How to Manage a Bidding War

Blog posted On August 23, 2018

If you’ve found the home you love, chances are someone else loves it too.  In today’s busy housing market, most home sellers are getting multiple offers on their homes in a few short weeks, sometimes leading to a bidding war.  For home buyers starting their home search, the best way to handle a bidding war is to be prepared, plan ahead, and set realistic expectations. 

MarketWatch contributors Jacob Passy and Maria LaMagna suggest these three tactics when facing a potential bidding war:

Cap Your Budget

In busy real estate markets, especially those leading the Case-Shiller home price appreciation index like Seattle, Las Vegas, and San Francisco, bidding wars are not uncommon.  Before you make an offer on a home, set a maximum budget of what you are willing to pay.    According to Zillow, 82% of home buyers get preapproved for mortgage financing before they make an offer and 77% get preapproved before even choosing a home.  Mortgage preapproval is one way to cap your budget ahead of time.  Most mortgage professionals advise against taking out the entire amount for which you are approved. 

Consider Escalation Clause

In most cases, all potential buyers are submitting offers separately, and you will not actually find yourself competing in a round table.  This also means you and your real estate agent will not be able to negotiate actively.  When you make an offer in a competitive environment, consider an escalation clause.  An escalation clause will increase the offer by a predetermined increment to a maximum cap if higher offers are made.  With an escalation clause, you risk the seller finding out how much you are willing to pay. 

Time is of the Essence

ATTOM Data Solutions reports 1 in 4 homes sold in the second quarter of 2018 were bought by all-cash buyers.  All-cash buyers or buyers with larger down payments are more attractive to some sellers, but price isn’t everything.  Some sellers prefer to close quickly, others are looking for a flexible move-in date.  Use your real estate agent to find out what might tip the scales in your favor when you make an offer.  Working with a mortgage lender that can ensure a quality preapproval and quick close can make your offer more competitive. 

Working with the right Realtor and loan officer is the best way to be prepared for any potential bidding wars.  The right real estate team will be able to negotiate expertly on your behalf, leverage local professional connections, and advise you against any financially detrimental moves. 

Sources: MarketWatch