How to Win a Bidding War 

When it’s a seller’s market, houses sometimes move before you can get out the door to see them. If you’re lucky enough to find a home you want, there’s a good chance yours will be one of many offers. So, how do you win a bidding war for that home you really want?

Get preapproved and give your preapproval letter to your realtor

In a  seller’s market, it doesn’t make sense to even look at houses without a preapproval letter. You won’t win a bidding war without one. Preapproval tells realtors and sellers whether you can afford to buy the house you’re looking at or making an offer on. It also lets them know you won’t have problems finding a lender when you decide to purchase. 

It’s important to understand there is a difference between preapproval and prequalification. Prequalification does not require verification of any of your claims about income, assets, and debt, but preapproval does. Preapproval does require verification by the broker or lender. That’s why preapproval carries more weight and indicates that you can obtain the funds you need to purchase a home. So, the first and most important step is to complete a loan application and get preapproved 

Be prepared to make an offer quickly

We’re not suggesting you rush into a decision, but in a seller’s market, you will need to know what you want and be prepared to make an offer to compete. If you’re in a wait and see mode, it’s likely the house will be under contract before you know it, and you are wasting your time and the realtor’s time. If you know you want a house, make the offer. That means giving forethought to the tips below.   


Finances and budgeting, businessman stacking coins

Make the most competitive offer you can within your budget

This is where having a real estate agent really helps. Making a competitive offer requires information. An agent can provide information on comparable houses in the area that sold recently and for how much. Are seller’s using offer deadlines? How quickly are the houses selling? Your agent can reach out to the seller’s agent to get a feel for how much competition you’re up against. Be prepared to offer more than the asking price based on the market research. This requires knowing what you can realistically offer, and when to bow out.  

Add an escalation clause

An escalation clause states that the buyer will pay a certain amount of money above the highest offer the seller receives. Most include a ceiling cap to prevent the buyer from paying more than they can afford. Here’s an example:  Mark wants to make an already competitive offer at $250,000 but he’s willing to pay as much as $260,000. His escalation clause might offer to outbid any other offer by $1000 up to $260,000. 

When you’re competing against multiple offers, an escalation clause can potentially move you to the front of the line. A seller can’t use this information to arbitrarily increase the home’s price. A higher offer must come in. The downside to escalation clauses is that they can limit the negotiating power of both the seller and the buyer, and the buyer has revealed exactly how much they’re willing to pay.  

Make it a cash offer

Of course, this may not be an option. Cash offers make the process easier from the seller. They don’t have to wait on you to get financing, and it can move the closing date which may be a real advantage for the seller.  

Leave out the contingencies

Offers usually come with contingencies, conditions that must be met for the sale to go through. For example: The house appraisal must be at or above the offered amount. If houses are selling like hotcakes, other buyers may be willing to cover the gap between the offered price and a lower appraisal price just to get the home. That means they’re willing to bring that cash to the table at closing. When you’re competing against other offers, contingencies can get in the way. Carefully consider what is or is not a deal breaker for you 

Forego the inspection (Warning: Do this at your own risk)

Inspections are another type of contingency. In a normal market most offers include one that states the buyer can cancel the sale if the home inspection identifies significant problems. Skipping the inspection is risky. If you’re buying the home that you plan to tear down and rebuild, this could be an option, but otherwise, you are taking a major risk. In some cases, you may be able to ask the seller for home repair and improvement records and warranties. These can give you an idea of how well maintained the home is, and help you determine if you’re willing to forego an inspection and take the risk.  


Increase the amount of earnest money you offer

Earnest money is essentially a deposit put into escrow when your offer is accepted by the seller. It tells the seller you’re serious about your offer, and once the contract is signed you can lose it if you back out for any reasons not agreed upon in the contract. If you want to let the seller know how serious you are about the offer, you may offer a larger amount of earnest money.  

Be responsive and available

If you get into a bidding war, you need to be available and responsive when calls from your agent or theirs or counteroffers come in 

Bottom Line

A seller’s market is tough. Bidding wars are tough. Be prepared and work with your agent in advance to discuss strategies. Make the offer as enticing and the sales process as simple as possible for the seller without taking on too much risk for yourself.