This Home-Buying Strategy Increases Your Chances of Winning a Bidding War in Today’s Hot Market
According to data from Redfin, all you need is a stash of cash.
Buying a home can be a lengthy and stressful process. First, you have to find a dream home that ticks all the boxes. Then you need to put in an offer and hope the seller accepts it before another buyer swoops in and outbids you. There are plenty of strategies that you and your realtor may use to increase your chances during a nail-biting bidding war, but there’s one tactic that works exceptionally well.
The Most Effective Bidding War Strategy
According to a study by real estate search platform Redfin, submitting an all-cash offer is the most effective way to improve your odds of winning the bidding battle. Redfin analyzed data from thousands of offers written by their agents between July 2020 and February 2021 and learned that prospective homeowners who offer an all-cash payment nearly quadruple their chances of winning a competitive bidding war.
The Inevitable Likelihood of Bidding Wars
Prospective home buyers reading this article probably can’t help wondering how likely it is that they’ll get stuck in a bidding war when they submit an offer on a home. About 59 percent of Redfin offers faced bidding wars in January 2021, according to company data, which was the ninth month in a row that more than half of home offers faced tough competition. So, yes, the chances that you’ll have to submit your best offer—and perhaps multiple best offers—are quite high.
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Get Ready for More Competition
With the current housing shortage, bidding wars are more common and intense than ever before. Redfin data finds that 60.9 percent of home offers were engaged in bidding wars in February 2021, which is a higher percentage than in previous months. Competition for homes has grown fierce over the past year due to low mortgage rates and a pandemic-fueled moving spree. Many potential home buyers are now working remotely—perhaps permanently—and have more flexibility to move where they like. This excitement is further reducing the already-dwindling supply of homes for sale.
Waiving Financing Contingency Also Increases Odds
According to their survey, Redfin found that waiving the financing contingency is also an effective bidding-war strategy. A financing contingency means the buyer’s offer is contingent on whether they are able to secure a mortgage to cover the difference between their down payment and the home’s appraised value. Waiving the contingency—which prevents buyers from backing out of the deal if their mortgage falls through—improves a prospective buyer’s odds of winning by 66 percent. Many buyers often waive the inspection contingency and include an escalation clause if they expect that their offer will be one of many the seller receives. Including an escalation clause, waiving the inspection contingency and conducting a pre-inspection had little impact on whether a prospective buyer wins a bidding war.
All Cash and Over List Price—a Winning Formula?
“All-cash offers are usually an effective bidding-war strategy, but the market is so hot that even the number-one strategy has evolved this year,” Orlando Redfin agent Nicole Dege said in a statement. “All-cash buyers used to be able to go in a little below list price, but now I’m seeing a lot of cash offers that are at list price or higher. Anything below list price, regardless of the terms, just can’t compete.”
Don’t Have Enough Cash to Make It Happen?
Not all buyers have the funds to make an all-cash offer, so many agents and buyers come up with creative solutions to make the buyers’ offers more attractive to sellers. To help sweeten the deal you can offer more cash, waive contingencies, or figure out what the seller wants, whether it’s a fast close or a provision that they can rent the home back for a few months.