Housing market too hot? Six ways to win a bidding war.

The homebuying process can feel cutthroat, especially in certain cities, but you’ll be in a better position to win the house you want with a knowledgeable realtor and a few simple tricks. 

Steve Helber/AP/File
A sold sign is posted in front of a new home under construction in Mechanicsville, Va.

If you’re shopping for a house in one of the country’s hottest real estate markets, where the supply of houses is low and demand is high, you may find yourself in a bidding war, with multiple offers pushing prices ever higher.

Add low mortgage rates into the mix, and buying a home can feel like you’re in the middle of “The Hunger Games,” competing in a fierce battle to win the house you love. At least you won’t perish in this process, but it’s certainly easy to get discouraged if you’re edged out multiple times when trying to buy a home.

The best move you can make before writing any offers is to hire an experienced, professional real estate agent. Having someone on your side who knows your local market thoroughly — and can guide you through these sometimes tough negotiations — means you’ve got heavy backup when you enter a bidding war.

We talked to some real estate agents from around the country about strategies to help you come out on top.

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1. Get a preapproval letter from your lender

Getting pre-qualified, which merely confirms your income and how much a bank might be willing to lend you based on your credit profile, isn’t the same as having preapproval for a specific purchase offer.

You can up your chances of beating out other buyers by including a letter from your bank stating that your lender has underwritten your application and it’s simply pending appraisal, says Daniel Blatman, a broker with Douglas Elliman Realty in New York City.

Blatman suggests submitting all of your financing documentation to your lender before looking at homes and certainly before writing any offers. That way you can pounce quickly when you find the home you want, and avoid the stress of submitting preapproval paperwork and writing an offer at the same time.

2. Use an escalation clause

If you’re in a multiple-bid situation, you can strengthen your offer by using what’s called an escalation clause. It’s essentially a contract addendum that states you’re willing to increase your offer incrementally up to a certain limit if other offers come in that match or top your initial bid.

For example, say the seller’s asking price is $200,000. Your real estate agent would write your offer to state: “My initial bid is $200,000 with an escalation of $2,000 over competing offers up to $210,000,” or something to that effect. If another bidder offered more than $210,000, however, you’d be out of the running.

An escalation clause is a smart strategy that shows strong interest, but it’s important to stay within your budget and be willing to walk away if bidding goes beyond your limit, says Bruce Ailion, a real estate agent with RE/MAX Town & Country in Atlanta.

When using an escalation clause, “offering 1% above the purchase price is a guide, especially if you’re in love with the home and you’re not willing to lose it over that 1% difference,” Ailion says. “You can also allow your bid to be held as a backup offer for up to 20 days if the higher bidder makes an irrational offer and doesn’t deliver earnest money or stops payment.”

3. Limit the contingencies

Sellers have the upper hand in a multiple-bid situation, and they want offers that are clean and concise. If you know other bids are coming in and you really want a home, avoid putting in too many contingencies or making too many demands, Ailion says.

“Don’t include things like needing to wait for a spouse or partner’s approval, asking the seller to purchase a home warranty or requesting that the seller leaves or repairs certain items,” Ailion says. “You also don’t want to ask the seller to pay your closing costs; find an affordable attorney or title company to represent you. Having too many of these items in your contract will make it likely that a seller tells you ‘no’ over another offer.”

4. Be flexible on the closing

Let’s say someone outbids you by a few thousand dollars, but you’re willing to give the seller more time to move out. That flexibility can make you the front-runner in a multiple-bid scenario. Sissy Lappin, owner of Lappin Properties in Houston, says she’s seen buyers snag their dream homes even when outbid because they either let the sellers rent back the home for a period or pushed back the closing date.

Extending that courtesy can make your offer more attractive to a seller who might otherwise have to spend more on moving expenses or be crunched for time to find another home.

On the other hand, if a home is already vacant, sometimes you can win the seller over by offering to close in a shorter time. Ailion says that buyers who offer to close quickly — sometimes within 14 days — can edge out buyers who haven’t been preapproved or have to sell their current home to buy a new one. (Keep in mind, though, that a new regulation known as the TILA-RESPA Integrated Disclosure rule has slowed down closings for some lenders.)

“Sellers are concerned about liability, theft, holding costs and hazards with a vacant home,” Ailion says. “Offer to close at the seller’s convenience with occupied homes. Be flexible if the seller needs to find a new home; provide them that time.”

5. Write a ‘love letter’ to the seller

With so much fierce competition out there, sometimes appealing to the heart can make your offer stand out. That’s why more and more real estate agents are suggesting that buyers write a heartfelt letter to sellers explaining why they want the house.

“I definitely ask my buyers to write a letter and explain how much it would mean to them to get the house,” says real estate agent Eileen O’Reilly with Keller Williams Realty in Burlingame, California. “I even have them add a couple of photos of them and their kids or pets. I’ve had selling agents tell me that it was the letter and the complete offer packet that won my clients the listing.”

Other Realtors agree.

“A love letter definitely helps,” says Paige Martin, a Realtor with Keller Williams Realty in Houston. “Even more important is your online reputation as a buyer. Most good seller’s agents will google potential buyers to see if they’ve been in a lot of conflicts or if they have a stable job. While this won’t overcome a large difference (in your bidding price), it will definitely help at the margin.”

6. Don’t count yourself out after a bidding war

If you lose a bidding war and the seller chooses another bid, have your agent keep in touch if you’re still interested in the house. If a buyer offered way over the asking price, the deal could fall apart on appraisal or the buyer might be bidding on multiple properties to see which one sticks, Blatman says.

“The highest offer doesn’t always mean it’s the best one,” Blatman says.

Lappin has seen it time and time again: “Contracts that come in way over asking price have a very high cancellation rate,” she says. “When that happens, (the seller) loses the momentum of being the new home on the market.” That could make your offer attractive again.

Plan ahead to get the edge

The homebuying process can feel cutthroat at times, but you’ll be in a better position to win the house you want with a knowledgeable Realtor to help you write a strong, competitive offer that follows these strategies.

You may well lose one or two bidding wars before you win one; it’s almost a rite of passage for homebuyers. Good luck on your home search, and may the odds be ever in your favor!

Deborah Kearns is a staff writer at NerdWallet, a personal finance website. Email:dkearns@nerdwallet.com. Twitter: @debbie_kearns.

This article first appeared in NerdWallet.

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