The Anatomy of a Bidding War: How it Works and How to Win

The housing market is heating up just in time for summer. With inventory low and buyers on the prowl, some local real estate markets are seeing a lot of competition. And a lot of competition means a lot of offers on the best homes in a good neighborhood at the right price. If you’re looking at one of those homes, you can guess that you’re not alone. You may find yourself in a bidding war.

So what exactly is a bidding war? Well, it’s not really a war. It’s not so much a back-and-forth between different buyers and the seller as it is a heated competition to hopefully make the best blind bid.

By blind bid, I mean that the offer a buyer makes on a home for sale is an educated guess. He or she MAY have no clue about how many other offers may come in, how competitive those offers will be, what the other buyers’ financial situations look like, etc. All a buyer can do is make their best guess.  But they may know, for instance, that there are 13 offers confirmed, and that the last house they bid on (with 5 offers) went $50,000 over list price.  Past experience (including your buyer’s agent’s experience) can be extremely valuable.

And how do you know if you are in a bidding war? Well, it’s not as if a seller signs a formal declaration that a war is on between buyers. But the listing agent may request for all offers to be submitted by a certain date and time. Did you catch that? All offers. You can bet that if you hear that, you’re probably among several people making an offer on a home.

After you make your best offer, what happens next? You wait. You hopefully don’t lose too much sleep. You also hopefully don’t start dreaming about what color you’re going to paint the kitchen. When you know you’re in a multiple offer situation, know that there’s a fair chance you won’t get the home.

The seller will take a look at the offers and talk them over with their listing agent. They may even have the buyer’s agents present the offers one by one. It all depends on the seller and how close the offers are.

Sellers won’t usually counter in a multiple offer situation—they’ll usually take the best bid. But if there are two or three bids at slightly different price points, the seller may try to get the offers up to the same dollar amount, so if one buyer doesn’t work out, the next offer will be for the same amount.

Sounds like a nerve-wracking situation, right? There’s no real way around that. As a buyer, what you can do is prepare. Here are our top tips for setting yourself up for success in a bidding war:

  • Be prepared – get your financing and documents in order before you start making offers, so you can move quickly when you see a great home.
  • Do your homework – talk through the CMA (comparable market analysis) with your agent, so you know what a fair price is for the home in the neighborhood.
  • Listen to your agent – your agent will have lots of experience with multiple offers and will be able to help you keep your cool and make a competitive, timely offer that doesn’t break your budget.
  • Know your limits – getting preapproved will give you an idea of how high you can bid, so that you don’t get caught up in winning the home and experience buyer’s remorse.
  • Set your expectations – consider the home, its amenities, the school district, the neighborhood, and the local market to determine whether you can anticipate a bidding situation.

For more on specific strategies for winning a bidding war, check out some of our related posts! As always, talk through the process with your agent so you’re ready to bid on a home, whether you win or lose.

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Sarah Louise Green lives in the San Francisco Bay Area and writes about national real estate trends, home financing, advice for buyers, and DIY projects for the home and garden. Follow Sarah on Twitter:@slouisegreen