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November 18th, 2020 at 1:00 pm

After months of scrolling through listings and visiting open houses, you have finally found the perfect home with all the bedrooms, bathrooms, and accoutrements that you could want for the long term. It’s in a neighborhood that you love with a school nearby and a relatively easy commute to and from work.

Chances are, if it is that perfect of a home, you are likely looking at some high demand from at least one other potential buyer on the market. That can lead to a bidding war, which can feel intimidating and hard to navigate, which is why we highly recommend working with a real estate agent at a local real estate office.

With your agent’s help, here are some tips to hopefully help you win a real estate bidding war and secure your dream home.

When to pull out of bidding

Before we get into the tips to win, it’s important to learn when to count your losses and pull out. It’s unfortunate when things don’t work out, but you also don’t want to end up in a financial hole for your dream house. Walk away from the bids when:


How to win a house bid

1. Offer the highest bid

This is the most obvious answer, though that also doesn’t mean it is the easiest. Granted, the highest offer does not always the one that the seller will choose, but a higher offer more naturally means that you are more likely to win the bid against other interested buyers.

That said, you should not tear through your budget just to make the highest bid. That could leave you with huge financial issues later on and turn your dream home into a nightmare. Furthermore, even if you are ready to increase your bid, the bank may not follow suit. Your mortgage loan will only go so far as the amount the home is appraised for, which means any extra money you bid will likely be coming out of your own pocket.

It is always better to walk away, save your money for a different home, and consult your agent, who can look into local real estate market data and get into contact with the seller’s agent for some insight.

2. Obtain a preapproval letter

Before you start shopping for a home, get mortgage pre-approval by your bank. This will usually involve a prequalification process, which provides you with an estimate of the mortgage loan based on a verbal confirmation of your finances and income. However, a preapproval letter goes much more in-depth, providing a precise mortgage amount that is based on your W-2s (and other tax documents), credit statement, bank statements, and other documentation.

Ask your bank to draft a preapproval letter for the specific property in question. This essentially shows that you have enough money to buy the house should you win the bid, and it’s a solid signal to the seller that you are serious about making the purchase. Some sellers may actually skip you entirely without a preapproval letter.

3. Present an escalation clause

If you are ready to make high bids without the risk of overpaying, an escalation clause could be the way to go. Say that you make a competing offer on a home, but you are not sure how much other prospective buyers might bid. An escalation clause is an addition to your offer that essentially states that you will pay a specific dollar amount above any competitor’s offer, at least to your budget limit.

For example, your escalation clause might state that you will outbid any offer by $1,000 but only up to a limit of $200,000. An escalation clause essentially allows you to save money upfront while showing that you have the money to outbid your competitors.

Some naysayers to the escalation clause argue that it can essentially show your seller too much (i.e., your seller may see your highest limit and just want to ask for that), but an escalation clause is worth a shot if you are not sure of the competition.

4. Pay in cash

It may not be possible, but cash does speak volumes over mortgages. If you do have the cash on hand and do not need to apply for a home loan, your offer will almost immediately jump to the top of the list. Paying with cash essentially means that the seller does not have to worry about you running into financing issues, which saves time for everyone involved. Paying in cash eliminates the need for a third-party lender and thus eliminates any risks or complications that come with that. Cash in hand also shows that you are serious.

Remember that a seller does not want their home sitting on the market. They want to sell their home as quickly and efficiently as possible. Without having to go through the underwriting process, the deal can close much sooner, which is good for you and the seller.

However, paying for an entire house in cash applies to a significantly small fraction of the population, but in a multiple offer situation, this can be beneficial for you in landing your dream home. 

5. Waive your contingencies

Contingencies are items that a seller has to meet to successfully close on a deal. If those contingencies are not met, the buyer is allowed to simply back out of the deal without losing any money. There is a wide range of potential contingencies that can appear in typical offer letters. A financial contingency states that the buyer will only purchase the property if their bank agrees to a large enough loan to cover the cost. An inspection contingency is an agreement that you will only purchase the property if there aren’t any major issues that pop up during the home inspection. Waiving some of these contingencies can reduce the time and energy spent closing the deal and shows that you are serious about your offer. Granted, you can still back out of the deal even if you waive some contingencies, but you may have to forfeit your earnest money.

There are inherently some risks that come with waiving your contingencies. Contingencies are designed to protect the buyer, giving you some flexibility to negotiate prices and terms. You may also end up paying more in the long run. For example, if you waive your inspection contingency but find that the home has some severe and dangerous structural issues in the foundation, you will either have to pay for repairs once you get the deed or back out of the deal and leave your earnest money on the table. While waiving some contingencies could help your bid, it’s worth talking to your agent to weigh out the risks involved.

6. Write a personal letter

Amid the mortgage, contingencies, inspections, and bureaucracy, a house is still a home. It’s a place where people will live, raise families, and make memories. That’s something that connects homeowners. Sellers generally want to give their homes to buyers who will care about the home and create lasting memories within it.

A personal letter is an excellent way to reflect that and play to a seller’s pathos. Some things to keep in mind when writing a personal letter:

A personal letter costs basically nothing, but it can leave a lasting impression that could put you a step above other prospective buyers.

Begin your search for the perfect home

A bidding war on a house can get complex and difficult on your own, and it’s important to bolster your expectations and let your dreams evolve so that you can fight another day. Regardless, we absolutely recommend working with our Southern California REALTORS®, who can guide you through the process, teach you how to bid on a house, and help you navigate some of the more difficult aspects of bidding on a home.

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