How to Win a Bidding War on a House

Be prepared to offer above the asking price and accommodate a seller's timeline when doing battle in a bidding war.
Barbara Marquand
By Barbara Marquand 
Updated
Edited by Alice Holbrook

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When you finally find a home to buy in a hot seller's market, you probably won't be alone — other eager buyers will have spotted it, too.

Bidding wars happen when multiple buyers compete for the same property, driving home prices higher, and they’re more common in markets with a lot more buyers than homes for sale.

You may not be able to avoid bidding wars when home shopping and you shouldn't let the competition scare you off. But you will need to get ready. If you're concerned about finances, understand that a good strategy involves more than just throwing around extra money (although that often helps). Here's how to prepare for battle and eventually come out on top.

Get preapproved for a mortgage

Unless you plan to buy a house with cash, get preapproved for a mortgage from at least one lender before home shopping. A mortgage preapproval informs sellers and real estate agents how much a lender might let you borrow. It’s based on a credit check and review of your finances, but pending full underwriting.

Without a mortgage preapproval in a competitive market, your offer will go to the reject pile.

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Be prepared to offer above the asking price

Homes are more likely to sell above the asking price in a seller's market, so it's a good idea to shop for properties well under your spending limit. But how high should you go? There's no formula for figuring how much to offer on a house, but there are a few guidelines:

  • Consider prices of comparable homes that were recently sold or are pending sale.

  • Lean on your real estate agent. A good buyer's agent has deep experience in the market and will recommend a price point.

  • Avoid blowing your budget. The victory of winning the battle won't be worth the financial stress of owning a home you can't afford.

Maximize your down payment

Putting more money down will lower your monthly mortgage payment because you'll pay more upfront. It will also reassure sellers that you have some financial cushion.

For example, if there's a gap between the home appraisal and the sale price, the buyer will either need to make up the difference, renegotiate the price with the seller or walk away from the deal. It's easier to close the gap if you have more money set aside than you need. You could put some of that money toward filling the gap and still have enough to meet a lender's down payment requirement.

However, don't put down more than you can handle. Keep some money in savings for emergencies and homeownership expenses.

Offer more earnest money

Earnest money is a good-faith deposit a buyer makes when a seller accepts an offer. A typical amount is 1% to 3% of the home price, but buyers often put down more in hot markets. That shows sellers you're committed to buying the property.

Earnest money is usually kept in an escrow account and disbursed at closing. Then, buyers can apply it toward closing costs or the down payment, or pocket the cash. The seller can keep the earnest money if the buyer walks away from the deal for a reason that's not spelled out in the purchase agreement.

Ask your real estate agent how much earnest money to offer. Sellers' expectations will vary by area.

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Limit contingencies

Contingencies are clauses in the purchase contract that spell out conditions under which you could get out of the deal without forfeiting your earnest money. They protect your interests as a buyer, but too many stipulations will hurt your chances of getting an offer accepted.

The key is reassuring the seller without taking too much risk. A good real estate agent will walk through the options and help you strike the right balance. A professional's advice is critical because the decisions are more nuanced than either-or propositions.

For example, a home inspection contingency lets the buyer negotiate the sales price, ask for repairs or walk away based on the inspection results. Rather than waiving the home inspection contingency, a risky move some buyers have taken, you could agree to request repairs only for significant issues costing over a certain dollar amount to repair. That can protect you in case an expensive problem lurks while letting the seller know you won't demand that every little thing get fixed.

Be flexible about closing and move-in dates

Flexibility around the closing and move-in dates can win over a seller, even when you're competing against higher-priced offers. Find out what the seller wants, and do whatever you can to accommodate their timeline.

Accept a loss and move on

A bidding war is a misnomer. It's not really a war; it's just one battle. In a sizzling market, you may end up losing on a number of houses before finally getting an offer accepted. Shake off the loss, take a break if you need it and work with your agent to stay on top of new listings. You never know, the right house could come on the market tomorrow.

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