicks in when there are multiple bids on the property. If no one else places an offer, you’ll be able to get the home at the price you originally offered.
Write the Seller a Heartfelt Letter
Use this strategy to appeal to the seller’s emotions. There are sellers out there who are looking to hand their home over to someone whom they know will take care of it well.
Introduce yourself to the seller and tell them what you love about their home. You may also want to explain why you offered a low amount (if you did) to make sure that the seller knows where you’re coming from.
Reduce or Remove the Contingencies
If you want to win a bidding war, try to get rid of the contingencies. Doing so has its risks, of course. But if you’re adamant about obtaining the property, make sure you’re willing to overlook these risks.
A “clean” offer (one without contingencies) could give you a significant edge over other potential buyers. But if you can’t completely do away with the contingencies, at least try to reduce them to increase your chances of winning.
Always be Available
Lastly, you have to always be available. Don’t forget to place all your contact information on the offer that you make. Provide as many details as possible so that you can be easily contacted.
If a seller contacts you or asks to meet, be ready to accommodate them with any concerns or counteroffers they might have for you.
Flipping Houses in Alberta
Image source: Griffin Real Estate
Bidding wars can happen to any type of property. They happen to both brand-new homes and fixer-uppers. If you’re looking to expand your investment portfolio, you might want to try looking into flipping houses for extra profit.
In an ideal situation, you’ll find a home that sells for less and turn it into something of great value. But keep in mind that you’re not the only one looking at fixer-uppers. Chances are, there are also other buyers looking to flip houses.
Be ready to get into bidding wars, especially in a competitive market. Again, here’s how to win a bidding war on a house:
- Get pre-approved for a mortgage to establish your credibility with the seller.
- Make a competitive offer on the house. You’d want an amount that has the highest chance of winning while still making sure you’re not overpaying for the home.
- Include an escalation clause in your offer so that the seller knows the maximum amount you’re willing to pay for their property.
- Write a personal letter to the seller. Tell them about yourself and what you love about their property.
- Get rid of the contingencies in your offer. A clean offer always has a much higher chance of winning.
- Always be available should the seller need to discuss some things with you. Make sure your agent is easily reachable, too.