What is a bidding war?
Updated March 4, 2022
When multiple buyers are interested enough to make an offer on a property, this can result in what’s known as a bidding war. If multiple offers are made on a listing, typically, the seller’s agent will ask each buyer to come back with their “best and final” offer, and the sale will go to the highest bidder.
Unsurprisingly, bidding wars most often take place in seller’s markets, where demand outpaces supply, and the process can drive the final sale price beyond the initial asking, and in some cases, beyond what the home may truly be worth.
Though a bidding war is fundamentally about who is willing to pay the most money, other factors can influence the outcome of a deal (and put a buyer ahead of the competition), including:
- Making an all-cash offer. Because the mechanics around mortgages tend to move slowly, all-cash offers are appealing to sellers who want to move quickly, and all other things being equal, an all-cash offer is likely to beat out one that involves financing.
- Accommodating the seller’s terms. Buyers who are able to offer flexibility about factors such as move-in dates, repairs and existing furnishings may end up with an advantage. In especially busy seller’s markets, a buyer might offer to let the seller stay in a home for a certain amount of time as a renter while they search for a new property of their own.
- Expressing strong interest in a property. Bidding wars are largely about the bottom line, but in some cases, sellers are swayed by buyers who express a sincere desire or emotional connection with a home.
- Waiving contingencies. Making an offer with no contingencies (for example, that a deal is contingent on the buyer securing financing, or on the results of a home inspection) can help a buyer stand out and seem more serious, since the earnest money deposit put down after their offer is accepted will become nonrefundable if the deal falls through.
Bidding wars most often take place in seller’s markets, where demand outpaces supply. Photo: Pixabay
From the seller’s perspective, while demand can’t be manufactured out of thin air, some strategies are more likely to result in a bidding war, most notably pricing a listing slightly below market rate, which may draw in a higher number of buyers who could end up bidding up the price to what the original asking might have been. Having a firm deadline for best and final offers can also establish urgency and encourage buyers to make the most attractive offers possible.
The winner of a bidding war may still end up losing or walking away from the deal if, for example, unexpected issues come up during the home inspection. (Buyers who have outbid the competition sight-unseen, based on virtual tours and photos, are also more likely to back out of deals after seeing a property in person.) For this reason, buyers who have lost a bidding war may sometimes make a backup offer, which will put them next in line if the seller’s deal with the winning bidder ends up falling through.