Home Buying a Home 5 ways to win a bidding war on a house

5 ways to win a bidding war on a house

by Katy Byrom
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Are you making competitive offers on homes only to find yourself in an endless series of bidding wars? 

In a seller’s market like the one we’re seeing in the first half of 2021, the demand for homes far exceeds the available inventory. As a buyer, this scenario can be frustrating and stressful. You submit your best, most attractive offer and still lose out to another buyer offering an obscene amount of cash to outbid you.   

No matter how much you want a particular home, at some point, you’ll reach the limit of what you can offer. So, if you can’t come up with more money, does that mean you’ll never win on a home? 

Not necessarily.

“Smart sellers also consider the terms as much as the price.”

Esmeralda Rano, REX Agent, West Palm Beach and Miami, FL

While sellers want to earn as much money as they reasonably can, money isn’t the only factor they consider when looking at multiple offers. The truth is sellers don’t always take the highest bid.

Key Takeaways

  1. Submit a pre-approval letter and proof of funds to eliminate appraisal worries and make your offer airtight.
  2. Shop lenders and loan types to ensure you have the least restrictive financing package available to you.
  3. Know your options. With good enough credit, you may be able to find a lender who can front you the funds to make a cash offer.
  4. Consider waiving certain contingencies (but be sure to know the implications ahead of time).
  5. Having the right agent and brokerage to walk you through financing and contingency negotiations can ensure your offer doesn’t get missed.

Sometimes sellers have other considerations and priorities beyond price. For example, they may be looking for a deal that can close fast, has few contingencies, or avoids appraisal concerns.

Here are five strategies REX agents have used to help buyers successfully win a bidding war, even when the buyer didn’t have the highest offer.  

1.  Submit a pre-approval letter with proof of funds to make your offer air-tight.

“Make your offer more attractive by having a pre-approved loan, submitting proof of funds, and only asking for repairs if it’s something major.”

REX Agent Jim Bray, Bakersfield, CA

When you’re a buyer in a seller’s market, you may need to approach your offers differently. If you’ve lost out on multiple houses, consider exploring new strategies to strengthen your offer and make it more appealing to sellers. 

You don’t always have to offer more money to attract the attention of a seller. Having a competitive offer and proof that you have the funds to close the deal can help make the difference when a seller is considering what offer to accept.

Have a pre-approved loan in hand, not just a pre-qualification

Having a pre-approved loan gives the seller confidence that you can afford the deal and are a serious buyer. Being pre-approved lets the seller know you’ll pass through the underwriting and can close quickly. These factors are often as important to the seller as the price. 

A mortgage pre-approval is different from being pre-qualified. A mortgage pre-qualification means that you have an estimate from a lender on how large of a loan you’re likely to receive. This pre-qualification is based on a soft credit check and basic financial information the lender received from you. While this is a start, it doesn’t prove that the lender verified your data or that you’ll qualify for that size loan.

Being pre-approved carries more weight because it’s based on verified data by the lender. Once approved, you’ll be provided with a pre-approval letter up to a specific amount. Having a pre-approved loan will speed up the buying process, which is helpful in a competitive market.

Submit proof of funds to reduce concerns about the appraisal process

In an extreme seller’s market, the appraisal process can be one of the most significant issues encountered. Houses will be selling above the appraisal, yet your loan will be based on the appraisal. Ultimately, it’s up to the buyer to pay the difference in cost. 

You’ll need a plan to show you can cover the additional cost. Showing that you can make the down payment plus the difference between the appraisal value and asking price can make your offer more attractive to a seller. Submitting proof of funds with your bid will show you have the assets to close the deal.

2. Shop lenders and loan types to find the least restrictive financing pack available to you.

“Having a less restrictive financing package can make the difference. Be sure to explore your options!”

REX Agent Christy Hall, Ft. Lauderdale, FL 

In a competitive market, having the loan with the fewest restrictions can give you an edge when you’re in a bidding war. For instance, some loan types may require that certain repairs or property conditions be met to make the loan. This requirement can be less appealing to a seller since this can slow the sale, especially if they don’t agree with the required repairs. If both parties can’t agree on the requirements, the deal may fall through. 

Based on her experience, REX agent Christy Hall has observed that, for instance, if a buyer presents a VA loan or Federal Housing Association (FHA) loan, they might not be as successful as a buyer who qualifies for a conventional loan, especially if they are capable of putting 20 percent down. Therefore, if you qualify for more than one type of loan, consider selecting the one that provides the most attractive offer to the seller. 

This is where it can pay to shop around for different lending products you might qualify for, including any that might help you put more towards a down payment at closing or compete against all cash.

3. Know your options. You may be able to make an all cash offer, even without the cash.

In a bidding war, the hardest buyer to compete against is the one who comes with all cash. While not every buyer has the cash reserved to buy a home outright, a cash-backed offer is one solution that may still help you edge out other buyers – even if you come in at a lower price. In this scenario, a lender will approve a buyer for a mortgage loan ahead of submitting a bid and use their cash reserves to purchase the home on the buyer’s behalf. The lender will then transfer the contract to the buyer at closing with the mortgage loan attached. This type of funding solution generally requires excellent credit and an underwritten loan approval – including a hard credit pull and detailed verification of your debts and assets – before you can make an offer. 

While requiring more preparation up front, a cash-backed deal may be more attractive to sellers because it will involve fewer barriers, like financing and home sale contingencies. You’ll also be more likely to close successfully, since the lender has already approved you for the purchase and is paying the seller with their own cash. The reassurance that your offer will close on time may be worth them turning down a higher offer that involves a loan that is contingent on the buyer getting financing. Because loan products vary by lender and region, it can pay to talk to a non-commissioned loan advisor (one who doesn’t get commission from your loan or incentives from pushing you toward a certain lender) who can help you sort through a variety of different options to find the one that works best for you.

4. Consider waiving certain contingencies to make your offer stand out.

Contingencies are written into an offer contract to protect buyers from certain unknowns – like foundation issues that come up during a home inspection or legal issues disclosed by a title company during escrow. Common contingencies that buyers ask for include appraisal, inspection, mortgage/financing, and title. If a buyer’s funding falls through during the escrow process, or something nasty shows up on an inspection report, contingencies give the buyer the legal means to pull out of the deal. It’s no surprise, then, that for sellers, the most attractive offers are contingency free. When an offer isn’t contingent on meeting certain conditions, the seller can feel more confident that the transaction will be smooth and hiccup-free. In a bidding war, buyers looking for an edge sometimes opt to waive contingencies to make their offer stand out against those that come with more baggage in the form of buyer loopholes.

As a buyer, before you start tossing out contingencies left and right, know the implications and consider which ones you can reasonably live without — and when the choice to do so may constitute more risk than reward.

For example, removing a financing contingency means that you are on the hook for buying the house even if your loan doesn’t get approved from your lender. This is great news to a seller, especially one who needs to move on a tight timeline and wants the reassurance that you will be able to follow through once you offer is accepted. As a home buyer with healthy credit and reasonable assets, you may feel confident enough in your purchasing power your make an offer not contingent on financing. On the other hand, if you are relying on getting a mortgage and are at all worried about your loan being approved, you will want to think again before tossing out the financing contingency.

Another contingency that sometimes gets waived in a bidding war is the appraisal. This assures the seller that the loan won’t fall apart if the home’s appraisal value is less than the offer price. For a cash buyer planning to purchase a home outright, an appraisal may not matter, unless they are concerned about overpaying by a significant amount. For buyers planning to take out a mortgage, however, an appraisal waiver could present a problem if the home doesn’t appraise for the offer amount. Before approving you for a mortgage, most lenders will want to know that the home’s value will cover their sunk costs if you default on your loan. If a home appraises for less than the purchase price, a lender may deny the loan or ask you to come up with additional cash to make up the difference. If you’re considering submitting an offer with no appraisal, you’ll want have enough money in the bank to cover the additional down payment at closing.

Ahead of going all-in on an offer, be sure to have a clear idea of which contingencies you’re safely willing to concede to make your offer more attractive.

5. Make sure you choose the right agent and brokerage.

“Having a cohesive team within the same company working for you can facilitate communication and help ensure your offer doesn’t get missed.”

REX Agent Victor Cruz, South FL

In a competitive market, houses sell fast, so seamless communication between your agent, the seller’s agent, loan advisors, and your title and escrow company can be critical to winning a bid. When there are multiple attractive offers, you don’t want to miss out on your opportunity because the seller’s agent can’t reach your agent or your loan adviser or because information gets miscommunicated. 

Having a team that works together can give you an advantage and ensure seamless communication between all parties involved. For instance, REX agent Victor Cruz recently spoke to a seller’s agent dealing with 20 offers on a single property. The agent shared that she was struggling to reach the loan advisors on many of those offers. As a result, he messaged the REX loan advisor on his team to ensure the loan advisor was looking for the call. 

Final word on how to compete in a home bidding war

When you’re in a seller’s market, you can win a bidding war by making a sound, attractive offer that is close in price to what the seller wants, but also gives the seller other advantages. 

When determining your offer, look for ways to reduce barriers, speed up the process, or involve fewer contingencies. You can demonstrate to the seller that your bid is serious by having a pre-approved loan with few restrictions and proof you can pay the difference between the appraisal and actual price.

Buying in a seller’s market can be stressful and time-consuming. Having a team of experts can help you through every step of the process, so you get the right home for you. 

“At REX,we’re a whole team of people working for you. You tell us about a home you’ve found online. We work with our field agents, so you can get in today. We do all the things you don’t have time for. We write up the contracts, we do the negotiations, we coordinate with lenders and appraisers, and so on.” 

REX Agent Christy Hall, Ft. Lauderdale, FL

Whether you’re looking to save money through a cash back refund or want to explore REX Home Loans for competitive rates through loan advisors who won’t take a commission, REX is here to help you. By backing our agents’ local knowledge with time-saving technology and in-house expertise in real estate brokerage, mortgage, title, escrow, and home services, we provide all the help you need to simplify the home buying experience and offer the peace of mind that you are getting the right deal on your home. 

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