Patrick Iturra, June 10, 2022
Real estate is a competitive market; the demand from home buyers to invest in real estate keeps on increasing, creating several potential buyers for the same property. As a seller, you can choose to put out a price or let the buyers bid for it.
A bid is when the buyer proposes a price for the house on sale, whereas an offer is a price quoted by the seller. Both are negotiable, and buyers and sellers hold rights to put forward their word.
A bidding war comes in when more people are interested in buying the same property. They are not just potential buyers but serious bidders who are seriously into purchasing that property.
How does bidding work?
To win a bidding war, you need to understand how bidding works. When a house is up for sale through bidding, interested buyers quote prices for it, the highest quoted price is what gets finalized by the seller, and the house is sold by giving ownership to the highest bidder.
Bidding is like a gamble; you have to take the risk if more people are interested in the same property. You might have to pay a higher price to win the bidding war.
What exactly is a bidding war?
A bidding war occurs when two or more people compete to own a house. Usually, bidding wars occur for properties in popular high-demand locations.
People usually get into bidding wars when they see potential future value for a property, say a house in a prime location that is not priced high but holds a good future value. While it may seem an ill decision for the buyer, sellers enjoy these bidding wars. A bidding war can end up selling at a price even higher than the actual price of the house.
Tips on winning a bidding war:
Once you’ve decided to buy a particular house and bid for it, probable buyers will invest their time and money to get the house they’re bidding for. You’d want to make sure that you win the bidding war.
Here are some tips for you to win a bidding war!
- Prepare for a down payment beforehand: When you’re getting into a bidding war, you’ll have to quote a price higher than your competitor (the bidder). You want to make sure you are well prepared to pay for the mortgage and have a good amount in hand to pay for the down payment to win the bidding war. Sellers usually consider buyers who are financially equipped to pay for the house they’re bidding for.
Some sellers even prefer buyers who can pay all cash for the price of the house instead of getting into a mortgage. Paying full in cash at once ensures your grip on the bidding war and saves you from the hassle of mortgage and all the paperwork that goes into it.
Some buyers also prefer to pay full in cash as it is time-saving and gives a severe impression during a bidding war.
- Think from the seller’s perspective: This is an intelligent step towards winning the bidding war that few buyers think of. If you believe from the seller’s perspective and find out what he wants, chances will be higher for you to win the bidding war.
Thinking from the seller’s perspective can help you bid better and save time from making uncalled bids. A seller gets attracted to the biddings by a potential buyer who is mindful of the seller’s circumstances. Say a seller needs an immediate amount, the buyer can offer to pay in cash to ensure he wins the bidding war.
- Quote the highest price: This is obvious but important to mention here. When you’re in a bidding war, you’ll have to make sure the offer you’re making is higher than the last bidder. The seller will end up considering the price that is the highest of all.
Quoting the highest price does not mean you start your bid from an insanely high price for the house; make sure to have good timing for the offer. If someone has quoted a fee for the house you think you can surpass, make the bid slightly higher than your competitor. Do not go above and beyond at the beginning, which may lead you to lose some extra bucks, which you could probably save otherwise.
- Offer cash if you can: If you have enough cash to pay all at once, offer that to the seller, and you’ll surely be winning that bidding war. Sellers prefer getting paid in cash all at once.
We’ve seen the benefits of handling cash above (read the first point). Paying in cash can be a bid-winner strategy for you.
- Get help from a real estate professional: Professionals can guide you better at bidding on the best price for a house. If you’re a first-time buyer, it is best recommended to get help from a professional real estate agent to help you with bidding. This will not only ensure you win the bidding war but also save you from probable mistakes you can make as a naïve buyer.
Investing in a professional real estate agent’s services can get you to make better offers and win the bidding war. Some buyers avoid getting professional help to save money but pay extra in the bidding war. This tells how important it is to use your money in the right place.
- Abolish appraisal contingency: Appraisal contingency means if the house you’ve bid for does not appraise for that special price you’ve bid for, you can step back from your decision. It works as a buyer’s protection program. But if you abolish this and ensure the seller buys the property at any cost, you’re more likely to win the bidding war.
- Make your offer “clear”: A clear offer is your way to winning the bidding war. For instance, if you’re willing to pay in cash, quote the price and end your sentence with “paying in cash!” This way, the seller can get more inclined towards your offer, and you’re more likely to win the bidding war.
A bidding war is all about bids made by potential buyers, and the seller is there to receive bids and process them within himself. The clearer your bid, the more chances are for the seller to respond positively to your bid.
- Get help from the escalation clause: The clause allows the seller to see the maximum price you’re willing to pay for the house. It is written to show a purchase offer that will increase the price automatically above the offer made by your competitor in the bidding war. This may lead you to win the bidding with the price that no one else has quoted yet.
- Connect to the seller personally through a letter: Writing a letter to the seller with your interest and offer is also considered a part of the bidding war. It is a norm followed by potential buyers.
As funny as it may sound, a real estate love letter can get you to win a bidding war. You can take different approaches for this, connecting with the seller through a house tour and then writing to them about how you’re interested in it because your interests and liking seem to match the seller. These letters to the seller are often known as “love letters” in real estate.
Choosing the best bidding war strategy for you:
This comes as no surprise that a bidding war is a severe business in real estate, so you can work with different strategies to ensure successful winning. All the tips mentioned above are strategies you can work with.
Which strategy you choose is upon you. To select the best strategy for yourself, you need to have a good know-how of the real estate market, have a grip on your financial position, and have good predictive thinking about the future value of the said property.
Many buyers take help from professional real estate advisors to pick the strategy they want, and we recommend you seek professional help. A real estate professional will go above and beyond to ensure you use the right strategy to win the bidding war.
Who gets better benefit from a bidding war? Buyer or seller?
This question is often asked, and rightly so. So who gets the better benefit from a bidding war? Buyer or the seller? Well, it is pretty clear from the fact that the property involved in a bidding war gets sold at the best possible price. So who gets the benefit? The seller!
A bidding war almost always occurs in a seller’s market. They were benefiting the sellers of properties with good future value. Bidding wars are made strategically, and buyers who get into a bidding war are usually investors ready to take the risk of investing in these properties.
Common mistakes during a bidding war:
As a buyer involved in a bidding war, you can sometimes be emotional and make irrational decisions. To be mindful of what you’re doing, you need to know some of the most commonly made mistakes during a bidding war and try to avoid them whenever you’re in a bidding war.
- Starting too low: Bidding low can be a down signal to the seller from your end. Without realizing the outcomes, some buyers bid way too low for a house in hopes of getting it at a better price. As bidding gives the buyer a chance to quote the price, buyers sometimes tend to quote their “dream price” that they’d want to pay for the property.
- Adding up more conditions in the offer: If you add too many terms and conditions to the offer, the seller may feel uncomfortable signing the contract with you. Try to keep the conditions minimum and keep your contract simple to ensure better and smoother dealing with the seller.
- Wrong timing for offer: As mentioned above, a bidding war is a serious business. Timing plays a vital role in getting your offer noticed. Calculate the best timing for your offer and then make it. Please don’t make an offer too
- early and do not delay it for too long either.
- Be ready to negotiate: When a buyer has put forward his final bid and is selected by the seller, they might think the game is over here, and they’re already getting ownership of the house. In reality, the seller still has the right to negotiate the price with you and change it. This may cause emotional disturbance to some buyers, as they’ve trusted their last bid and have put forward their best bet. But do not be hesitant to negotiate.
Buying a house in big cities can be challenging; with increasing property prices and a tight real estate market, the demand for houses is making it more competitive for the buyers to get a good house.
Many sellers opt for bidding for their houses rather than quoting an offer. Bidding war ensures the seller gets the best price for their house, making it an interesting and competitive procedure for buyers to buy the house.
Buyers must be well educated on working with a bidding war. When two or more people are interested in the same house, they will fight for ownership through a bidding war. The seller enjoys the authority of making the final decision on who gets the ownership of the house in demand.
A bidding war has its pros and cons, but all in all, it is a helpful way to sell houses and ensure the best price for your property.
Want to invest in real estate?
For the past 24 years, I have worked as a strategic investment advisor. I have guided more people to buy the right real estate and build passive income, profits (capital game), and long-term wealth over time.
If you have questions about how to invest or sell your home, my network of investors and I, can buy your property for cash.
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Business development is the ideas, initiatives, and activities that help improve a business. My experience results in your business’s increased revenue, expansion, and profitability by building strategic partnerships and making strategic business decisions. I’m not selling houses. I grow your Assets.
Patrick Iturra, Asset Manager at Estate Investments Group