Use these tips to come out on top in a real estate bidding war.

It’s important to understand the in’s and out’s of a bidding war if you want to purchase a house you’ve got your eye on.

Key Takeaways

• Despite higher mortgage rates, housing markets in many areas remain competitive, with more than a quarter of homes nationwide selling above their list price as of April 2024.
• Escalation clauses allow the price of an offer to increase automatically to match that of other potential buyers.
• Cash offers, waiving inspections and eliminating contingencies can all make a home offer more attractive.

If you’ve been waiting for the housing market to cool off before buying, you may be waiting for a long time. Home sales, which took off during the COVID-19 pandemic, have barely slowed in the years since.

Existing home sales rose 9.5% from January to February 2024, according to the National Association of Realtors. While the February numbers are down 3.3% from the year before, strong demand continues to push home prices higher.

Real estate brokerage firm Redfin says the median sale price in the U.S. was $378,250 in early April, a 4.5% increase from the year before. Plus, more than 28% of homes are selling above their list price.

To land the home of their dreams, buyers may find themselves in the middle of a real estate bidding war. “You’re seeing multiple offers on homes that even need a lot work,” says Amanda Rogers, owner and broker with Rogers Neighborhood Realty in Lowell, Michigan.

In the Grand Rapids, Michigan, market where she works, the average home receives five offers within three to four days of listing. A recent property listed by Rogers garnered nine bids, including offers to pay $20,000 more than the asking price.

READ: How Long Does It Take to Find a House?

However, money isn’t the only thing sellers are looking for when evaluating bids. If you want to know how to win a bidding war on a house, try using these steps:

1. Pay cash or waive financing.
2. Get preapproved for a loan.
3. Line up an attorney and asset information.
4. Remove contingencies.
5. Include escalation clauses.
6. Modify inspection requirements.
7. Include an appraisal gap guarantee.
8. Offer to pay seller costs.

1. Pay Cash or Waive Financing

When it comes to housing, bidding with a cash offer may provide an edge over higher bids that require financing. “Cash doesn’t sway all sellers, but it does sway many,” says Michael J. Franco, a broker with Compass in New York City.

Cash offers aren’t contingent on a lender approving a mortgage so they give the seller confidence that the deal will close. In some cases, buyers are dipping into cash reserves so they can waive financing and then seek to refinance after closing to replenish savings.

“There’s been instances where parents have cashed out their 401(k)s to pay in cash (for an adult child’s home),” Rogers says. However, liquidating a retirement fund may not be the best financial move, and people should think twice before going to such extreme measures.

2. Get Preapproved for a Loan

If a cash offer is impossible, buyers should be preapproved for a mortgage to strengthen their offer. If possible, look for a provider who can be agile when it comes to finalizing the paperwork.

“I have lenders who can do a loan with a seven-day approval that ties into the inspection period,” says Patrice Haftel, owner of Haftel Estates, affiliated with Re/Max in Boca Raton, Florida.

Even cash offers will have to wait for the inspection period to end before closing so the promise of a quick turnaround on a loan can put a financed offer on equal ground with a cash bid. Haftel has some lenders who are also willing to call the listing agent to get details of the seller’s preferred terms so the loan and offer can be structured in that way.

3. Line Up an Attorney and Asset Information

Although not applicable in all states, if you live where a real estate attorney is required or traditionally used to oversee a transaction, have that person selected and ready to go.

“The seller wants someone who has shown they are going to sign a contract and close,” Franco says.

That means showing that you have everything in place to complete the sale. For properties in New York City, which are often part of co-ops, that includes having financial data and asset information available. Regardless of whether the seller accepts your offer, a sale can’t go through unless the co-op board approves.

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4. Remove Contingencies

When bidding on a hot property, eliminate as many contingencies as possible. When there is significant interest, sellers aren’t going to accept an offer contingent on the buyers selling their own house first or one that includes other restrictions.

“Throw in that you’re very flexible,” Franco says. Some sellers want to close and move out immediately while others may need some time to finish packing and putting their affairs in order. Buyers who are willing to adhere to a seller’s timeline may have a successful bid.

5. Include Escalation Clauses

With housing, bidding is not usually a back-and-forth process. Instead, buyers are asked to submit their “best and highest” bid.

However, since potential buyers have no idea what other offers may be submitted, they can include escalation clauses. These clauses indicate that they are willing to bid higher if needed. For instance, a buyer may bid $300,000 and include an escalation clause saying they are willing to pay as much as $350,000 if higher bids are received.

If a seller uses an amount included in an escalation clause, they need to provide proof that a higher bid was offered by another buyer, Rogers says.

6. Modify Inspection Requirements

When bidding on a house, it can be tempting to waive the inspection requirement, but that comes with the risk of buying a property that has significant problems. “Not having inspections done puts the buyer in a lot of peril,” Rogers says.

Instead of waiving an inspection completely, buyers can use a pass-fail inspection. This method promises that a buyer won’t require a seller to make improvements to a home based on an inspection report, and if the inspection causes the buyer to walk away from the sale, the seller can keep half the earnest money.

“Here, you can cancel for any reason in the inspection period,” Haftel says. Buyers offering a nonrefundable deposit may entice sellers who know they will end up with some compensation should the inspection go south.

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7. Include an Appraisal Gap Guarantee

Including an appraisal gap guarantee, also known as an appraisal variance, is another way to win an offer on a house.

With homes in some markets selling above the asking price, there is a risk that a property may not appraise at the bid amount. Since lenders typically won’t issue a mortgage for more than the appraised value, that means a seller either won’t get the full bid price or the sale will fall through.

However, an appraisal gap guarantee promises that a buyer will pay cash, up to a certain amount, to cover the gap between the appraised value and the bid amount.

8. Offer to Pay Seller Costs

Covering closing costs such as commissions and title fees is a final way to consider to win a bidding war. Knowing they won’t have to pay as much out of their proceeds for these expenses can be appealing to some sellers. It may even tip the scales in favor of an offer that is not as high as competing bids.

While everyone wants to come out on top in a bidding war, don’t get carried away with your offer. “Try to envision what it feels like if your offer is accepted,” Franco advises. If you’ll be excited, then your bid is probably good. However, if the thought of having to now follow through on your promises fills you with regret, reconsider making that offer.