When You Can’t Pay All Cash: Secrets for Winning a Bidding War in 2017

Let’s face it. The 2017 housing market hasn’t been easy for the typical homebuyer. The number of homes for sale has fallen year-over-year for 17 months straight, and with historically low mortgage rates beginning an upward ascent, there’s more demand from homebuyers than we’ve seen in at least four years. The results are bidding wars and escalating home prices. In February, one in five homes that sold went for more than their list prices. That’s close to levels we saw in 2013 but the difference is that four years later buyers are savvier and understand the competitive conditions better. And the stakes are much higher now. Home prices have increased 30% since then.

If you’ve done any research on how to win a bidding war or if you’ve already been through one or more yourself, you know cash is king, and that waiving one or all of the several contingencies meant to protect the buyer is often what it takes to win, especially in hot markets like San Francisco, Seattle and Denver.

But that leaves typical, financed homebuyers who don’t have that kind of cash or aren’t up for the risk of waiving contingencies wondering if they even have a shot at winning a home in this market. It can be done, and and there are several strategies that can help you do it. Here are some tips from Redfin real estate agents who’ve helped homebuyers win bidding wars this year in competitive neighborhoods across the country.

1. Choose the Right Agent

Your agent’s toughest job in a competitive situation is to win the attention of the listing agent and sell you and your offer to them, so the relationships they have with other agents in the neighborhood can go a long way. When you’re evaluating agents, consider how they present themselves and if they’re the right person to represent you, build a case for you and fight on your behalf. Choose someone who is confident and aggressive, but who listens to you and can help you stay grounded in the heat of the moment. Most importantly, choose an agent who has a good track record. Find out how many bidding wars they’ve competed in this year and how many they’ve won. Remember that the market has been changing quickly, so what it takes to win a bidding war today could be drastically different from what it took even three or four months ago in the same hot neighborhood.

2. Get to Know the Seller & Offer Them Exactly What They Want

When a seller has several above-asking offers to choose from, they’re often looking for one that stands out from the rest. Most buyers make their offer distinct with a written, personal letter to the seller describing themselves and what they love about the home. This is an important opportunity to connect with the seller on an emotional level and humanize the transaction. To find a way to tug at the seller’s heart strings, pay attention to cues when you’re walking through the house to find something you can relate to them about, like sports team memorabilia, artwork or kids’ activities. Don’t be afraid to dig for information on social media too. Find something you have in common or something specific they care about and build your letter around it. For tips and examples of how to write a great cover letter, read more here.

Personalize the offer terms to cater to the particular seller. An easy way to do this is for your agent to simply ask the listing agent what the seller’s preferred close date is and whether they prefer that the buyer use a certain lender or title company and write those terms into the contract. Most sellers are buyers too, and they might need extra time to find their next home, so consider offering them a rentback or leaseback agreement, in which they can stay in the home and rent from the buyer after closing. To sweeten the deal, let them stay on for free for a period of time. Beyond typical offer terms, find out if there’s anything else the seller wants or needs — and we mean ANYTHING. Agents said they’ve seen buyers win competitive bidding wars by offering to adopt the sellers’ dog, by agreeing to keep the chickens in the backyard and by offering them a free vacation.

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3. Make Your Offer as Close to Cash & as Close to Non-Contingent as Possible

Even if you can’t offer cash and you don’t want to give up your standard protections, there are ways to make your offer nearly as appealing to the seller. Here are some tools to consider:

Pre-inspection: Conduct the inspection before submitting the offer so that you know exactly what you’re buying and can waive the inspection contingency without waiving your right to an inspection.
Large earnest money deposit: The earnest money deposit is typically 1% to 3% of the offer price, but consider making yours significantly larger if you can. This shows the seller that you’re serious about this home and have the funds needed to close.
Non-refundable deposit: Redfin agents have seen buyers offer an additional deposit with the guarantee that if the deal doesn’t close, the sellers can keep the cash.
Fully underwritten pre-approval: Have your lender go beyond the standard pre-approval letter and fully underwrite the loan in advance. This ensures the seller that the financing will be approved by the lender and helps many buyers feel comfortable waiving the financing contingency. Not all lenders can or will do this, so it’s an important question to ask when choosing a lender.
Shortened contingency periods: If you aren’t able to waive contingencies, consider shortening the timelines associated with them. A three-day inspection contingency is much more appealing to a seller than a standard one that can last a full week or more.
Agree to make up for an appraisal deficiency: If you can’t waive the appraisal contingency, agree to cover part of the difference, up to a certain amount you can afford and are comfortable with, in the event the appraisal comes in low. Make sure your finances are in order before taking these steps. You can get a snapshot of your credit report, including two free credit scores, on Credit.com.

4. Have Your Agent Do an In-Person Escalation Clause

In many parts of the country, buyer’s agents write an escalation clause into the contract saying how far above the highest-priced offer the buyer is willing to go, up to a defined limit. In this in-person version, the agent uses the same technique but prints out several different versions of the first page of the offer with the different purchase prices on it depending on how high they need to go to beat the other offers in the room. Once a price is agreed to in real time, the agent can hand over a final and complete offer package. (Confused about any mortgage lingo? Here’s our handy glossary.)

5. Be Fast… or Last

In some markets and situations, being the first to submit an offer (especially if it’s at or above the asking price) can win you the deal. In others, especially if there’s an offer deadline, it pays to wait and find out what the seller is looking for and how many other bids you’re up against to help inform your strategy before submitting an offer. Either way, getting in to see a home right away gives you and your agent time to prepare the best offer possible.

6. If at First You Don’t Succeed, Get in the Backup Offer Position

About 17% of homes that go under contract end up coming back on the market. This presents an opportunity for buyers whose offers don’t get accepted in the first go round. Backup offers can be formally or informally accepted, which is usually up to the listing agent and the seller, but it’s worth it to ask for a formal backup offer contract. If the listing agent won’t accept a backup offer, make sure you’ll be alerted right away if it comes back on the market and can be first with a new offer. When it does, find out what killed the original deal and guarantee you’ll be easier to work with. For example, agree to use the original buyer’s inspection and if it was negotiations over a certain repair that caused the deal to fall apart, agree to cover the cost of that repair yourself.

If You Still Find Yourself Sitting on the Sidelines

With most homes in competitive markets igniting bidding wars, many times with dozens of bids, the odds may still mean that it could take several tries before getting an offer accepted. Here’s some advice agents offered for buyers frustrated after one or more failed attempts:

Find out exactly why your offer wasn’t chosen. If your agent didn’t tell you why you lost, ask her to be blunt about it. If she doesn’t know, it can’t hurt for her to follow up with the listing agent and find out.
Consider a fixer-upper or a home that has been on the market for a long time.
Consider a new construction home. While there may be campouts and lotteries for highly sought-after new construction homes, there typically aren’t full-on bidding wars because the price the builder is charging is set, and there’s rarely negotiating in a competitive market. So you just have to be first in the door and willing to pay full price.
Try house hunting and making offers during an off time like school vacation week or during a storm to avoid competition.

Want more homebuying tips? Here are 50 ways to help yourself get your dream house.

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