Useful Strategies for Winning a Bidding War

Pre-approvals validate exactly how much of a loan you are approved for. They take a more in-depth investigation, and it’ll occur after you’ve already submitted the mortgage application. You’ll receive a pre-approval letter if the lender endorses your application.  There you are. You just made an offer on your dream home. You’re so close to becoming a homeowner. You can picture your entire family kicking back and relaxing in your newly decorated living space. Your finances are looking good, and the only thing that’s left is to pick up the keys to your new forever home.

Then someone else makes a higher offer.

Suddenly, your dream home is in a bidding war between you and the enemy, or should we say other interested buyers. What do you do next? What do you do when there are other parties just as interested in the home you’ve already mentally moved in to? Well, to answer those questions and more, we’ve compiled a list of a few useful strategies to better position yourself in the eyes of the seller if you ever find yourself in a bidding war.

Obtain a Pre-Approval Letter

One option for making yourself more appealing in a bidding war is to have a pre-approval letter on hand. You can get the letter from your lender, and it will act as physical evidence of your financial preparedness and ability to successfully undergo the homebuying transaction.  

Together with your lender, you’ll assess your financial assets, income, employment, and debts. You’ll likely need to provide the lender with documentation, such as:

• Employment verification (W-2's or 1099s) and paystubs

• Bank statements

• Current real estate debt or rental statements

• Court orders

• Tax returns

Those are only a few examples of what you may need to present to your lender to receive a pre-approval letter. However, all the work done behind the scenes will be worth it once you hit the bidding war floor. Holding a pre-approval letter shows your money can be trusted.

You’ll know exactly what you can afford, which will save you from wasting time or accruing any unnecessary frustration. Essentially, your loan is going through upfront underwriting, and it puts you on the fast-track to homebuying. 

Expert Tip

A mortgage pre-approval carries more weight and goes a step further than pre-qualification.

Deescalate Your Contingencies

If you incorporated a list of contingenciesCertain stipulations that must be accomplished by the seller.contingenciesCertain stipulations that must be accomplished by the seller. in your offer letter, it might be in your best interest to scale back a few of those conditions to improve your offer against the competitors. For instance, one of the most common homebuying contingencies revolves around home repair.  

Say, for example, you’re aware that the roof of the home you’re interested in needs repairing. So, in your offer letter, one of your contingencies was for the seller to fix the roof before the end of the closing period. Rather than let the dome-damaged property slip away in a bidding war, you could inform the seller that the roof does not, in fact, need to be repaired prior to you buying it by swapping out your contingency for an “as-is clause.”  

The renovation’s cost might be coming out of your pocket, but deescalating your contingency tells the seller you’re committed to purchasing the home and have the extra cash to back it up. But don’t forget about closing costs and the down payment you’ll need to make as well! 

Make an All-Cash Offer

This strategy might not work for everyone, but if you have the available funds to make an all-cash offer, it could be the ticket to making yourself more appealing than the competitors. What makes the all-cash offer more attractive to sellers is the speed at which the transaction can be closed. Nobody needs to wait for the underwriter or loan processor to advance the process if you, the buyer, never filled out a mortgage application. Again, this strategy isn’t applicable to everyone, but it will certainly catch the eye of a seller who's racing to sell their property.

Pay the Seller’s Closing Costs

If the seller knows they won’t have to be the ones to pay their closing costs, they’re much more likely to want to move forward with you as their partner in the home-selling transaction. While every seller and situation are different, there’s a possibility your seller might select your offer over one that’s a little bit higher if you make the extra effort to pay their closing costs. Of course, that’s no guarantee, but it certainly shows them you’re serious about moving forward.

Add an Escalation Clause

These days, escalation clauses are becoming more common in the homebuyer’s playbook to conquer the bidding war. Basically, the escalation clause is implemented when a buyer is prepared and content to increase their offer every time the seller receives an offer greater than their own. The buyer will identify how much they’re willing to enlarge their offer in the clause by including a cut-off point. Utilizing the escalation clause doesn’t promise you anything, but it’ll surely keep you competitive and visible in any bidding war.

Be Accessible and Reactive

As your parents might’ve always told you, the best kind of ability is availability. You wouldn’t want to lose a bidding war because you took too long to answer the seller’s messages. Be upfront and accurate about the best ways to contact you, and don’t take days to respond to their inquiries. The optics of your behavior will show you genuinely care and are invested in finishing the transaction. And don’t forget to be courteous and kind to the seller, but that could go for all of life’s interactions, too!  

So, if you ever find yourself in a bidding war over your dream home, remember these strategies and implement the one that suits your situation the best. It’s not the end of the world if you don’t end up with the home you originally wanted. At least you made an effort to convince the seller you were the right partner for the deal. And who knows, maybe an even better home is waiting right around the corner...literally or figuratively!