How to Win a Bid on a Home, According to Buyers’ Agents
When you’re bidding on a home in a super competitive housing market (like the one we’re in today!), it can feel as though you’re a contestant on a game show—and that’s putting in fun terms. Truthfully, submitting an offer (and waiting to hear if it was accepted) is undoubtedly a high-stress, high-stakes situation.
Come in too low, and your offer won’t be entertained. Come in too high, and the home may not appraise for what you’re willing to spend, which could cause your financing to fall through. To help you arrive at a sweet spot, your real estate agent is busy gathering intel via conversations with the seller’s agent and analyzing recent comparable sales in the area.
But did you know that the strongest offers go beyond the actual dollar amount you’re willing to pay for a home, and also involve some strategic clauses that could woo the seller? Here, real estate agents share with House Beautiful how to make an offer—and tips for doing so in a seller’s market.
You May Need to Bid Over the List Price
A combination of factors have made home buying in 2021 extra competitive. Record-low interest rates are bringing out buyers in droves. But there’s a shortage of homes on the market, which is compounded by a delay in new construction homes during the COVID-19 pandemic. The result? A lot of buyers shopping for a limited number of homes.
To put it another way, now isn’t the time to lowball an offer.
First things first, if you’re financing the purchase (i.e. not buying a home with all cash!), make sure you have a preapproval letter and proof of funds, says realtor Yawar Charlie, Director of the Estates Division at Aaron Kirman Group in Los Angeles and a regular on CNBC’s “Listing Impossible.”
In markets where demand is high and inventory is low, most properties are selling for at, or above, the asking price, Charlie says.
“Depending on the competitive nature of your housing market, you might need to come over the asking price just a little bit,” he explains. “Don’t take this as a sign you are overpaying for your house. Look at it like you are paying next year’s price now in order to get the home of your dreams.”
To further assuage your concerns about coming in over asking, historically low interest rates that are available now can translate to lower monthly mortgage payments (and less interest paid on your loan over time)—meaning that extra cash up front may well even out in the long run.
Contingencies Can Help Make Your Offer Stand Out
In addition to making a strong financial bid, you can also button up your offer with some attractive contingencies and clauses, real estate agents say.
“Generally speaking, the best way to get a deal is to make your offer as uncomplicated as possible,” Charlie says.
Removing an inspection contingency is a risky move (you want to know if, say, you’ll need to replace an entire roof soon after moving in). But if you know the house you’re bidding on is going to be in high demand, bring your contractor, or set up an appointment to do a home inspection before you submit the offer, Charlie suggests. That way, you might be able to remove the physical inspection contingency, while still knowing what you’re getting into.
An appraisal gap clause can also be attractive to sellers who want a clear path to the closing table, says Charissa Turnbull, a real estate agent with Ankeney Real Estate in Colorado Springs, Colorado. This clause is an agreement that says you’ll cover any shortage between the offer price and the appraised value. Of course, this means you’ll need to bring more cash—beyond your down payment—to the closing table.
Adding in an escalation clause can also help you win a bid in multiple offer situations, Turnbull says. This indicates you'll offer a certain amount above the highest offer the seller receives, but you can put a cap on the amount.
Another agreement that can help you stand out are rent backs. Also known as lease backs, these arrangements the sellers to rent the home back from the new owners for a specified amount of time, says Marie Bromberg, a licensed real estate salesperson with Compass in New York City.
“It allows the sellers to close quickly and then lease back the home, moving at a time that's convenient for them,” Bromberg says.
Consider Multiple Options
Finally, it's worth remembering that in a competitive market, there's a good chance (even following the advice above!) that your offer might not be the winning one—just take it from first-time buyer Albie Buabeng. With this in mind, it's wise to go into the process aware that you may well have to make a few offers before one is accepted—so don't put all your eggs (and home-owning hopes) in one basket.
Now, with these tips in mind, step right up and let the bidding begin!