Buying a house is an exciting time, especially when you find the home of your dreams.
But it can also be extremely stressful if you find yourself in a bidding war with other potential buyers.
In a competitive property market, it’s not uncommon for sellers to receive multiple offers, which can create a bidding war.
This can also mean the usual negotiations over price go out the window.
In fact, it’s often the case that the buyers desperate to get their hands on a property will offer over the asking price.
What is a bidding war?
A bidding war, also known as a multiple offer situation, is a scenario in the property market where there are multiple interested buyers for a single house.
When there are multiple offers on a property, the seller and their agent can ask each of the buyers to submit their highest and best offer.
This can result in a bidding war, where each buyer tries to outbid the others to win the property.
In a bidding war, the buyers typically submit multiple offers until one buyer is deemed the highest bidder, and the seller accepts their offer.
When do bidding wars occur?
Bidding wars usually happen in hot property markets where there is a shortage of available homes for sale, and the demand for properties is high.
Often, the homes are in a particularly desirable area, either in terms of commuting distance to a major city centre, or the catchment area for a sought after school.
In these situations, buyers may need to act quickly to secure the property they want and be prepared to make a competitive offer to beat out other potential buyers.
However, it’s important to keep in mind that a bidding war can drive up the price of a property beyond its true market value, and buyers should be cautious not to overpay.
It’s always a good idea to consult with an estate agent and a financial advisor to ensure that you’re making a smart investment.
How to deal with – and win – a bidding war
If you find yourself in this situation, it’s important to have a plan in place to increase your chances of coming out on top.
Here are some tips and strategies to navigate a bidding war when buying a house.
1. Set a budget and stick to it
Before you start house hunting, it’s essential to set a budget and stick to it.
Determine how much you can afford to spend and what your ideal purchase price is.
Keep in mind that you’ll need to factor in additional costs like closing costs, moving costs, home inspections, conveyancing fees and property taxes.
Stick to your budget and don’t get carried away during a bidding war.
Remember that the highest offer isn’t always the best offer, especially if it means overspending.
Try to keep a cool business head, even if you’ve found your deal property.
2. Get pre-approved for a mortgage
Getting pre-approved for a mortgage is a smart move when buying a house in a competitive market.
It shows sellers that you’re serious about buying a house and that you have the financial means to do so.
Plus, it can help you act quickly when you find a house you want to bid on.
You can work with a lender to determine your budget and get pre-approved for a mortgage before starting your house search.
Being pre-approved for a mortgage might mean that a seller chooses your offer over a higher bid if you are seen as a more serious buyer.
3. Make a strong offer
When making an offer in a highly competitive market you’ll need to consider offering more than the asking price.
However, keep in mind that you should only offer what you can afford.
Consult with your estate agent to ensure your offer is competitive but still within your budget.
You can also include contingencies in your offer, such as waiving the home inspection or appraisal, to make it more attractive to sellers.
Make sure you don’t carried away though and make a bid that will leave you a precarious financial position.
Remember, always plan for the unexpected.
4. Be flexible with your closing date
Being flexible with your closing date can make your offer more appealing to sellers.
For example, if the sellers need to move quickly, offer to close in a shorter time frame. Likewise, if the sellers need more time, offer to extend the closing date.
This flexibility can give you an edge over other potential buyers who aren’t as accommodating.
5. Write a personal letter to the seller
Writing a personal letter to the seller can help you stand out from other potential buyers.
In the letter, explain why you love the house and how you plan to take care of it.
This can help create an emotional connection with the seller and increase your chances of winning the bidding war.
Make sure your letter is genuine and heartfelt.
This approach is more popular in countries like the US is successful in certain cases.
However, many sellers are laser focused on securing the maximum profit on their profit and do not allow emotion to sway their decision.
Navigating a bidding war when buying a house requires careful consideration of a number of factors, with your budget being the most important.
By setting a budget, getting pre-approved for a mortgage, making a strong offer, being flexible with your closing date, and writing a personal letter to the seller, you can increase your chances of winning the bidding war and buying the house you want.
You might end up spending more than you’d originally anticipated, but it may mean you secure a property that your content to live in for longer.
Working with an experienced estate agent can also help you navigate the competitive market and make smart decisions.