A real estate transaction is a complex process with multiple stakeholders. If you are in a hot seller’s market, it’s not uncommon to go through a bidding war. This happens when one property gets many competitive bids from different buyers.
It’s challenging to get a good deal when the demand for housing outweighs the available supply. That said, you can still negotiate your way through the process and win the bidding war.
This article explains how you can beat out your competition and win the bidding war as a buyer, or get the top dollar for your property as a seller.
When does a bidding war happen?
A bidding war is a common occurrence in a seller’s market. It happens when several potential buyers make offers on the same property.
The term bidding war refers to the process when buyers try to outbid each other by increasing their offers. It can lead to a much higher price than the original property value. Features like the property’s location, amenities, and proximity to public transport can play a role in the asking price.
How can a seller start a bidding war?
The best way to start a bidding war is to make your listing as attractive as possible relative to the market. Here are the top ways to generate interest in your listing.
Hire a real estate agent
An experienced real estate agent can help a seller in the same way they help a buyer. You should consult a seasoned real estate professional to get top dollar for your property.
Realtors typically make 3 to 6 percent of the sale price of the house, a fee that can easily pay for itself if you sell above the listing price.
When you have multiple bidders offering above the asking price, a real estate agent can help you identify the best option. It can be considerably tougher to get the highest price for your home without an agent’s expertise.
Price your home just below market value
Pricing your home just 5-10 percent below market value is one of the most tried and tested tactics among sellers. However, before you do it, consult with your real estate agent, who can help you to do a price analysis to determine the value of your home.
Attracting more buyers with a home slightly below market value will help you increase the price incrementally during the bidding process.
Market your property
To start a bidding war, you need multiple interested buyers. But how do you find them? One way to do it is by marketing your property. If you are serious about getting the top dollar for your home, start marketing your property before you put it on the market.
Your real estate agent can help you by including your property in their newsletter, social media posts, or contacting specific customers to see if they are interested. These rules depend on the state, as sometimes, agents are legally not allowed to market properties for their clients before they hit the market.
Professional photography, staging, video slideshows, or virtual walk-throughs are the best ways to give prospective buyers a good visual impression.
Establish a tight deadline
Setting a deadline is optimal to get multiple offers on your property. It creates a sense of urgency and helps to deter procrastination among buyers. A tight deadline only works if you have shown your house to multiple buyers. If your property generated interest, ask prospective buyers to submit their offers by a specific date.
How can a buyer win a bidding war?
Buyers who want to score in a seller’s market should be prepared to negotiate and offer more money if they are serious about securing the deal. While having other bidders trying to offer more money on your dream home is disheartening, you should prepare for every scenario.
As a buyer, you should know that getting a good deal in a seller’s market can be challenging but not impossible. Sellers dictate the prices and conditions of the transaction, but there are a few ways to increase your chances of getting a more favorable deal.
To make sure you emerge as a winner from the bidding war, consider using the following techniques:
Make a better (or all-cash) offer
As simple as it sounds, offering more money on a property is the best way to outbid your competitors. If you have enough cash and don’t need financing, consider making an all-cash offer to score the house of your dreams.
All cash offers are not subject to appraisals and don’t need any financing. Since your bid doesn’t hinge on a mortgage, your offer will be instantly more attractive to a seller. Financing options often land buyers in hot water since lenders will not give them more money than the house is appraised for.
In this case, a buyer either has to make the difference or ask a seller to lower the price, which is highly unlikely in a bidding war.
Add an escalation clause to your offer
An escalation clause is a provision that raises an offer when a competing bid is made. This means the buyer is willing to offer more than the highest bid on the property until the offer reaches an established price.
When a potential buyer makes an offer, the escalation clause automatically increases its offer by a preset amount. An escalation clause works only when multiple bidders make offers on the same property.
Sellers love offers that have no contingencies. A clean offer will put you above your competitors and increase your chances of winning a bidding war.
A contingency is a condition that specifies that a deal can go through only if a house meets specific requirements. The most common contingencies are financial, home inspection, and appraisal.
Carefully assess the situation and make the right decision based on the condition of the property and your financial situation as waiving contingencies presents quite a risk for the buyer.
Hire a seasoned realtor
If you are house hunting in a seller’s market, hiring an experienced real estate agent is a must. Finding a house in a hot market can be challenging, let alone trying to outbid other potential buyers.
Seasoned real estate agents have the knowledge and expertise to determine the fair market value of a property before you get into the bidding war.
Some buyers rush to offer more money on a property. A real estate agent can guide you through the process and advise on how much money and which terms you should offer. A real estate agent can also help you avoid risky financial transactions.
Make a large earnest money deposit
An earnest money deposit is one of the easiest ways to show that you are serious about buying a property. The deposit is usually around 1 percent of the price but can be more, depending on the market. If there are other bidders competing against you, you need to tell the seller that you plan on making an earnest money deposit when you submit your offer.
A buyer pays an earnest money deposit after a seller accepts your offer, and you sign the agreement.
Earnest money shows the buyer’s good faith in a transaction, but there is no legal requirement for them to make an earnest money deposit.
Skip a home inspection
Skipping a home inspection is a very risky move. Most real estate professionals will advise skipping a home inspection because it involves significant risk.
Nobody wants to buy a money pit. While you could make your offer more attractive to a seller by skipping a home inspection, you could also expose yourself to serious financial liabilities. Only waive a home inspection contingency in your contract if you know that a property has been well maintained and doesn’t require any expensive repairs.
While the term bidding war has a negative connotation, it’s not always bad. A bidding war benefits the seller, but it doesn’t necessarily mean that you have no chance of success as a buyer. One of the keys to winning the bidding war is preparing for the process ahead of time and working with a knowledgeable real estate agent who can help you navigate the process and avoid sketchy financial decisions.