Real Estate Bidding Wars: What’s The Real Scoop?

A bidding war is a common phenomenon in the real estate industry. When the market is favorable to the seller, you may need to compete with multiple offers on a single listing. This begins a bidding war. In an effort to make the deal more appealing, buyers will offer cash. Sellers prefer cash buyers. This leaves credit buyers feeling discouraged. Let’s take a look at how cash buyers operate and how to get your offer accepted regardless.

How Cash Buying Works

Sellers like cash buyers because they do not have to fret over banks and mortgage loans. They receive their money faster and easier when a cash buyer is involved. However, that doesn’t mean a credit buyer can’t knock out their offer. Your offer can be accepted over a cash buyer in a bidding war when the right strategies are employed.

Strategies to Get Your Offer Accepted

The first thing to keep in mind is you need to make your offer more appealing than all others on the table. The following strategies will prepare you to knock out a cash proposal.

Perhaps the most frustrating situation for a seller is to have an offer fall through. This can play to your advantage by making sure the seller knows you are 100% in. In fact, that is precisely why cash buyers are appealing to sellers in the first place.

Add an escalation clause to the purchase contract that will automatically increase the purchase if another offer comes in at the same purchase price. Include an escalation clause in the offer you present. Make sure you detail the amount you are willing to exceed. This figure must be strong enough to keep you around in a bidding war. In other words, an escalator price of $1,000 is far too low.

Submitting an Offer with a Mortgage Contingency

As a buyer who will be obtaining a mortgage to purchase a home, you need to provide the seller with the same level of assurance and confidence as your competition. Providing evidence that you w3ill be able to obtain the loan in a timely manner. is just as secure as the cash offer will enable you to operate on a level playing field. There are other contingencies in a purchase agreement as well.

In order to provide evidence, acquire a pre-approval letter from your lender that states you are highly qualified and approved for this loan. Not only will this help ease any concerns or apprehensions on the seller’s side, but it will also help you feel more confident when entering a bidding war.

If your purchase agreement has a mortgage contingency and appraisal contingency, then it is important to shorten the due diligence period.

Your Mortgage Lender

Have your mortgage lender contact the listing agent to assure them of your creditworthiness and ability to qualify for the loan. Additionally, work with a lender who is able to get the job done in 21 days.

A seller does not want a pre-qualification letter. It is worthless in their eyes. Instead, make sure your pre-approval letter states a higher approval amount than the actual price of the home. This will show the seller you are competent.

If you are comfortable with disclosing your employment details to the seller, it can be a useful strategy. Furthermore, if you have any assets that will help your offer, you can make this information available to them.

Proof of Funds

You can send a proof of funds letter to the seller with the evidence you have enough cash to close the deal.

A mortgage does not imply a buyer can’t afford the home. To be clear, there are many reasons why someone may want a mortgage payment. It can be a good option for receiving the tax benefits of owning a home. Mortgage payments can be used as tax deductions.

Earnest Money Deposit

Consider increasing your earnest money deposit with the offer. This demonstrates to the seller that you as a buyer have skin in the game. It will show that you are serious about purchasing the home.

There is not a set amount for the percentage required for an earnest money deposit. Earnest money is usually 3% of the purchase price of the home. If you are offering $600,000 on a home, the earnest money deposit would be $18,000. If you offer $6,000 or 1% as earnest money, then the seller may think you don’t have any skin in the game.

Prepare Yourself For All Possible Outcomes

In a bidding war, you can expect to bid higher. It is common for a cash buyer to ask for a slightly reduced or discounted price because they are purchasing in all cash. If you want to make your credit offer stand out, bid higher than them. Sellers will always choose a higher offer over a lower one, whether it’s a mortgage or cash, assuming the increase is worth it.

Sellers love a quick and painless close. Make sure you expedite the process as much as possible. Closing times for a mortgage are anywhere between 14 to 21.  Make sure to speak with your loan officer and have your mortgage broker outline the expected turnaround time.

Shorter time periods are preferred in this very competitive real estate market. Lenders are able to close loans within 21 days.

Final Thoughts

Regardless of which tactics you use when competing with cash offers, make sure to always stay one step ahead of the game and put yourself in the seller’s position. What would you need to be presented with to deny a cash offer for a credit one? Once you begin thinking that way, the rest is smooth sailing.

About the Author

Top Newport Beach Realtor Sharon Paxson has written the real estate article “7 Important Tips to Get Your Offer Accepted in a Bidding War”. With experience since 2005 representing sellers, buyers, and landlords with their real estate transactions, we welcome the opportunity to share our knowledge and expertise and guide you through the home buying or selling process.