What is a real estate escalation clause

How to win a bidding process

You have been looking for a house for weeks, possibly months, and now you have finally found a beautiful home that would be just right for your family. You are already familiar with how to get an offer on a home, what you think you are submitting a competitive offer and anxiously waiting for a response. After all, if the home sellers accept your offer, this could mean the end of your search. But because of the high demand in the current housing market, your real estate agent comes back with the unexpected news that several other homebuyers have also made offers for the home. The final decision of the seller may depend on who can win the bidding war.

How do you know when to get out of a bidding war?

The house needs major repairs: if the house isn't ready to move into and needs a few updates, that may be fine. However, if you are expecting a significant financial outlay to update the property or do major repairs, you would be better off looking for a different home. A bidding war could tempt you to come up with an out-of-budget offer that would eat up any funds you might have earmarked for home improvements.

The house is already at the top of your budget range: if you got your best offer right away (which can make sense in a competitive market) and you have no leeway to increase the amount of your offer, you should be out of a bidding war keep out. Once you've been pre-approved for a certain amount, the home may not estimate a higher price, which is often the result of bidding wars. If so, the bank could refuse your mortgage. Stick to your budget and walk away if necessary.

There is no housing stock in or near your desired neighborhood: if there are multiple homes in your desired area, if there is a bidding war and you are unwilling to raise your price, it's easier to pull out. Finally, there are other homes that you can consider. However, if it's a seller's market with more homebuyers looking to buy than there are available homes for sale, this is a perfect storm for multiple bids and a bidding war over a piece of land. Fortunately, we have some tips and tricks that can help you stand out against the competition.

Avoid a bidding war right from the start

Ask your real estate agent if they can find out what the seller actually wants and needs so that you can position an offer accordingly. If you can respond to relatively simple questions - e.g. the desire to keep the appliances or not to replace the 15-year-old carpet - your offer will be more attractive. By incorporating these precautions into the listing to give the seller more of what they want, you can win the deal over.

Increase your offer

If you have room in your budget to increase your bid, ask your real estate agent for advice about an appropriate amount for your counteroffer. Remember, this new, higher amount will increase your mortgage payments for the life of the loan. Make sure your counteroffer stays within your budget.

Eliminate contingencies

Most of the time, the real estate agents will tell you not to remove contingencies, but this tactic can potentially help you beat another offer. Contingencies protect you from problems related to the structure, systems, and security of the home that a home inspection is likely to discover, as well as from discrepancies in value that can affect your mortgage terms. If you want to get the upper hand in a bidding war, you should eliminate as many contingencies as possible. However, the more imponderables you eliminate, the more risk the home seller (which makes it attractive) will take, and the risk will instead pass to you, the home buyer.

Use an escalation clause in your offer

Another tip in the offer arsenal is to include an escalation clause that tells the seller how much you are willing to increase your offer by if competing offers are received. The escalation clause would set a limit price that you will not exceed. Real estate agents usually don't recommend this as it will give you a hand for future negotiations, but it can help you get to the point in an extremely competitive market.

Work with an experienced real estate agent

A skilled, reputable agent can help you get the upper hand in a bidding war. An agent who has helped other homebuyers win bidding wars can be your best offense. Because of his experience, he is able to see and understand all angles, and he can help you consider options that are mutually beneficial.

Be flexible about your deadline

Flexibility on specific details in a real estate deal is almost as good as coming to the table with cash. If you don't have to move by a certain date or can give the seller more time to do repairs, being flexible on a closing date can be just as appealing to the seller as a higher offer. It can work in your favor especially when the competing offers come with tough deadlines.

Write a personal letter

There are times when your sincere expression of how much you appreciate the home and how you can see that you and your family will live happily there for many years can make the difference with the seller. In a bidding war, if you can really reconcile yourself with the feelings of the seller and even his family history living in the house, a personal real estate offer letter could earn you enough benevolence to get you to the top of the field .

Talk to the seller (if you can)

If all else fails, you may want to speak to the home seller directly. This is not a typical situation as both parties use agents to mediate any negotiation. However, if you can do it, having a face-to-face meeting with the seller to personally express your goals for buying their home could affect the odds in your favor.

Getting involved in a bidding war for a house is stressful, pure and simple. But with these tips in your pocket, hopefully you'll know when it's time to get out and when it's time to play a new card from your hand. Prepare well in advance, keep your cool and emotions in check, and you may find that you can triumph in a bidding war by placing yourself and your family in this perfect home.