It’s no secret the current real estate housing market is experiencing record-low inventories. With more prospective buyers than available listings, many transactions are fraught with challenges—even prior to an accepted offer.
These market conditions have spurred bidding wars between qualified parties, characterized by multiple offers. Buyers must now find ways to differentiate themselves from competing offers, while sellers ultimately choose the best deal.
The most common tactic is multiple offers above the original listing price. According to the National Association of Realtors (NAR) February 2022 Realtors Confidence Survey, an average of five offers were received on every home sold. This collective poll of residential realtor transactions also notes 48 percent of buyers had opening bids approximately $10,000 over the initial asking price.
Consult the following tactics, tips, and best practices to how both buyers and sellers can navigate a real estate bidding war.
What Is a Bidding War?
When a seller receives multiple serious offers from several qualified buyers, a bidding “war” commences, whereby each potential buyer increases their willingness to pay beyond the asking price of the property.
While best and final offers are key in this situation, there are other factors the seller could consider, such as escalation clauses, waiving inspections, appraisals, and other contingencies. Ensuring a best and final offer can be a daunting process, but it doesn’t have to be. A reputable lender such as Contour Mortgage can provide an edge over the competition.
Can You Win a Bidding War Before it Starts?
In some cases, prospective buyers can get an edge above others prior to an opening bid by getting on the same page with the seller and understanding their non-negotiables. It’s best to work with a licensed real estate professional as your liaison with the seller’s team.
Even prior to reviewing potential listings, consider the following recommended tips from Contour Mortgage:
- Work With an Experienced Local Real Estate Professional
- Obtain a Mortgage Commitment Letter & Fully Underwritten Credit Approval
- Include an Escalation Clause
- Offer Earnest Money in Escrow
- Gather & Update Relevant Financials
- Offer to Waive Contingencies
- Agree to an “As Is” Contract
- Offer a Leaseback Arrangement
- Add Appraisal Gap Coverage
- Be Flexible With Changes
For more information, read our blog: “How to Get Your Offer Accepted in a Seller’s Market.”
How Much Should You Offer in a Bidding War?
A licensed real estate professional will provide advice about all the factors of a solid and fair offer, such as market value, recently sold comparable properties, time on market, and others. Buyers could previously bid below the list price hoping to get a deal. However, with this current volatile market, offers must be introduced at or above the listing price.
When facing a bidding war, it’s recommended to open or counter an offer with at least 1 percent over the list price. Another strategy is increasing your down payment. This helps lower monthly payments, while the seller gains peace of mind regarding the buyer’s financial health.
When Should You Walk Away From a Bidding War?
Even with organized financials and expert guidance of your real estate team, there are situations where it might be beneficial to move on. This includes an inflated listing price, sellers unwilling to negotiate, and too many buyers competing for the same home.
If your heart was set on a particular listing, view this as a learning opportunity placing you ahead of the competition for the next negotiation.
How Should Sellers Handle a Bidding War?
Sellers must also have a bidding war plan. While it might sound favorable to be in the driver’s seat, there are still points to consider when contemplating multiple offers. These include:
- What Is the Prospective Buyer’s Financial Standing?
- How Much Can the Buyer Put Down?
- Can They Obtain a Mortgage Approval?
- Will They Waive Certain Contingencies?
- Do They Have Additional Funds to Cover a Low Appraisal?
- Are They Working With a Reputable Mortgage Banker or Lender?
- Are They Willing to Coincide Closing Dates?
- What Is an Acceptable Best & Final Offer?
Knowing how to best approach a bidding war can minimize any associated stress and disappointment. One surefire best practice is to work with an experienced mortgage banker who can spot any pitfalls or red flags, even prior to an opening offer.
Contour Mortgage provides lending services throughout the United States. Contact us for a free consultation and to learn how we can help achieve the best financing for your dream home.