I bring you this article of advice for buyers in a bidding war on a house as someone who just went through just that–trying to buy a house in a bidding war. Of the seven homes my husband and I have bought and sold, this was the first time we found ourselves in a bidding war…as buyers.
This all happened when we decided to buy a home in Maine. This was in the Fall of 2020.
2020 bidding wars on houses
If you know anything about 2020 and homebuyers, then you know there were a lot of us. That is homebuyers looking to buy houses. And, because of that, there were a lot of buyers bidding on houses. Thankfully, we were working with a trusted Realtor who could provide advice.
We discovered that many of the people we were bidding against were people looking to escape a city–Portland, Boston, New York. Or, because they were able to telecommute or work from home, they decided that they wanted to move to their ideal location. For many people that ideal location was Maine.
Us? We found ourselves as buyers in a bidding war because we wanted to secure an eventual retirement house. For the time being it would be our vacation home or a source for rental income. While retirement is many years away, we wanted to act fast because we thought prices would be rising in normally affordable parts of Maine.
Houses going like hotcakes
We’re familiar with Maine because it’s where my mother grew up and my extended family lives. I’ve been going to Maine since before I could walk. In addition, my husband has extended family in southeastern New Hampshire, right on the Maine border.
We never expected there would be so many buyers willing to get in bidding wars over houses. Boy, were we wrong.
What we learned being in a bidding war for a house
We learned a lot as people trying to buy a house in a bidding war. So, if you find yourselves in a bidding war as well, I wanted to share this advice by answering what, I believe, are the most common questions.
Overall, what is the best advice for buyers who might find themselves in a bidding war on a house?
Advice if you find yourself in a bidding war for a house
First and foremost, get your financing in order. This includes getting pre-approved for a mortgage and having our down payment squirreled away.
We’ve used Rocket Mortgage from Quicken Loans to buy our last three homes, and we’ve refinanced with them twice.
A letter of pre-approval is a must
So, from this long-standing relationship, we knew we could get a letter of pre-approval from them before we even got to Maine to look at homes. We also had enough in the bank for a down payment on a home in our price range.
When we started to see houses with our real estate agent, the first thing she asked us was this: do you have a pre-approval letter. Turns out sellers, in this hot market, wouldn’t even consent to a showing unless you had a pre-approval letter. In all of our years of selling and buying homes, we’d never encountered this before.
What are signs to look for that I might be into a bidding war?
Well, I would say that if you can’t even see a house, let alone make an offer on a house, without a pre-approval letter, that’s a glaring sign that you are about to enter into a bidding war.
Other signs of a bidding war is on the horizon?
- Low inventory of homes.
- Fast-rising prices of homes in the area.
- Limited showing times to just one or two days.
- Deadlines for an offer.
It’s one thing when you’re buying a home, and you learn that the seller would like to close by, say, Christmas. It’s an entirely different thing when a real estate ad says only best offers will be accepted by 5 p.m. Monday. Best offer=bidding war.
Should I be bidding on a house that I believe is over priced?
Well, how badly do you want that house and/or to live in that area? If everything is going over asking, you’re in bidding war territory. Buyers are going to send out crazy high offers just to get a home–even if the home is over priced.
The only drawback to bidding more than you think a house is worth? Your mortgage company might not agree with your aggressive bidding.
The appraisal is what matters
That is, if you have to qualify for a mortgage, then the house you want to buy has to qualify for the mortgage amount. What I’m saying is the house has to appraise for what you’re willing to pay for it. If it doesn’t, you have two choices.
Put more money down
One, put more money down to get you to the price you’ve offered and will match the amount of the mortgage the house appraised for. For example, let’s say you offered $500,000 on a house that was listed at $450,000. The seller accepts your offer.
If you want to put 20 percent down, that’s $100,000–meaning you need a mortgage of $400,000. However, if the appraiser comes back and says, hold on, this house appraises for less, and your mortgage company tells you they’ll only approve $350,000 for a mortgage, then you’re going to have to make up the difference. You either pony up $50,000 more for the down payment–$150,000 down payment plus $350,000 mortgage equals $500,000 price for the home.
Find another option and solution
Two, your other option is to walk away.
I suppose there is a third option to go back to the buyers and present your situation. Tell them you that you’ll still put $100,000 down but you have to lower your offer to asking price. In a bidding war, there is a chance the buyers will tell you to take a hike. However, also in a bidding war, other buyers may have moved on to bid on other homes. So, take this advice with a grain of salt. You can ask, but I doubt you’ll succeed.
How much over should I bid on a house in a bidding war?
Again, the advice depends on the situation. For example, the first home in Maine we got into a bidding war on, we wanted to offer $20,000 over asking. However, our real estate agent want to run comps to make sure we were making a smart offers.
In case you don’t know, comps or comparison sales are literally just that. They are recent sales of similar homes so you can compare the sales prices of those sold homes with the house you want to buy.
Our real estate agent discovered that instead of $20,000 over asking, we really should be offering $20,000 under asking. The comps were saying that the house was way over priced.
Take comps with a grain of salt
Because we’d never bought a house in Maine before, we listened to her advice and offered $15,000 under asking. We were one of six or eight offers. Not surprisingly, we did not win that bidding war.
Turns out that when you’re in a bidding war situation or a hot market like we were, you have to take comps with a grain of salt. You see, the Maine housing market hadn’t really started to heat up until after the summer tourists had left. By October, though, things were crazy with bidding wars left and right.
Comps in a hot real estate market
While it was right of the real estate agent to want to use comps, we should have take note of when those comparison sales had occurred. Upon revisiting them we realized that these homes had all closed months before. In other words none of the comps reflected the currently hot real estate market in Southern Maine. My guess is that six months from then, if we looked at comps, they would have told a very different story. And we, in turn, would have made a very different offer.
What is the best way to bid on a house with multiple offers?
There are a couple of ways you win a bidding war on a home with multiple offers.
Try an escalation clause
Our real estate agent suggested that we put something called an “escalation clause” in our offer. It allowed us to increase our bid, based on other bids, up to a certain dollar amount.
For example, we offered $300,000 on one house. We put an escalation clause for up to $350,001. Why and one dollar? Because we were willing to pay as much as $350,000 for the house, plus one dollar over any other buyer who also offered $350,000.
Bring more money to the table
Buyers who offer a large good-faith deposit or earnest money may come out on top. In normal real estate times, most people will put $1,000 down as a good-faith deposit when they want to make an offer on a house. In a bidding war, earnest money of $10,000 or $20,000 could help you come out on top.
Another way to bring more money to the table? In your offer state that you’ll be putting down more than 20 percent, which is the norm. Offer 30, 40, even 50 percent down. This tells the sellers that a buyer who can afford to put this much money down will definitely qualify for a mortgage, and is less likely to walk away from the deal.
Offer to close ASAP
Most sellers want to get out of their homes as soon as possible. You know, take the money and run–but in a good, honest way. If you can offer to close quickly, then that can up your chances that sellers will accept your offer.
In all the homes we’ve sold, we’ve only had one go into a bidding war. We ended up going with buyers who not only put 50 percent down but also offered to close in a month. The way we saw it, the faster we closed, the less time there was for something to go wrong with the sale. Even though their offer was slightly less than other offers, their deposit and timeline made them the winners.
Write a letter to the sellers
With one of the homes we lost out on Maine, we learned that the winning buyers had written a note to the sellers. The buyers were local artisans with a business in town. They’d been renting an apartment above their shop, and were looking to put down a different kind of roots in town by buying a house.
I get it. That’s a compelling story. And if you want to keep the house “local,” I can see why the sellers went with these buyers in a bidding war.
How high do bidding war houses sell for?
By the way, after that house closed and the sold price uploaded to Redfin, we discovered that winning bid from the buyers in that bidding war was only $15,000 over asking.
How long does it take for sellers to respond to an offer on a house?
When there is a bidding war, like I said earlier, there is usually a deadline for “best offers.” In most instances the sellers will make a decision within 24 to 48 hours.
How do you avoid bidding wars on houses?
Look for the telltale signs that I mentioned above. Exploding real estate prices. Low inventory of homes. Limited showings and deadlines for offers.
Here’s another trick that I would definitely use, should I need to buy another home in Maine. Wait until winter to buy a house.
As I mentioned in my article on how to sell your home in the winter, lookers come out during nice weather. Real buyers come out in the winter.
Once Maine got its first snow, the real estate market came to a screeching halt. Suddenly, we were seeing homes reducing prices when, just weeks before, we knew there were bidding wars on other homes.
Do bidding wars ever have happy endings?
Yes. Absolutely. Like I mentioned earlier, we didn’t win any bidding wars. And it’s a good thing we didn’t.
Because on the last day we were in town to look at and make offers on Maine homes, we drove by a lovely Dutch colonial with a “For Sale Coming Soon” sign outside of it. Needless to say, when that house came on the market a few weeks later, all of the crazy buyers getting into bidding wars over homes had either bought up all the inventory or moved on.
We know that because we made a full-price offer on that house on a Friday in November. It was its first day on the market.
The sellers took the weekend to think about it. Our real estate agent hypothesized that they hoped a slew of offers would come rolling in, and they would find themselves in a bidding war. That never happened because they didn’t get any other showings, and accepted our offer on Tuesday. We closed the first week of December and were able to spend the holidays in our new Maine house.