Winning & Losing a Bidding War


It's prime home buying and selling season, and if you're looking to buy in an area with low inventory and high demand, you're probably going to run face-first into a bidding war. After the housing crunch of 2008, they certainly went away fro a while, but now a recent study has found that bidding wars are back in force.

So here's the question for buyers: Do you know how to handle a bidding war, or are you going to let that dream home get away? Here are all the things you can do wrong--so you know how to do it right.

Fail to Realize You're in a Bidding War

A surefire way to lose a bidding war is to not realize there's going to be one. So, how do you know?

First things first: Know where you're shopping. If you're in one of the following markets--some of the hottest in the country, viewed two to seven times more often on than the national average--chances are, there's going to be a bidding war:

  • San Jose-Sunnyvale-Santa Clara, CA

  • San Francisco-Oakland-Hayward, CA

  • Denver-Aurora-Lakewood, CO

  • Dallas-Fort Worth-Arlington, TX

  • Oxnard-Thousand Oaks-Ventura, CA

  • Austing-Round Rock, TX

  • Columbus, OH

  • Los Angeles-Long Beach- Anaheim, CA

  • Boston-Cambridge-Newton, MA-NH

  • Raleigh, NC

  • Colorado Springs, CO

  • New Orleans-Metairie, LA

  • Palm Bay-Melbourne-titusville, FL

  • Washington-Arlington-Alexandria, DC-VA-MD-WV

  • Las Vega-Henderson-Paradis, NV

Even if you're not in one of those regions, the housing market remains tight nationwide (too many buyers, not enough inventory). So, observe your surroundings. How many people are at the open house?

"If it feels as though you're at Grand Central Station at rush hour, chances are there will be a multiople-offer situation," saya Victoria Vinokur, an estate broker at Halstead Property in New York City.

Finally, if you've made an offer and your agent tells you they've heard of higher bids, "you know you have competition," says Susan MacDonald of Daniel Gale Sotheby's International Realty in Garden City, NY.

Be Completely Disorganized

Sellers want your offer to come in a crisp, easy-to-read- package, not in a mis-autocorrected Snapchat. When you know you're in a bidding war, says Vinokur, get answers to these questions:

  • Is there a deadline to submit offers?

  • Is there a specific offer format the seller wants to see?

  • Are there any other factors that might be important to the seller? Does he want a quick closing or a delayed one? Noncontingent financing offers? Does the seller want to stay in or rent the home until he can find another home (also known as rent-back agreement)?

Not asking these questions is a good way to get your offer rejected. You also want to know what the seller is looking for and if it lines up with what you're willing to do.

"Have a clean, correct, and easily legible offer packet, with a pre-approval letter or proof of funds," said Sepehy Niakin, a broker who owns in Miami. Add a cover letter, and don't be afraid to get personal.

"Write a letter to the owners stating why you love to home," Vinokur said. Make no mistake: This should not be a lighthearted letter--it should be well-written and sincere.

An effective cover letter should include these things:

  • An introduction complimenting the seller's property

  • A second paragraph describing what you're like--you job (a good one, we hope!), your family, your interests.

  • The third paragraph should describe how you envision your future in the proeprty. For example: "We hope you will accept us--we would love to raise our kids here."

Make a Lowball Offer that Doesn't Stand Out

In a hot market, don't lowball to see if the seller will entertain your offer (that's for the off-season). When crafting your bid, make it a strong figure--and make it a number that might stand out.

"Most offers will be in round numbers, so stand out by going to the next highest number with a 1 or a 6 at the end of it," says Brian Horan, a broker with Home Buyers Marketing II in Los Angeles.

Don't Sweeten the Pot

When you're competing with multiple offers, you have to come prepared. If you can pay with cash, taht's a huge experts agree it's one of the best ways to win. But not everyone can do that. Get pre-approved so the seller knows you're serious. If that's not enough, sweeten the pot.

"Pay with cash if possible; if not consider increasing the amount of your down payment," said Sharon Voss, president of the Orlando Regional Realtor Association.

You can also put down some substatial money--"1% or greater," says Lera Lasater Lee, a Realtor with Briggs Freeman Sotheby's International Realty in Dallas.

If you're still dead-set on getting that home, you can also offer to pay the seller's closing costs.

Lose Sight of Your Limits

It's a fine line to walk, though--sweetening the pot can be helpful, but be careful not to get caught up in a buying frenzy. If you overpay for the house, did you really win? Take a step back and figure out a limit on how much you want to pay for that property.

You can go about this in two ways:

1. Make your best offer upfront, pre-emptively assuming you won't have a chance to make another, Voss says.

2. Go with an escalation clause, which details how much you're willing to outbid another offer up to a certain limit, says Niakin. For example, you make an offer of $400,000 with a cap of $425,000, offering to outbid the last bidder by $5,000 increments until it reaches $425,000. (You'll also want to get a lawyer to word the clause correctly.)

"This is only recommended if the buyer really wants the property and is willing to lay all their cards on a table when they know there will be multiple, very motivated buyers making offers," Niakin says.

Put in a Bid, Then Skip Town

Now is not the time to head to the Bahamas. If you really want that home, you should stick around until you know whether your offer fell through or was accepted.

"Don't go out of town or be otherwise inaccessible to your Realtor during a bidding war," says Voss. "Be prepared to make decision very quickly and respond very quickly to questions about your offer."

Drag Your Foot to the Closing