6 Key Strategies To Be The Winning Bidder In A Multiple Offer Situation
So, you’ve found your dream home and are ready to buy it. But there’s just one problem: it already has multiple offers. What can you do?
It’s stressful to find your dream home and not be sure whether you can secure it. However, following the steps below can help your offer rise to the top!
Let’s jump right in with the key strategies that can put your offer ahead of the others.
1. Be Prepared to Act Quickly
A lot of steps go into closing. Buyers are expected to have the following ready to make an offer:
- pre-approval/prequalification for a mortgage
- proof of funds for deposit, OR
- proof of funds for all costs
If you want to ensure the best chance possible of acquiring the home you want, you’ll need to act fast. That means having the funds and pre-approval already sorted out and the paperwork to prove it on hand. Always be prepared to present them on the spot if you hope to become the buyer.
One way to get ahead of other bidders is to simply send a copy of your pre-approval letter with your offer. If you don’t have one, it can still be helpful to submit a prequalification letter. The former will be far more helpful, as it proves that a mortgage lender has verified your key financial information including:
- your credit score
- your income, and
- your debt-to-income ratio
Having your pre-approval will show the agent/seller that you’re serious and have the ability to pay. This can be the deciding factor if many of the other bidders haven’t provided any real proof that their financing plans won’t fall through.
You can position yourself even further ahead of the competition by getting pre-approved for a mortgage higher than the asking price. This isn’t always necessary, but if you want to be sure you’re putting your best foot forward, it goes hand in hand with the next key strategy.
2. Offer List Price or Above
You absolutely can’t offer less than the asking price and still have a serious chance in a multiple offer situation. You must come in strong, and setting your initial bid at the list price or higher can set you apart.
We, in fact, recommend making your best and final offer from the start. This quickly establishes your position relative to your competition. If you really want the home, it’s worth offering more from the start. It helps expedite the process and scare off your less serious competition.
Of course, you want to have access to the financing before you make such an offer. This is why savings and/or pre-approval for a larger mortgage are important. You need to prove that you have access to funds.
3. Offer The Best Terms For The Seller
Beyond the funds, you can improve your position by offering universally better terms for the seller. The seller is primarily concerned with the question of money. But since you’ve already alleviated that concern, you can make your offer even better by:
- offering to accommodate a quick closing
- asking the seller what closing terms would make them more comfortable now, and
- removing contingencies
In addition, although it’s risky, you can also improve your position by offering a few terms that your seller will appreciate. For example, you can propose waiving inspections, which will save your seller time and perhaps some stress. However, you lose the important benefits that inspections can often provide homebuyers, which is definitely something to keep in mind.
If you still want the home to be inspected, consider adding a clause stipulating that you won’t make the seller pay for inspection-related repairs. This is a middle ground option that will put your seller’s mind at ease when revealing current or future maintenance needs.
Of course, these two inspection-related points can end up being fairly costly under some circumstances. However, they’re great tactics if you’re focused on winning a bidding war, potentially before it begins. And if you’ve already offered more than the listed price, you should be in an even better position.
4. Offer Cash If Possible
Cash is king, and the real estate industry bows to this monarch. In fact, cash offers, even if they’re not the highest offers, usually receive special consideration from sellers.
Cash offers are preferable for the security and expediency that come with them. If you’re offering cash, the seller won’t have to worry about waiting for bank appraisals and financing. It implies a faster process for the seller overall, with a quick closing and less work and stress.
In many cases, offering cash enables you to save a lot of money. All money paid in cash towards your home is less money paid in interest to a lender. Furthermore, most sellers are willing to offer discounts for cash purchases, even when they don’t make this explicit in their listings.
5. Escalation Clause
If you really want to make a high offer but are concerned you’ll end up grossly overpaying, you should consider having an escalation clause added.
An escalation clause helps you confidently make a higher offer at the start of a bidding war. This clause can be fairly versatile, as it stipulates the specific conditions under which your offer will be increased. The clause can also place limits on price increases so that you never spend more than you’re willing to part with.
Consider the example below:
You make an offer of $400,000 on a home you really want. You know that you have competition for that home too, but you don’t know how much the other bidders are willing to pay. So, ask your agent to write up an escalation clause stating that you’ll pay $5,000 above any subsequent offers from the competition but that you won’t pay any amount above $425,000.
In this example, you’d end up paying anywhere from $400,000 to $425,000, depending on the offers from the competition. If another bidder’s highest offer is $415,000, you’d counter with a bid of $420,000. However, should anyone bid over $425,000, you’d have to concede defeat because the escalation clause prevents you from bidding over $425,000.
Having an escalation clause is a great way to maximize your odds of winning a bidding war while also accounting for your budget. It ensures you don’t end up closing an unreasonable sale beyond your budget. The best-case scenario is that you appear determined to win from the beginning and end up closing a reasonable deal. The worst-case scenario is that you simply lose the bidding war, but not due to a lack of effort. Furthermore, if the escalation clause ends up being unnecessary because of a lack of competition, you don’t spend any extra money. There are no financial downsides to adding an escalation clause.
6. A Large, Earnest Deposit
Lastly, to show that you’re serious, you can put down a large earnest deposit. This will certainly show the seller how serious you are. However, this should only be done in combination with the other key strategies covered here.
Clients often win out over other bidders by providing non refundable deposits. This is beneficial because it shows the seller that you won’t hesitate to put your skin in the game and can put you ahead of the competition very early on.
Bonus: Stay Competitive
Make sure that you have an experienced real estate agent working to negotiate on your behalf. This level of effort, when combined with the above strategies for winning a bidding war, will show that you’re serious and will maximize your chances of becoming the owner of your dream home.
Applying these key strategies will give you a serious leg up over your competition. However, it’s important to not overlook the benefits of good old-fashioned effort.
Make sure that while you try to secure your place as the winning buyer, you stay available. Speed matters and quick responses to developments will increase the odds of you winning your dream home.
Getting into a bidding war can be a stressful experience. But the stress involved can be greatly reduced with a deliberate and enthusiastic mindset towards winning!.
By employing the key strategies listed above, you can dramatically increase your chances of winning when confronted with a lot of competition for your dream home. In many cases, these strategies, when combined, can position you to avoid a prolonged bidding war altogether.