How to Win Bidding Wars

It’s easy to fall into the trap of thinking that the bid price is the only thing that matters in an offer letter. And there’s no denying that sellers want to make the most profit possible when they sell their home. But while the bid price is crucial, it’s going to take more than just a high offer if you want to get a seller’s attention. 

When sellers are receiving multiple offers, bidding wars are a common but frustrating reality. If you want to ensure that yours is the winning offer, you’ll have to offer not just the highest price, but also the most favorable terms

Here are some strategies that can help you win a bidding war on your dream home. 

Make a Cash Offer

Make a cash offer to win the bidding war

Sellers love cash offers and with good reason. Financing can (and does) fall through, even with mortgage pre-approval. When this happens, the seller is forced to start over from the very beginning, listing their home again and waiting for offers. If the seller is on a tight timeline to relocate or needs to sell their existing home to buy their next one, this can be frustrating — and costly.

But if you make a cash offer, you eliminate that possibility from the get-go. The seller won’t have to worry about your financing disrupting their sale. 

And mortgage paperwork takes time to prepare. Even if financing doesn’t fall through, it takes longer to close when there’s a loan involved. With your cash offer, the seller would have the option to close more quickly if they’re in a hurry to move for a job or school. 

In a situation where the seller is receiving multiple bids, a cash offer will catch their eye. 

Get Pre-Approved for a Mortgage

Not everyone has enough cash on hand to purchase a house. Getting pre-approved for a mortgage is the next best thing. In fact, most sellers won’t even consider an offer without pre-approval, unless they have no other options. 

Ideally, you should get pre-approved before you begin house hunting. Having a pre-approval letter in hand reassures sellers. Although it’s not a guarantee that you’ll get a mortgage, being pre-approved shows them that you have solid backing from your lender

get pre-approved for a mortgage before making an offer

Some of the documents you’ll need to get pre-approved for a mortgage include:

  • Tax returns
  • Proof of income (W-2 forms, recent payroll stubs, 1099 forms, etc.)
  • Bank statements
  • Statements from retirement or investment accounts
  • A list of monthly debt payments
  • Anything else that can prove your ability to make timely mortgage payments

On average, it takes ten days to receive your pre-approval letterafter you’ve turned in all of the necessary documents. Know when you plan to start looking at homes, and plan accordingly. 

Increase Your Earnest Money Offer

increase your earnest money deposit to help win a bidding war

An earnest money deposit functions like a down payment on your home. When your offer is accepted, you’ll place the money into an escrow account held by a third party, usually the title company. This is your guarantee that you’ll buy the house. 

If you back out of the purchase (for reasons other than those stipulated in the contract), you’ll lose your money. Although the seller will still have to re-list their home, it does give them some compensation for the time they’ve lost. 

Typically, sellers offer 1% of the sale price of the home as an earnest money deposit. If you increase this amount, it sends the message that you’re serious about buying this home. You’re letting the sellers know that you’re so sure you’ll go through with the deal that you’re willing to stake more money on it. 

Minimize Contingency Clauses

The contingency clauses in your contract are your escape clauses. They provide a way for you to back out of buying a home if specific circumstances aren’t met. Usually, your contingency clauses will also provide for the return of your earnest money deposit. 

Some of the most common contingency clauses include:

minimize contingencies when there's a bidding war
  • Appraisal Contingency: The house will have to appraise for at least the amount of the mortgage. 
  • Current Home Sale Contingency: Your home will have to sell before you can close on this purchase.
  • Financing Contingency: You must secure a mortgage to go through with the purchase. Usually this clause will include a target dollar amount and mortgage rate. 
  • Home Inspection Contingency: The house must pass the home inspection. If the home inspection reveals any major repairs, the seller will have to make those repairs or lower the price of the home. 

To the seller, the less clauses, the lower the possibility of the deal falling through. More contingency clauses means more uncertainty. So a contract with fewer contingencies is more likely to be accepted. 

But before you eliminate them, think them through carefully. Eliminating contingencies altogether could leave you juggling two mortgages because your current home sale fell through or paying for costly repairs before you can move in. 

Contingencies protect you and your money, not the seller. Make sure you are financially comfortable with the possible repercussions of eliminating them. 

Include an Escalation Clause

Knowing exactly how much to offer on a home can be tricky. Offer too little, and you could lose out on a home you really like. But offer too much, and you might end up overpaying an unnecessarily high price. 

include an escalation clause to help win a bidding war

An escalation clause can help you find the balance in the middle of those two scenarios. It enables you to outbid other offers, without going over your maximum budget. 

Say you make an offer of $250,000 on the house. You can then add an escalation clause offering $2,000 over other offers up to $275,000. 

So if no offers were higher than yours, you’ll only pay the original $250,000 for the house. But if the seller received an offer for $260,000, you’ll still be the highest bid at $262,000. 

Have a Flexible Closing Date

Anything that puts the seller in control will make your offer more attractive. Having a flexible closing date can be especially helpful to the seller if they need more time to look for their next home, make repairs based on the home inspection, and so forth.

If you don’t have to be in the house by a specific date, let the seller know you can be flexible on the closing date. It takes the pressure off of them and can go a long way toward winning the bidding war.

Write a Personal Letter

The final piece of the puzzle in your bid is the personal letter, sometimes called a love letter. Whereas the rest of your offer was financial in nature, this part is based on emotions

write a personal letter in a bidding war

Look at it from a seller’s point of view. They are leaving behind their home and all of the memories it represents. They want to make sure that the next owner will cherish it as they did. A personal letter is your chance to create a bond with the seller, so that they are confident in leaving their home in your hands.

What should you include in your personal letter? Offer them sincere compliments on their home. Let them know what drew you to make a bid. You can also let them know that you’ll be taking good care of their home: “We love your flower beds and are excited to continue growing roses.”

A word of caution here: the Fair Housing Act prevents discrimination based on any of the protected classes (race, color, religion, and others). You can’t mention or even insinuate these in your personal letter (“We’re looking forward to celebrating Christmas here.”). Many Realtors refuse to deliver personal letters, to avoid any risk of violating the Fair Housing Act or the NAR Code of Ethics