Multiethnic couple on blue couch bidding on homes.

How To Win The Bidding War On Your Next House

Andrew Dehan8-minute read

June 23, 2022


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After months of searching, you’ve finally found your dream home. You’re financially secure and ready to take the next step in buying a house. But if you’re searching for a home in a seller’s market, there’s one thing standing between you and the home of your dreams: other home buyers.

Bidding wars are the hallmark of a seller’s market. You may find that your perfect home is perfect for several others. We’ll look at a few strategies you can use in a bidding war to avoid heartbreak and ensure victory.

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Have Your Preapproval Letter In Hand

Get preapproved for a mortgage before you start shopping for a home. If you’ve heard about the prequalification process, note that the prequalification is an estimate of the loan amount based on verbal confirmation of your income and other details.

A preapproval letter, on the other hand, offers a precise mortgage amount based on your W-2s, bank statements, credit score and more official documentation.

A preapproval letter tells the seller that you’re serious about buying their home. It also tells the seller that you won’t run into trouble getting a mortgage to buy the property. It’s always possible that if you don’t have preapproval, a seller could skip over your offer entirely.

Make The Highest Offer

Traditionally, the best way to win a bidding war is to offer the most money. Although the highest offer isn’t always the one that the seller chooses, money does talk.

Under no circumstances should you throw caution to the wind and ignore your budget. Bidding wars can get emotional, but you must be able to walk away, secure in the knowledge that a home that fits your budget awaits.

How can you tell how much competition you have on a home? Ask your real estate agent to get in contact with the seller’s listing agent, who should have some key insights. Your real estate agent can also use local housing market data to help you strike the perfect balance between saving money and securing your home.

Add An Escalation Clause

What if you want to make a higher offer on a home but you’re afraid you’ll end up overpaying? An escalation clause can help you put in a higher offer only if you face competition on a home’s price.

Here’s how it works: Imagine that you want to make an offer on a house for $150,000. You believe that you’ll face competition for the home, but you aren’t sure how much your competitors are offering. Your real estate agent can write an escalation clause into your offer that says you’ll pay a certain dollar amount above any offer up to your budget limit.

In this example, you might offer to outbid any competing offers by $1,000 up to $155,000. This way, you can still outbid other home buyers with your absolute best offer without offering too much money upfront. If you end up being wrong – and there are no other buyers interested in the home – you won’t spend extra money for no reason.

Write A Personal Letter

Think about the amazing memories you’ve made in your current space. Most sellers love the idea of passing their home onto a buyer who will love it as much as they did.

You can increase your chances of winning a bidding war by including a personal letter to the seller with your offer. This costs nothing but can leave a lasting impression on the seller. Use these tips to write a great personal letter:

  • Include a few details about yourself. One of the biggest benefits of including a personal letter with your offer is that you can give the seller an idea of who you are as a person. Introduce yourself and your family in the opening body of your letter. This makes your offer more personal than just a set of numbers and can help the seller remember you when it’s time to choose an offer.
  • Write about the property details you love. Did you instantly fall in love with the shape of the pool? Already envisioning yourself serving Thanksgiving dinner in the large dining room? Were you touched by the initials etched into the walkway? Let the seller know exactly why you want to buy their home.
  • Explain your offer if it’s low. Use your personal letter to explain why you might be submitting an offer that’s on the lower end or below the seller’s asking price. This way, your seller knows that you aren’t simply attempting to lowball them. You never know which seller might sympathize with the stress of childcare costs or medical bills.

Offer An All-Cash Deal

Are you able to buy the home with cash? If you don’t need to apply for a mortgage, your offer will usually jump to the top of the pile. The seller doesn’t need to worry about you running into problems with financing. But don’t worry. You may be able to use delayed financing after you close on the sale to help you regain access to the cash you have in the home.

A cash sale saves time for everyone and can close much sooner because there’s no underwriting process to wait on. If the seller wants to sell their home as soon as possible, a cash offer is very powerful.

Drop The Contingencies

Sellers don’t want their homes to sit on the housing market forever. They also don’t want to have to relist their home because a contingency resulted in the sale falling through. You can make your offer stronger by dropping your contingencies. Contingencies are specific conditions that must be met before the sale can be completed.

For example, you might have a contingency in your offer letter that says the home must meet or exceed your offered price during the appraisal. This is because mortgage companies won’t lend out more money than the home is worth. You’ll still need the appraisal contingency because your lender requires it.

By dropping the contingency, you’re telling the seller that you’re willing and able to pay an additional amount in cash at closing if the home appraises for less than the agreed-upon purchase price.

For example, you may be willing to pay up to $5,000 extra at closing to make up for the low appraisal. This allows you to fill the gap between the appraised value and the purchase price.

But be careful. You still need to have enough cash to cover your down payment and closing costs. With an appraisal shortfall, you’ll need to come up with that money.

Otherwise, you’ll end up either having to walk away without your earnest money, or putting less down on the house. This might force you into buying private mortgage insurance (PMI).

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Skip The Inspection

Most offer letters include a contingency that says you can cancel the sale if a home inspection reveals major problems with the property. Although you can make your offer stronger by agreeing to skip the inspection contingency, you’ll be taking an enormous risk.

Unless you know for a fact that the property has been properly maintained – which might be the case if you’re buying from a family member or close friend – you might be purchasing a house whose great looks hide some urgent and expensive repairs.

But if you feel able to shoulder the potential risk and want to make as clean of an offer as possible, do a thorough walkthrough of the home. Here are some things to mark off your walkthrough checklist before submitting your offer:

  • All lights and outlets in each room work
  • Toilets, showers and faucets aren’t leaking or emitting foul odors
  • All home appliances are functioning as they should
  • Gutters are clean, secure and directing water away from the home
  • Garage door closes and opens correctly
  • Home security system arms and disarms as it should
  • No cracks or other issues with the foundation

You can also ask the homeowner for repair and home improvement records, as well as any home warranties for work completed. These documents will give you a closer look at the condition of the home and how well the owners have been taking care of it.

Be Available

The final key to remaining competitive on a home sale is to keep yourself available. Leave your information with the seller and invite them to contact you or your agent with any questions about your offer.

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

How To Beat A Contingent Offer

What if your dream home’s seller accepts a contingent offer from another buyer? Likely, it means it’s time to move on, but if your heart is set on a property, there are some things you can try. Who knows? You may get lucky.

Find Out If The Sellers Are Accepting Backup Offers

First, have your real estate agent find out if the seller is still accepting offers while the sale is pending, and if they included a kick-out clause in the sales contract. 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.

If the seller gets a better offer, and depending on how it’s structured, the kick-out clause allows them to notify the first potential buyer and encourage them to do one of the following:

  • Match the competing offer or exceed it (the escalation clause)
  • Agree to waive all contingencies in the contract
  • Agree to waive some contingencies

If there is no kick-out clause, all you can do is have your real estate agent keep an eye on the pending sales process. It’s possible that buyers will back out after reading the home inspection report or they won’t be able to get the financing they need.

If your need for a new home isn’t urgent, and you love that house, you could wait it 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 last offer. Otherwise, the sellers may decide to simply put the home back on the market.

Know What To Include In Your Backup Offer

If you’re serious about making a backup offer, make it worth the sellers’ time and effort to invoke the kick-out clause. Make the offer price tantalizing, the earnest check large and the contract as contingent free as possible.

Keep in mind that while you are awaiting a resolution between the sellers and the first potential buyers, you will not be able to make an offer on another home. If you are in the middle of house hunting in a competitive market, this may cause you to miss another great opportunity.

Win Your Next Real Estate Bidding War With Verified Approval℠

In a competitive home market, you might need an edge over other buyers who want the same property. For the best chance at winning a bidding war, be sure to get a Verified Approval from Rocket Mortgage®.

When you get a Verified Approval, you give your lender access to more accurate information on your income, assets and credit. You’ll share documents like bank statements and pay stubs with your lender so they can verify the data on your application.

Once your lender finishes looking at your documentation, they’ll return a Verified Approval Letter to you. Your letter will give you a very accurate estimate of how much you can get in a loan because your assets have already gone through verification.

A Verified Approval Letter ensures a seller that you won’t struggle to find financing. This makes your offer much more appealing, which in turn can mean the difference between winning and losing a home.

The Bottom Line

There are several factors that can make or break whether you win a bidding war on a house. Getting preapproved for a mortgage, making the highest offer on the home and dropping your contingencies are a few ways you can show the seller that you’re a serious buyer and, hopefully, encourage the seller to accept your offer.

Want to show sellers you’re ready to buy a home? Get approved for a home loan with Rocket Mortgage.

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Andrew Dehan

Andrew Dehan is a professional writer who writes about real estate and homeownership. He is also a published poet, musician and nature-lover. He lives in metro Detroit with his wife, daughter and dogs.