Bidding wars: 6 tips for home buyers on how to win

Eager to buy a house? Shopping for a property can be exciting. But it’s important to be prepared, especially in a hot market. You may end up in competition with one or more rival buyers. If this happens, knowing how to win a bidding war on a house is helpful.

What is a bidding war, and how does it work?

A bidding war is when multiple buyers submit bids and compete for the seller’s approval. During a bidding war:

1. Each buyer tries to submit a higher or better offer than everyone else.
2. The more bids a property receives, the higher the final price likely will be.
3. The seller usually accepts the highest bid, but price isn’t always the only deciding factor.
4. The winning buyer can expect to pay more for the house than it was listed for.

Bidding wars are a surefire sign of a seller's market. Ultimately, the seller determines which offer they will accept in a bidding war.

“Bidding wars may seem surprising in today’s housing market, where home buyer activity has slowed due to weak affordability,” says Nadia Evangelou, senior economist and director of real estate research for the National Association of REALTORS^® in Washington. “However, housing inventory remains tight in many areas, triggering competitive situations. It’s a classic case of high demand chasing limited supply.”

How to win a bidding war: 6 tips

Don’t get discouraged if you find yourself in a bidding war. There are tactics you can use to maximize your odds of winning. Here are 6 key strategies for winning a bidding war.

1. Get mortgage preapproval

If you qualify, get a mortgage preapproval before you start shopping for a home.

“When you have a preapproval letter in hand, it indicates that you are a serious buyer. Plus, it allows your REALTOR^® to find homes that are within your budget. After all, it’s heartbreaking to see a home only to learn that it’s not within your price range,” says Paul Epperley, president of the Greater Fort Worth Association of REALTORS^® in Fort Worth, Texas, “Also, in a competitive market, some sellers may require preapproval before allowing an agent to show you their home. And when you enter into a bidding war, a preapproval strengthens your chances, since your funds have been verified by a lender.”

Note that prequalification and preapproval are different. Prequalification is an estimate of the loan amount based on verbal confirmation of your income and often relies on self-reported details about your finances.

Preapproval offers a more precise estimate of how much you can borrow because the lender will do a cursory review of your financial documents. Preapproval is still an estimate. Your lender won’t thoroughly review your finances until you apply for a loan.

2. Make a competitive offer

It’s important to make a competitive offer that you can afford. In a bidding war, this usually means offering more than the listing price. However, there are other aspects to a bid that can win over the seller besides price.

A competitive bid is “usually structured to minimize contingencies, includes a quick close date, and aligns with the seller’s unique needs – such as needing to remain in the home after closing for a short period,” says Yan Gladkov, a real estate agent with Keller Williams NYC in New York City.

To craft a competitive offer, Gladkov recommends the following:

●      Work closely with your agent on what to include or exclude in your bid.

●      Try to accommodate the seller’s preferences and timeline.

●      Be flexible on the closing date or move-in dates.

●      Limit or waive contingencies, with caution.

●      Include an appraisal gap guarantee.

●      Include an escalation clause, which will increase your offer if the seller receives a higher one up to a maximum amount.

●      Offer an earnest money deposit.

3. Consider an all-cash deal or offer an earnest money deposit

Want to really impress that buyer? Try to buy the home with cash. If you don’t need financing, your offer will likely outrank any competitors. That’s because the seller doesn’t need to worry about you qualifying for a mortgage. The good news is that you may be able to use delayed financing after you close on the sale to help you regain access to the cash you paid to purchase the home.

A cash sale allows the transaction to close quickly because there’s no need for underwriting. A cash offer can be compelling if the seller wants to sell quickly.

“A cash offer transaction can be completed in one to two weeks – much faster than the typical 45 days or more required with lenders,” says Epperley. “Buyers need a proof-of-funds document from their financial institution to make a cash offer. It’s also highly recommended to work with an agent to draft the cash offer accurately and negotiate the deal. Many times, cash offers waive appraisals, but it is always recommended to perform a professional home inspection.”

You also might consider offering an earnest money deposit. Earnest money is a small deposit – often 1% – 3% of the home's price – that indicates you're a serious buyer. The earnest money usually is held in escrow and applied at closing to your down payment or closing costs. If the deal falls through for a reason not covered by a contingency, the seller keeps the deposit as compensation for their time and the cost of finding another buyer.

“A larger-than-average earnest money deposit – also called a good-faith deposit – signals confidence and commitment, further strengthening your offer,” Gladkov says.

The deposit can be even higher in competitive markets to demonstrate serious intent to purchase. Case in point: Gladkov indicates that earnest money deposits in New York City are typically 10% of the purchase price.

4. Limit or waive contingencies

Put yourself in the shoes of a seller: They want to limit the number of obstacles they have to clear to sell their home. If they agree to terms with a buyer who later backs out because the home appraisal was low or problems were found during the home inspection, it costs them money. An offer to buy their home that waives those contingencies is more of a sure thing.

Common contingencies in home purchase agreements include:

• A satisfactory home inspection
• Finding adequate financing
• An acceptable property appraisal
• A title with no encumbrances or liens
• Selling your current home

“Limiting contingencies in your contract gives you fewer ways to back out,” Epperley says. “This makes you a stronger candidate in a bidding war. And it shows that you are a serious buyer who will likely close the deal faster.”

Buyers looking to sweeten their offers often waive the appraisal and inspection contingencies.

Waiving the appraisal contingency

If you need financing to buy the home, your mortgage lender will order an appraisal. A typical appraisal contingency requires the appraised amount to meet or exceed the buyer’s offer. This is because mortgage companies won’t lend out more money than the home is worth. The contingency lets you cancel the deal if the home appraises for less than expected and you can’t borrow enough to buy the home.

If you drop the appraisal contingency, you’re telling the seller you agree to pay the difference if the appraisal comes up short. This usually means you increase your down payment to cover the gap between the appraised value and the agreed-upon purchase price. If you can’t afford it, you’re still legally committed to buying the home, and the seller may take legal action against you.

“It’s crucial to consult with your loan advisor before waiving this contingency,” Gladkov says.

Skip the home inspection

Nobody wants to buy a lemon. That’s why most offer letters include a contingency that permits you to cancel the sale if a home inspection reveals the need for significant repairs. If you want your offer to stand out, you could skip the home inspection contingency.

However, doing so is risky. Unless you know the property has been properly maintained – which might be the case if you’re buying from a family member or close friend – you could buy a home whose great looks hide a need for urgent and expensive repairs.

“Or, instead of waving the inspection contingency entirely, you could request a shorter inspection period to help speed up the process,” Epperley says. “For example, make it a three-day inspection contingency instead of the standard 10 days.”

If you’re considering foregoing a home inspection, a thorough walkthrough of the property is a good idea. Pay close attention to key areas:

• Examine the foundation for cracks or other structural concerns.
• Inspect and test the heating, cooling, and ventilation systems for proper operation.
• Check for plumbing leaks.
• Confirm that all home appliances are in good working order.
• Be sure all lights and outlets function properly.
• Inspect the gutters to ensure they properly direct water away from the home.
• Test the garage door for smooth operation.
• If the home has a security system, verify that it arms and disarms correctly.

You can also ask the homeowner for repair and home improvement records, as well as any home warranties for work completed. These documents will provide a closer look at the home’s condition and indicate how well the owners have cared for the property.

5. Be available

Another wise tactic? Establish clear communication channels early on. Encourage your agent to be responsive to the seller’s agent, to keep you in the loop, and to respond quickly when contacted.

Buyers who are accessible, receptive, and easy to work with often win deals. Remember: It’s not just about the money – it’s about trust. When agents keep communication lines open, it builds confidence that the transaction will go smoothly.

Respond to any inquiries quickly and have your agent regularly check with the listing agent. Be as flexible as possible and stay on the seller’s radar. When they decide, you’ll want to be the first to know.

6. Make a backup offer

Hopefully, you’ll emerge triumphant in a bidding war. But what if the seller accepts an offer from another buyer? Truth is, it’s probably time to move on. But if your heart is set on that property, here are two strategies you can try to make a backup offer.

With a kick-out clause

A kick-out clause allows a seller to continue accepting offers while the potential buyer awaits the home inspection, appraisal, or financing needed to close.

Have your real estate agent determine if the seller is still accepting offers while the sale is pending and if they included a kick-out clause in the sales contract. If the seller receives a better offer, and depending on how the offer is structured, the kick-out clause allows them to ask the accepted to:

• Match the competing offer or exceed it.
• Waive all or some contingencies.

“A kick-out clause essentially allows the seller to continue marketing the property and kick out a current buyer if a better offer comes along – typically used when the primary offer has contingencies,” Gladkov says. “Just be aware that the seller’s agent will typically advise the seller to proceed in good faith with the first offer that was accepted, even if a higher or better offer comes in at the last minute before contracts are fully signed. But the seller ultimately has the right to decide. Being strategic with a well-structured backup offer can position you to swoop in if the first buyer stumbles – with no bidding war even needed.”

Without a kick-out clause

If the sales contract has no kick-out clause, have your real estate agent monitor the contingent or pending sales process. After reading the home inspection report, the other buyer may back out before the closing date or be unable to secure financing.

If your need for a new home isn’t urgent, and you absolutely love this home, you could wait things out. Just know that most sales contracts successfully close. Should the sale fall through, be ready to act and make an offer that matches or exceeds the previous one. Otherwise, the seller may simply put the home back on the market.

The bottom line: Remember your budget

Despite your best efforts, you may not win a bidding war. That’s okay: You don’t want to overextend yourself financially and can continue looking for a home you can afford. If you are outbid, consider it a minor setback in your journey toward homeownership and a valuable learning experience.