Mortgage 101

8 Ways to Win Housing Bidding Wars

Published on: April 19, 2022

bidding wars

Homebuyers in today’s real estate market are likely to face bidding wars. With more buyers out there than homes, most property listings receive multiple offers — and many of those offers are in cash or significantly above asking price. 

Competing against other buyers can be intimidating — especially for first-time homebuyers. But with preparation and a plan, you can navigate bidding wars confidently and successfully. Understanding what leads to real estate bidding wars will help you create a winning strategy to come out on top.

What is a bidding war?

Bidding wars occur when a real estate listing receives more than one offer. During bidding wars, buyers compete against each other to have the winning offer

Real estate bidding wars are most likely to occur during a seller’s market — when conditions that favor home sellers, such as low inventory and high demand, are present. But multiple circumstances can lead to bidding wars in real estate. Low interest rates, a seasonal uptick in sales, location popularity, competitive pricing, and housing trends can cause a home listing to receive multiple offers and thrust buyers into bidding wars.

In the current real estate environment, bidding wars on houses are common. With inventory at record lows and most homes selling within two weeks, today’s buyers should anticipate bidding wars — and the prospect of making offers on multiple properties before walking away the winner. Recent data shows that about 60% of home offers result in bidding wars, even with rising mortgage rates.

How do bidding wars on houses work?

Bidding wars in real estate usually benefit sellers because they typically result in a higher purchase price or contract terms that favor the sellers. 

When a listing receives competing offers, sellers can handle it in many ways. Sellers can immediately accept the best offer and reject the rest. Or, they can counter one offer and decline the others. They can also counter one bid and put the others on hold while negotiating. 

While it’s impossible to predict the course of the real estate market, buyers can reduce the stress of the homebuying process and potential bidding wars by having a plan ahead of time.

8 ways to win a bidding war

The homebuyers that come out ahead in bidding wars often have the highest offer on the table, so a starting point is to bid over the asking price. But the highest offer is not always the winning bid. The terms of the purchase agreement, how the buyer is paying, and other factors influence a seller’s decision, so buyers can use multiple strategies to beat out rival offers.

Keep in mind that when looking to come out on top in real estate bidding wars, homebuyers should be cautious and avoid offering terms they cannot commit to or that may hurt them in the long run. As you review these strategies, consider what’s doable in your situation, and work with your real estate agent to determine the best approach.

1. Waive contingencies

Contingencies are clauses in real estate transactions that protect the buyers or sellers in specific scenarios. A common strategy for winning bidding wars is to waive contingencies or limit the number you place in an offer. 

Standard buyer contingencies include financing, inspection, and appraisal contingencies, which allow a buyer to cancel the deal if their loan doesn’t come through, repair issues arise, or the home appraises below the purchase price, respectively.

Offers with few or no contingencies appeal to sellers because it helps the transaction progress smoothly and quickly with fewer potential bumps in the road. Without the protection that contingencies provide, though, buyers leave themselves vulnerable to facing issues during the transaction, buying a home for more than it’s worth, or losing money if they have to cancel the deal.

2. Skip the inspection

While waiving the inspection contingency is common in today’s climate of bidding wars, some buyers choose to forgo the inspection altogether. 

Although skipping the home inspection can give you the upper hand in bidding wars, doing so could mean missing out on identifying major issues with the property. This can cost you figuratively and literally if you encounter problems later. 

3. Come with a preapproval in hand

Getting preapproved means a bank or mortgage company has already vetted you for financing and that you’re likely to receive a mortgage. Having a preapproval before you begin shopping and submitting offers shows sellers and your real estate agent that you’re a serious buyer and not just kicking the tires. In many cases, sellers will only accept bids from preapproved buyers.

4. Make an all-cash offer

Paying in cash increases your chances of winning real estate bidding wars significantly and is perhaps the most effective strategy for beating competing offers. Sellers lean toward cash transactions because they close quickly and have fewer contingencies. 

Of course, paying cash for a home may not be possible, but if you can make an all-cash offer, your bid will stand out and put you on the same playing field as investors or wealthy cash buyers during bidding wars.

5. Opt for upfront underwriting

Upfront underwriting is a step further than a preapproval. It means the bank has fully approved you for a loan, except for the property details and specifics of the transaction. Making a home offer with upfront underwriting helps the transaction close faster — which can be a winning factor for a seller looking to close quickly.

If you can’t make an all-cash offer, upfront underwriting can be the next best thing.

6. Make a higher earnest money deposit

Another way to beat the competition in bidding wars is to make a significant earnest money deposit — the initial money you put down when submitting your offer. Typically, earnest money is about 1% to 3% of the home price. Making a larger earnest deposit tells your sellers you’re committed to the sale and are willing to put more on the line. Another strategy that may win over sellers is to make the earnest money non-refundable, so they benefit even if the deal falls through.

Before taking this path, make sure you can afford the larger deposit and realize that making a larger earnest deposit means less cash for closing costs and other expenses during the transaction.

7. Include an escalation clause

An escalation clause states that the buyer’s offer will immediately increase up to a certain amount if competing bids come in. Placing this clause in your offer can help it stand out in bidding wars, but it comes at the risk of going outside your home budget

Only include an escalation clause if you’re sure you can handle the higher purchase price, which may mean focusing your search on houses that are initially below your budget.

8. Understand the seller’s needs

Not all sellers want the same thing in negotiations. While some may need a quick closing to move, others may want a longer time frame to look for a home. Some sellers may want the option to rent the house back after closing. 

Familiarize yourself with what the seller is looking for and tailor your offer accordingly. Taking this approach can give you a significant advantage in bidding wars. Of course, you must consider what works for you and what doesn’t.

Want to make sure you’re competitive during potential bidding wars? Connect with a local Finance of America Mortgage Advisor to learn what financing options are right for your situation.

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