How To Bid On A House
7-minute readJanuary 20, 2022
You’ve gotten preapproved for a mortgage, seen plenty of homes and finally found the perfect match. All that’s left to do now is bid for the right to buy the property. When you bid, you submit an offer to buy a home. You may need to compete with other buyers’ offers before you can close on your loan and move in.
Whether it’s your first time buying a home or you’re closing on your 10thinvestment property, it can be challenging to determine just how much to bid. Let’s take a closer look at the bidding process and the best way to bid. We’ll also introduce you to a few tips you can use to win a bidding war if your home is in a hot market.
How Does Bidding On A House Work?
The first step in the bidding process is to submit an offer letter to the home seller. Your offer letter tells the seller that you want to buy their home. It also includes details on the conditions under which you agree to buy, including price and date. Most buyers include a preapproval letter and a small amount of money called an earnest money deposit with their offer. These tell the seller that you’re serious about going through with the sale. An offer letter is a legally binding document. If the seller accepts your offer and you later back out of the sale, you might lose your earnest money deposit.
Many buyers also include clauses in their offer letter called contingencies. A contingency is a condition that the home or seller needs to meet before you agree to buy the home. For example, you may include a contingency in your offer letter that says an appraiser must price the home’s value at or above the price you’re paying for it before you buy. Inspection contingencies and repair contingencies are also common.
Though nothing will stop you from writing your offer letter yourself, it’s better to leave this job to your real estate agent. Your agent knows all the information you need to include in your offer and can help you make the strongest offer possible.
Once you submit your offer, all you need to do is wait for the seller to respond. Your seller might respond immediately or he or she might wait to consider other offers. It might take a bit of time for your seller to respond if you live in a seller’s market.
Your seller can respond in three ways:
- Accept your offer: If the seller accepts your offer, you can move to close your loan.
- Reject your offer: If the seller rejects your offer, you can make another offer or move on to another property.
- Offer a counteroffer: If the seller gives you a counteroffer, you can accept, reject or offer another counteroffer.
If you get a counteroffer, your real estate agent can help you decide how much to offer each time. If you’re able to reach an agreement with the seller, you can move to the closing table.
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What's The Best Way To Bid On A House?
When you bid on a home, you want to give yourself the best possible chance of having your offer chosen. On the other hand, you also want to stay within your budget and leave yourself enough money for repairs and renovations. Bidding is especially hard in a seller’s market, where you can never be 100% sure how many other buyers are bidding for the home you want or how much they’re offering.
The best way to bid on a home when you aren’t sure how much competition you’ll face is to add an escalation clause to your offer. An escalation helps you put in a higher offer only if other competitors drive up the price of the home.
Let’s look at an example. Imagine that you want to bid $200,000 for a home in a seller’s market. You know that you’ll probably need to bid against other buyers, but you don’t want to offer too much money up front. You can add an escalation clause to your offer that says that you’ll outbid any other offers by $1,000 up to $225,000. This means that if another buyer comes in, your best offer automatically increases. On the other hand, if there are no other buyers bidding on the home, you won’t overpay.
An escalation clause is a great way to balance price and competitiveness. However, remember that the highest offer doesn’t always win during a bidding war. You might want to consider removing contingencies or skipping the inspection if you can’t offer more money for a popular home.
What Should You Offer On A House?
There’s no right or wrong price to bid for a home. The amount you should bid on your property depends on where you live, the home’s size, the average cost of living in your area and more. Some factors to consider before you decide how much to bid include:
- Comparable properties: Use an online real estate database to look for comparable properties in your area. Take a look at how many homes are on the market and the average selling price for properties like yours.
- Length of time on the market: How long has the home been on the market? If it’s been up for sale for a long time, the seller might accept a lower offer.
- Repairs and renovations: Do you know that the home needs repairs or renovations? To stay on budget or lower your offer.
- Other interested buyers: You can ask your real estate agent to get in contact with the seller’s agent to learn about the competition on the home. If there are multiple buyers interested in the property, you’ll need to make a stronger offer.
Still not sure how much to offer? Ask your real estate agent for advice! Your agent is an expert in your local real estate market and can help you decide how much to offer. Consult him or her for advice before you submit your offer letter.
How Do You Win A Bidding War On A House?
Bidding on a home can be nerve-wracking. You don’t want to lose the home of your dreams by offering too little – but you also don’t want to blow your budget by offering too much. Here are a few strategies you can use to help win a bidding war without breaking the bank.
The best way to move your bid to the top of a list of interested buyers is to offer a cash sale. Not everyone will be able to buy their home without a mortgage loan, but a cash offer makes your bid more appealing.
Why do sellers prefer cash offers? When you have cash in hand, the seller doesn’t need to worry about you running into problems with your mortgage loan. They won’t need to put their home back on the market if your lender denies your application and they won’t need to reassess the sale due to a low appraisal. Cash sales also close faster than loan sales because there’s no waiting period after you receive your Closing Disclosure.
If you live in a seller’s market and you can afford to do so, consider telling your real estate agent you’d like to make a cash offer.
Get Preapproved Before You Shop
If you can’t offer cash for your home, the next best thing is to send a preapproval letter along with your bid. A preapproval letter is a letter from a mortgage lender that tells you how large of a home loan you qualify for. Your lender takes a look at things like your credit, income and assets when you request a preapproval. This allows your lender to give you the best possible estimate of what you can afford.
A preapproval letter significantly increases your chances of winning a bidding war. When you’re preapproved, sellers know that you won’t run into trouble getting the financing you need to buy their home. If you don’t include a preapproval letter with your offer, a seller might skip over your offer entirely.
For the best possible chance of winning a bidding war, get a Verified ApprovalSM,1 from Rocket Mortgage®. Rocket Mortgage®’s Verified ApprovalSM process is more in-depth and involves a closer look at your finances. This allows your lender to give you a very accurate estimate of how much home you can afford. With a Verified ApprovalSM in hand, sellers know that you’re much less likely to run into a problem financing your home.
Write A Letter To The Seller
Buying a home isn’t all about bottom lines and numbers. It’s also a very emotional process. Most people have cherished memories linked to their property and they want to know that the next family who buys their home will love it as well.
Buyers who know they’re facing competition for a home include a personal letter with their offer. Writing a personal letter is a free yet effective way to stand out among a sea of other buyers. A small touch of emotion can be a powerful force when it comes time for the seller to choose a winning bid.
Not sure where to get started? Use these tips to write a powerful personal letter.
- Introduce yourself. Your personal letter is your opportunity to put a name and a face to your offer. Introduce yourself and your family within the first paragraph of your letter. Let the seller know what you do for a living and who you are as a person. This helps your seller remember your letter when they need to choose a bidder.
- Talk about your plans for the home. Whether you’re planning to turn that extra bedroom into a nursery or you’re already envisioning holidays in the foyer, help the seller envision you in their space.
- If you’re offering less money, explain why. Sellers often deal with lowball offers. A seller is much more likely to choose your bid if they know you’re struggling with medical bills and you’re not just an investor who wants a quick flip.
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Bidding on a home begins with an offer letter. Your real estate agent can help you write a strong one. The amount you should offer for a home depends on a number of factors, including location, property size and sale type. If there are multiple offers on the table, you might end up in a bidding war with other buyers.
If you aren’t sure what type of competition you’ll face for a property, write an escalation clause into your offer. An escalation clause increases your final offer only if other buyers bid above you. This allows you to save money while also remaining competitive during a bidding war. You might also want to strengthen your bid by offering a cash sale, writing a personal letter and getting preapproved before you submit an offer.
1Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, debt, property, insurance, appraisal and a satisfactory title report/search. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close, you will receive $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage® through a mortgage broker. Additional conditions or exclusions may apply.
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