Tips on How to Win A Bidding War on a House
By Tali Wee
As a homebuyer, one of the last things you want to do is find yourself in a bidding war. In a competitive housing market where people are commonly offering more than asking price, trying to outbid other buyers can get you into financial and emotional trouble.
Aiming to outbid other buyers is certainly not ideal. However, if you find yourself in this situation, there are ways to gain a competitive edge. To improve your shot at having an offer accepted on a hot home, follow these tips.
1. Have your mortgage preapproval
Unless you’re offering all cash, start by getting preapproved for a mortgage. In fact, most sellers won’t take you seriously unless you have a preapproval letter up front.
What is mortgage preapproval? It’s a lender’s quote showing the loan amount you’re approved for. Unlike loan prequalification, preapproval is based on a thorough review of your income, credit history, debt and more. Here’s how it helps you as a buyer:
- Pinpoints the maximum amount you can offer.
- Shows the buyer you can back up your offer.
If you’re struggling to get preapproved for the loan you want, reach out to an NFCC-certified credit counselor. Your counselor can review your credit and offer personalized advice on how to prepare for homebuying.
2. Know exactly what you want
Make a list of the features you need versus features you want in your next home. For example, you may want a swimming pool or marble countertops, but perhaps what you need is a home located near public schools.
If you have a list in hand, you can avoid being tempted to bid on the wrong home out of a sense of urgency or desperation. Instead, use the list as a point of reference, so you know when to jump on a good listing that suits you and your family.
3. Research the market
According to Redfin, nearly 40% of homes are now sold within one to two weeks of hitting the market. In other words, you’ll need to move fast.
One of the easiest ways to get your offer approved is to make contact with the listing agent as soon as possible. Here’s what you can do to be ready when the right listing comes up:
- Do research online to get a feel for the local market.
- Pinpoint the neighborhoods that fit both your budget and your location preferences.
- Choose an agent who can help you book showings as soon as they pop up.
4. Know where to be flexible
You’ve already identified your must-haves. But being flexible in other areas can also go a long way to help you seal the deal. Aside from increasing your offer, here are some things you can do to make yourself more attractive to sellers:
- Offer a higher down payment
- Let the seller choose the closing date
- Pay the seller’s portion of the closing costs
- Write a letter stating why you love the home
- Agree to place 3% or more of the selling price into escrow
Some sellers will ask for flexibility in the area of home inspections, but this is one area where you don’t want to budge. If the seller wants you to buy the home “as-is,” it’s a major red flag. In fact, the U.S. Department of Housing and Urban Development (HUD) strongly urges every buyer to get a professional inspection, regardless of the property’s condition.
Why is the home inspection so important? Because if you skip it, you may end up finding that the home needs costly repairs that throw your finances into turmoil. For example, if the roof needs to be replaced, which could cost up to $20,000 or more. If you discover termite damage, the repair bills could range as high as $10,000.
5. Offer to escalate
Another way to beat the competition is by using an escalation clause. When you do, you can ensure you outbid most, if not all, other buyers.
What is an escalation clause in real estate? Also known as an escalator, this is a clause in your contract that says you will beat other sellers’ offers, up to a set dollar amount. For example, it might say something like “I will pay $400,250, but if the seller receives a higher offer, I will increase my price to $3,000 over that offer, up to $475,000.”
Just remember, you need to know your maximum dollar amount before making such an offer. Never agree to pay more than what you can afford, even in a sellers’ market.
Tali Wee is a Marketing Content Specialist at Zillow.com. She writes about personal finances, mortgages, and home improvements for the Zillow Blog and other Zillow partners.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.
