How to Win a Bidding War on a House in a Hot Real Estate Market

If others are making offers on the house you hope to buy, here's how to make your bid the most attractive to the seller, based on price as well as other grounds.

When demand for homes in a particular area is high, the market is said to be hot. Would-be buyers find themselves in a tensely competitive situation. Even if only one other person is bidding on the house that you want, you'll need to make your offer the more attractive to the seller, based on price or other grounds. And, you might be facing more than one fellow bidder: perhaps two, five, or ten, if a particular property becomes the "it" one that week.

Yet you'll have no idea what terms others are offering as you write up your offer. Here are some of the best ways to help your offer rise to the top:

  • Hire an agent who's not only experienced, but has a reputation for professional, pleasant dealings with other agents.
  • Offer the highest price straight out.
  • Combine a solid base offer price with an escalation clause that exceeds other bidders' offers by a set amount.
  • Make a preemptive bid.
  • Waive the inspection contingency, thus agreeing to take the house no matter its physical condition.
  • Waive the financing contingency, by offering all cash (which you've perhaps borrowed short-term from friends or family).
  • Submit evidence of loan preapproval.
  • Accommodate other needs unique to the seller.
  • Write a personal letter to the seller, and
  • Be available and ready for last-minute changes to your offer.

We'll discuss all of these below, with the understanding that not all of these suggestions are possible for every homebuyer or in every situation.

Hire an Agent With Whom the Seller's Agent Will Want to Work

If only one person makes an offer on the house, then of course the seller's agent will find a way to work with the buyer's agent even if that person is known for being, say, slow or disorganized, an unreasonable negotiator, or prone to insisting on last-minute concessions.

But if the seller has numerous strong offers to choose from, and the seller's agent says of your agent something like, "I've never been in a deal with that agent where he didn't fuss over tiny issues in the inspection report and insist on a $12,000 price reduction," then suddenly your offer isn't looking so good.

Also realize that in some states, it's traditional for buyers' agents to present offers in person to the sellers' agent, one after the other over the course of a few hours; sometimes with the sellers there as well. An agent who doesn't present well, and can't convey why your offer is best, including giving a sense of what worthy people you are, might be overlooked if many of the other offers' terms are essentially similar.

And of course, you want your agent to be responsive and technologically adept, ready to move quickly to help you prepare an offer and respond to the selling agent's next moves.

Do everything in your power to get an agent with a great reputation within the professional community. This means checking references and reviews, asking other agents for referrals, and interviewing the agent to get a sense of communication and working style.

Offer the Highest Price You Feel Comfortable With

Price is certainly the first thing any seller looks at in a bid. In a hot market, they're likely expecting to see offers above list price, which they might have even set artificially low as a way to excite interest.

Your agent will help you understand how much comparable houses in the area have actually sold for in recent weeks and months, to give a sense of what amount is realistic. But only you can decide how far you're willing to stretch for a certain house, both based on your budget and sense of the house's value to you.

Many first-time buyers start cautiously, afraid to lose their heads and overpay. But after losing out on a few homes, they often become more aggressive with offer amounts. It becomes a matter of how badly you'll feel if a house you loved goes to someone else.

Bear in mind, however, that if you're taking out a mortgage for the home, a sky-high bid might go higher than the amount the house is appraised for. That can lead the lender to refuse to make the loan, thus complicating the closing.

Combine Your Offered Price With an Escalation Clause

If escalation clauses are considered acceptable in your area and by your prospective home seller, they're a way to potentially protect yourself against being outbid. The idea is that you advise the seller that if an offer comes in that's higher than yours, you will exceed it by a specified dollar amount, such as $3,000, $5,000, or $10,000. (The higher the increment, the more it can compensate for something else the seller doesn't like about your offer.)

You would set a maximum amount that you'll pay for the property, of course. And, to prevent the seller from simply opting for that maximum and pretending that another offeror drove yours that high, you can ask to see proof of the competing offer's existence.

Also realize that not all agents are experienced with escalation clauses, so you might end up causing confusion with it, which offering a flat amount wouldn't.

Make a Preemptive Bid on the Property

You could attempt a "me first" strategy, by putting in a tempting offer the second the house hits the market, or even before. The earlier you find out that a house is coming up for sale, the better the shot you have of making the seller read your offer and think, "Hmm, I could avoid all the hassles around marketing, and maybe get the house sold in time to avoid paying weeks' more taxes and insurance on it."

You'll probably also want to put an expiration date on your offer, such as 24 hours, so that the seller doesn't just set it to one side in hopes of more offers coming in later. (If you don't add an expiration date, your state's law might do so for you, such as within three days. Bear in mind that you can always withdraw an offer if it hasn't yet been signed by the seller.)

But some sellers refuse preemptive offers on principle, figuring that not only does accepting one disappoint their many colleagues who were planning to submit offers for their clients, but that better offers could be around the corner. And if you love the house that much, you probably won't disappear, either.

Besides, if you're thinking of making a preemptive offer, others likely are too. Truly being first in line is difficult to achieve. You'd have to be in a lucky position indeed to have information on an upcoming sale that no one else does.

Waive the Inspection Contingency

Inspection contingencies are part of a standard home purchase for good reason. Making a professional inspection a condition of closing is your best protection against the possibility of unseen, "latent" home defects, which could end up being expensive to repair. Why bid top dollar if you're going to have to follow that up with more dollars? With this contingency in place, you can negotiate for repairs or price reductions with the seller pre-closing, or cancel the deal altogether.

Unfortunately, waiving the inspection contingency has become common practice in hot markets. If you refuse to waive it, you will feel pressure to do so. You might watch bids that are lower than yours get preferential treatment. You'll have to decide whether it's worth going without a home inspection and the opportunity for follow-up negotiation, based on:

  • your cash reserves for repairs
  • your own abilities in construction or home maintenance
  • any information the seller has provided, such as the results of a recent home inspection the seller commissioned (ask your agent whether the chosen inspector is known for being rigorous or not, however)
  • clues you and your agent pick up from walking through the home, with regard to its condition and indications of ongoing maintenance.

One alternative that might be slightly more appealing to the seller is to condition the sale on a so-called "yes/no" inspection. This would mean you can back out of the deal entirely if the report revealed defects you can't live with, but you won't use it as a basis to negotiate for price reductions or repair. Or, similarly, you could waive most of the inspection contingency except for one area of concern; for example, reserving the right to have an inspector check the roof, where you've noticed missing shingles.

Waive the Financing Contingency

If you can somehow muster up enough cash to pay for the home without taking out a mortgage, you can remove the financing contingency from your offer. This can be highly attractive to sellers, because it means you can likely close quickly, and don't have an escape hatch based on inability to get a mortgage on the terms you had thought possible.

Of course, few people are in a financial position to do this. Consider loans from friends and family as one way to arrange it; these can the person lending you the money, too, assuming you're willing to pay a reasonable interest rate.

Submit Evidence of Loan Preapproval

If you can't waive the financing contingency, then at least be ready to show you've taken all possible steps toward getting a mortgage loan, including a preapproval letter from a prospective lender. This won't wow the seller; in fact, it's practically de rigueur at this point; but at least you won't be letting your offer drop lower on the list than others.

Meet the Property Seller's Unique Needs

You are unlikely to have direct contact with the home seller (that's what real estate agents are for), but between information that your agent might has gleaned and some basic online searching, you might be able to guess at why the seller needs or wants to move, and craft an offer that fits that.

If, for instance, the family has children and is moving out of state, and the sale is taking place in mid-summer, it's a safe bet that they're hoping to move before the start of the next school year. Offering a short escrow period (a closing date as soon as you can make it) might therefore be tempting to them. You could do this either by having the agent make it clear to the seller that the closing date is flexible or by writing it into the contract.

Or, if you know that the seller is still looking for another house to move to, you could offer a long closing period or the possibility of a "rent back," in which the seller becomes your tenant for a short period after the closing date.

While you're at it, your agent could convey to the seller's agent that other terms might be flexible, if you want to be accommodating but don't know what the seller's needs might be.

Write a Personal Letter to the Seller

As much as selling a home is a financial decision, it's also a personal one. The seller have lovingly cared for this property for years, and parting from it might be bittersweet. Knowing that the new owners also see its special character and will care for it can help them feel comfortable with the transfer.

Some sellers, for example, have been known to refuse an offer outright if they discover that it's from an investor who plans to tear the place down and build condos. Writing a letter can help you establish trust. Buyers who employ this strategy usually describe themselves a bit, their hopes for the future in the home, and the like. Some buyers include photos, as well.

But writing a personal letter is also legally and ethically fraught; or outright illegal in some places, such as Oregon (starting in 2022). The issue is the potential such letters create for discrimination. They inevitably reveal personal information about the prospective buyers; enough that sellers could easily learn that they fall into a legally protected group when it comes to race, gender, religion, or family composition. The very information that might lead one seller to elevate an offer to the top of the pack might make another reject it, and both for possibly discriminatory reasons.

In fact, the National Association of Realtors became concerned that home sellers who accept personal letters could face legal liability, and in 2020 drafted guidance discouraging such letters. Such guidance isn't law, and the practice continues to be legal in most states.

Stay in Close Contact With Your Agent After Submitting an Offer

The official way to do offers and counteroffers is in writing. But in a multiple-offer situation, your agent and the seller's agent will also be communicating verbally, sounding each other out on which way the seller is leaning and whether there is any possibility of adjusting your offer; perhaps by upping the increments or maximum on your escalation clause a tad, or waiving that inspection contingency after all.

This is not the time to turn off your phone and go for a wilderness hike. You'll want to be ready to make quick decisions, and possibly revise your offer.

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