How To Bid On A House

If you’ve received an initial mortgage approval, 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 an offer is accepted.

Whether you’re a first-time home buyer or you’re closing on an investment property, it can be challenging to determine just how much to bid on a house. Let’s take a closer look at the bidding process and the best way to make a home offer. We’ll also explore a few tips you can use to win a bidding war if the housing market is hot.

How Does Bidding On A House Work?

Bidding on a property involves a few steps. Let’s walk through the house-bidding process so you know what to expect from start to finish.

1. Submit An Offer Letter

The first step in the bidding process is submitting an offer letter to the home seller. Your offer letter tells the current homeowner that you want to buy their home. It also explains the conditions under which you agree to buy the property, including the price and date.

Most buyers include a preapproval letter and an earnest money deposit with their offer. These documents tell the seller 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.

2. Determine The Contingencies To Include

Many buyers include clauses in their offer letter called contingencies. A contingency is a condition that the home buyer or seller needs to meet before they agree to buy the home or sell it, respectively. For example, you may include a contingency in your offer letter saying an appraiser must price the home’s value at or above the sale price before you’re willing to buy. Inspection contingencies and repair contingencies are also common.

3. Work With Your Real Estate Agent

Though nothing will stop you from personally writing your offer letter, it’s better to leave this job to your real estate agent. Your agent, who may also happen to be a REALTOR®, knows all the information you need to include in your offer and can help you make the strongest offer possible.

4. Prepare For The Seller’s Response

Once you submit your offer, all you need to do is wait for the seller to respond. Your seller might respond immediately or consider other home offers first. It might take a bit of time for the seller to respond if you’re in a seller’s market.

Your seller can come back with one of three responses:

●      Accepting your offer: If the seller accepts your offer, you can begin preparing to close on your mortgage and move into your new home.

●      Rejecting your offer: If the seller rejects your offer, you can make another offer or move on to another property.

●      Offering a counteroffer: If the seller gives you a counteroffer, you can accept, reject or make another counteroffer.

If you get a counteroffer, your real estate agent can help you decide how much to offer. If you’re able to reach an agreement with the current homeowner, you’ll be well on your way toward making it to the closing table.

What’s The Best Way To Bid On A House?

When you bid on a home, you’ll want to give yourself the best possible chance of having your offer accepted. On the other hand, you’ll also want to stay within your budget and leave yourself enough money for potential home repairs and renovations. Bidding is especially hard in a seller’s market, because you can never be 100% sure how many other prospective buyers are bidding on the home you want.

A great 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 clause 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 you want to bid $200,000 on a home in a seller’s market. You know you’ll probably need to bid against other prospective home buyers, but you don’t want to offer too much money upfront. You can add an escalation clause to your offer saying you’ll outbid any other offers by $1,000 up to $225,000. This means that if another buyer comes in and offers more money, your best offer automatically increases. On the other hand, if no one else is bidding on the home, you won’t overpay.

An escalation clause is a great way to balance price and competitiveness. However, keep in mind that the highest offer doesn’t always win a bidding war. You might want to consider removing contingencies or skipping the home inspection if you can’t offer more money for a popular home.

How Much Should You Offer On A House?

There’s no right or wrong price to bid for a home. The amount you should bid on a property depends on where you live, the home’s size, the average cost of living in your area and more. 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 asking 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? The seller might accept a lower offer if the property requires serious work.

●      Other interested home 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 multiple buyers are interested in the property, you’ll likely 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 them for guidance 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.

Offer Cash

A surefire way to move your bid to the top of a list of interested home buyers is to offer a cash sale. Most people won’t be able to make a home purchase without a mortgage loan, so 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 potential problems or delays with mortgage loan approval. They won’t need to reassess the sale price due to a low appraisal or put their home back on the market if your lender denies your application.

Cash sales 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 it, consider telling your real estate agent you’d like to make a cash offer.

Get An Initial Mortgage Approval Before You Shop

If you can’t offer cash for your home, the next best course of action is to send a preapproval letter along with your bid. A preapproval letter is a letter from a mortgage lender telling you how large of a home loan you qualify for. Your lender takes a look at items like your credit, income and assets when you request a preapproval letter. 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’ve received an initial mortgage approval, sellers can be assured you won’t run into trouble securing 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 Approval℠,¹ from Rocket Mortgage^®. Rocket Mortgage’s Verified Approval 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 Approval in hand, sellers know you’re much less likely to run into a problem when financing your home.

The Bottom Line: Start The House-Bidding Process With An Initial Mortgage Approval

Bidding on a home begins with an offer letter. The amount you should offer for a home depends on a number of factors, including location, property size and sale type. If multiple offers are on the table, you might end up in a bidding war.

One way to strengthen your bid without spending more money is to get an initial mortgage approval before you submit an offer. Initial approval typically suggests to buyers that you’re financially ready to back your offer, so start the mortgage approval process today if you haven’t already.

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.