Finding your dream home -- and at a price you can swing -- is a wonderful thing, until you realize you're not the only buyer vying for it. Suddenly, there you are, deep in the throes of a bidding war.
Though there are strategies you can employ to come out ahead in a bidding war, there may also come a point when it pays to pull out. Here's how to know when you need to move on.
1. The home is already at the top of your budget
What often happens during a bidding war is that a home will be listed at a given price, and buyers will start making offers well above that asking price in an attempt to land the property in question. If you have wiggle room in your budget to pay more than the asking price of the home you want, then by all means, keep trying to outbid your competition.
But if buying that home is already a stretch based on its listed price, then you're probably better off bowing out. The last thing you want to do is push yourself too hard financially, pay so much for that home that it winds up being unaffordable, and then put yourself at risk of losing it after the fact.
2. The home needs major repairs
Winning a bidding war often means paying a premium for the home you have your eye on. That may not be such a financially detrimental move if the property is in good shape and there's not much work to be done on it.
But if there are already major home repairs on your radar -- think roof replacement, ductwork, or other such complex jobs -- then you may want to back out and leave that home to someone else. Otherwise, you'll risk landing in a scenario where you pay so much for the house that you can't afford to fix it. And don't even think about asking for seller concessions on the repair front -- in a bidding war, you have very little bargaining power on the buyer side.
3. There's decent inventory in the neighborhood you're looking at
Bidding wars often arise when there's a limited selection of available homes in a desirable area. But if the home you're looking at is only one of many on the market in your target neighborhood, then it could be worth it to take yourself out of the running and see what other options are available. You may find that there's a similar home on the market six blocks down the road that offers everything you want at a comparable price.
And even if that list price is higher, remember that you may end up paying something similar for the first house if you go through with a bidding war. For example, a home listed for $450,000 that's the subject of a bidding war could end up selling for $550,000, whereas if you find a comparable home for $550,000 that buyers aren't fighting over, your purchase price could ultimately be the same.
It's never easy to walk away from a home you love, but in some cases, sticking out a bidding war doesn't make sense. If any of the above situations apply to you, it could really pay to take your money elsewhere.