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:
The home needs any type of major repair – Most homes will likely need some small upgrades for the sake of comfort and your own design tastes. However, if you or your agent see that the house will need some significant repairs during a home inspection, you should consider looking elsewhere. Your bid may cut into those repair costs, meaning you’ll end up spending even more.
The price is already way above your budget – If the initial price of the home already exceeds your budget, you should stay out of the bidding process. Even if you successfully negotiate house price, that number will still be out of your range. Similarly, if there are already multiple bids significantly higher than your budget, be ready to move on and find a different home.
The house isn’t in your desired area – Part of living in your dream home should include a neighborhood that has all of the amenities that you want and need. While there are plenty of things you can settle on, don’t force yourself to bid on a home that’s not in your desired area, especially if the bids are already exceeding your budget.
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. Have your preapproval letter ready to go
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 or lender 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. 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.
4. 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.
5. 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:
Tell them about yourself – Include some details about you and your family. This is an opportunity to give your seller an idea of you as a person, beyond just a name and an offer number. Introduce yourself and your family members. This can also help the seller remember you when you make your offer.
Specify what you love about the property – A home is more than four walls and a roof. There’s a specific reason why you were drawn to this specific property. Maybe it was the view out the bedroom, the backyard space, the feel of the hallways. Tell your seller about the details that you loved.
Talk about your offer if it is low – If your offer tends toward the lower end of the spectrum in a multiple offer situation, this is a good opportunity to explain why, whether it’s childcare costs, career troubles, or emergency medical bills. Sellers are human, too. They can empathize with your situation and understand where you are coming from.
A personal letter costs basically nothing, but it can leave a lasting impression that could put you a step above other prospective buyers.