Utilize the following strategies to successfully navigate and potentially win in a competitive real estate market during a bidding contest.

Key Insights
– Even with the rise in mortgage rates, the housing markets in numerous regions continue to be fiercely competitive. As of April 2024, over a fourth of homes across the country are being sold at prices exceeding their listed values.
– Incorporating escalation clauses in your bid can provide an automatic price increase to keep pace with competing offers, enhancing your chances of securing the property.
– Presenting a cash offer, forgoing the home inspection, and removing contingencies from the offer can significantly bolster the appeal of your bid, making it more enticing to sellers in a highly competitive market.

If you’re anticipating a downturn in the real estate market before making a purchase, it might be a prolonged wait. The surge in home sales that began during the COVID-19 pandemic has shown little sign of abating. According to data from the National Association of Realtors, there was a 9.5% increase in home sales from January to February 2024. Despite a slight 3.3% dip from the previous year’s February figures, robust buyer interest continues to drive up home prices.
Redfin, a real estate brokerage, reports that the median sale price in the U.S. stood at $378,250 in early April 2024, marking a 4.5% rise from the same period in the previous year. Furthermore, it’s not uncommon for homes to sell for more than their asking price, with over 28% of them doing so.
Homebuyers aiming to secure their ideal residence may find themselves embroiled in intense bidding competitions. Amanda Rogers, the owner and broker at Rogers Neighborhood Realty in Lowell, Michigan, observes that even homes requiring substantial work are attracting multiple offers. In the Grand Rapids market, where she operates, the average home typically receives five offers within a short timeframe of three to four days after being listed. A recent listing by Rogers attracted nine bids, with some buyers offering $20,000 above the list price.
However, sellers consider more than just the monetary aspect when assessing offers. To gain an advantage in a housing bidding war, consider the following strategies:
1. Cash Transactions and Financing Flexibility.
2. Securing Swift Loan Approval.
3. Engaging Legal and Financial Preparedness.
4. Minimizing Offer Contingencies.
5. Utilizing Escalation Clauses in Bids.
6. Adapting Inspection Terms.
7. Appraisal Gap Guarantees.
8. Absorbing Seller Expenses.

1. Cash Transactions and Financing Flexibility
In the competitive housing market, presenting a cash offer can often outshine higher financed bids. Michael J. Franco, a broker at Compass in New York City, notes that while not all sellers are swayed by cash, many are. The appeal lies in the certainty that a cash offer brings to the closing process. Some buyers tap into their savings to make a cash offer, with plans to refinance post-closing to restore their funds. Amanda Rogers mentions instances where parents have utilized their retirement funds to finance a home for their adult children, though she cautions that such drastic financial moves should be carefully considered.
2. Securing Swift Loan Approval
For those unable to offer cash, obtaining a preapproval for a mortgage can fortify a bid. It’s beneficial to work with a lender who can expedite the process. Patrice Haftel, owner of Haftel Estates and affiliated with Re/Max in Boca Raton, Florida, mentions having lenders who can offer a seven-day loan approval synchronized with the inspection period. This agility can level the playing field for financed offers against cash bids. Some lenders may even engage directly with the listing agent to align the loan terms with the seller’s preferences.
3. Engaging Legal and Financial Preparedness
In jurisdictions where real estate transactions are overseen by attorneys, it’s prudent to have one on board and be prepared to act swiftly. Franco emphasizes the importance of demonstrating readiness to sign and close, which can include presenting financial and asset information, especially for co-op properties in New York City, where board approval is also a necessary step in the sale process.
4. Minimizing Offer Contingencies
When vying for a sought-after property, it’s advisable to reduce contingencies to a minimum. Sellers are less likely to entertain offers that hinge on the buyer’s ability to sell their current home or other limiting conditions. Franco suggests demonstrating flexibility in the offer, as some sellers may seek a quick close while others may require additional time to prepare for the move. Aligning with the seller’s timeline can be a winning strategy in a bidding war.
5. Utilizing Escalation Clauses in Bids
Unlike auctions, real estate bidding typically involves submitting a single “best and final” offer. Given the uncertainty of other bids, buyers can include escalation clauses in their offers. These clauses specify a willingness to increase the bid beyond the initial amount if necessary. For example, a buyer might submit an initial offer of $300,000 with an escalation clause that allows them to go as high as $350,000 in response to competing bids. Sellers are expected to validate the use of an escalation clause by demonstrating that a higher bid was indeed made by another party.
6. Adapting Inspection Terms
While it might be advantageous to forgo the inspection requirement to strengthen a bid, doing so could expose the buyer to the risk of purchasing a property with substantial defects. To mitigate this risk without entirely waiving the inspection, buyers can opt for a pass-fail inspection. This approach allows the buyer to back out of the sale without penalty if the inspection reveals issues, while still assuring the seller that they won’t be required to make repairs based on the inspection findings. Some buyers might offer a nonrefundable deposit as an incentive for sellers, providing the sellers with some financial protection should the buyer decide to withdraw after the inspection.
7. Appraisal Gap Guarantees
An appraisal gap guarantee, or appraisal variance, is a strategic addition to a bid that can help secure a property. In a market where homes are selling for over their listed price, there’s a chance that a property’s appraisal may fall short of the offered bid. As lenders are often unwilling to finance an amount above the appraised value, this could result in the seller not receiving the full bid amount or the deal collapsing. An appraisal gap guarantee, however, ensures that the buyer will cover the difference between the appraised value and the bid price up to a predetermined limit, thus reassuring the seller of the full bid amount.
8. Absorbing Seller Expenses
Taking on some of the seller’s closing costs, such as real estate agent commissions and title fees, can be an effective strategy to win in a bidding war. Sellers may find it attractive to receive an offer that reduces the amount they need to pay out of their proceeds for these costs, which could make a slightly lower bid more appealing. It’s crucial, however, to remain rational and consider the implications of one’s offer. Franco suggests that a good rule of thumb is to envision the feeling of having the offer accepted; if it brings excitement, the bid is likely appropriate. If, however, the thought of following through on the offer leads to regret, it may be wise to reevaluate the bid.