In today’s red-hot real estate market, multiple offers on a house are common. In fact, over 70% of buyers faced a bidding war in May 2021 -- up significantly from the 52% rate seen a year prior.
While this is certainly challenging for buyers, often requiring higher offers, waived contingencies, and other risky moves, sellers have some hurdles to jump as well. Is the highest offer always best? How do you know which offer is most likely to go through?
Let’s look at how to handle multiple offers on a house from both sides of the equation -- as a seller and as a buyer or investor.
Handling multiple offers on a house: For sellers
Obviously, if you’re selling a home, then receiving multiple offers is great news. After all, more competition means a higher selling price in most cases.
Still, while it can be tempting to simply choose the highest offer and move on, often, that’s not the best move for your transaction. The right offer really depends on your goals (how quickly do you want to move?), your unique property (are there underlying repairs needed?), and your local housing market.
If you find yourself with multiple offers on a property you’re selling, take these steps to make sure you’re choosing the best one.
Look at the details
There are more than just dollar signs to look at when you get an offer. You’ll want to consider all kinds of details, including the following:
- The contingencies included.
- The closing date (and how flexible it is).
- The borrower’s mortgage lender and pre-approval status.
- The amount of earnest money they’re putting down.
- Any escalation clauses.
Of course, a bigger offer is great, but you also want to think about which offer is most likely to go through and be successful. For example, a borrower who's already pre-approved for their mortgage (or better yet, offers cash) is a much safer bet than one who’s not.
Consider your priorities
What’s your goal with the sale? Do you want to make the biggest profit? Do you need to sell quickly or by a certain date? Do you want a buyer who will overlook the condition of the house or skip the inspection? Knowing your priorities can help you home in on which offer is best. It may be the most money, the fastest sale, the safest bet, or a mix of all of these.
Weigh the contingencies
You’ll also need to consider all the contingencies, as these all come with a certain amount of risk as a seller. An inspection contingency means you may have some repairs to do (or pay for) if issues are found, and an appraisal contingency could mean renegotiating the deal if the home doesn’t appraise.
Financing contingencies can make the deal fall through if the borrower doesn’t end up qualifying for a mortgage, and a sale contingency is the riskiest of them all, making your sale hinge on the sale of the buyer’s current property.
In a perfect world, offers would have no contingencies, but this is rarely the case. Take a look at the offers you’ve received and weigh their contingencies against your priorities as well as your tolerance for risk.
Understand your market
Local market conditions should heavily influence how you handle your multiple offers. For example, if you know you're in a seller's market, and all your offers came in right at asking price, you probably have some leeway to negotiate. Ask them to up their bids and put their best offer forward by a certain deadline and see what you get.
If you know local unemployment is up or incomes are down, then that could make offers with financing contingencies particularly risky. In this case, you may be more apt to choose a cash offer or at least one that’s pre-approved.
Your listing agent can help you understand your local market conditions as well as how they should factor into your home’s bidding war.
Just because you have multiple offers doesn’t mean you have to just take one as-is. Remember: You have the upper hand here, so come back to the best bidder and make a counteroffer if there are terms you’re not happy with. Ask them to remove a contingency or up their bid. You can also ask for things like an appraisal gap guarantee (which ensures they pay any difference between their offer and the appraised value) or for no repair requests over X amount of money. The worst they can say is no.
Handling multiple offers on a house: For buyers
As a buyer or an investor looking for new properties, coming up against multiple buyers is never ideal. It usually means paying more than intended and, in many cases, losing out on a home altogether — especially if your market is particularly hot.
If you find yourself in a bidding war and competing with multiple other bidders, here’s what you can do:
Money talks, as they say, so offer more than list price and consider adding in an escalation clause to keep your bid at the top of the pile. Escalation clauses essentially up your offer whenever you’re outbid — up to a certain point, of course. They’re a good way to stay ahead in a fast and competitive market.
Pay in cash
Making a cash offer eliminates a lot of risk for a seller, and they typically mean a quicker closing, too. Another big benefit? Many sellers are willing to accept lower offers when they come in all cash. In fact, a recent study revealed that cash buyers pay about 11% less than mortgaged ones (the difference between $200,000 and $178,000!).
Increase your earnest deposit
You can also increase your earnest money deposit if you find yourself up against many competing buyers. This is money the seller gets to keep if you back out of the deal, so increasing the cash you have on the line can go a long way in instilling some confidence in your offer. Talk to your Realtor about exactly how much you should increase your deposit, but make sure it’s above and beyond the norm.
Skipping a contingency or two lowers the risk for the seller and makes an offer significantly more attractive. Just make sure you understand the risks that come with waiving a contingency. It could mean being on the hook for major repairs, paying for any appraisal gap out of pocket, or following through with the sale even if your loan falls through.
Make sure you’re pre-approved
If you do include a financing contingency in your offer, go ahead and get pre-approved for your mortgage loan. This shows the seller that you’re qualified for the loan and likely to get approved.
You can also find a lender that offers fully underwritten pre-approvals. They require a full application, financial documentation, and more. This is essentially a fully approved loan -- all before you find a property -- and is a great way to prove you’re a safe bet to follow through on the purchase.
Offer an appraisal-gap cover
Bidding wars often lead to inflated prices, which can make it difficult come appraisal time. If the appraisal comes in lower than your bid (and you have an appraisal contingency in place), you’d be able to renegotiate the deal, ask the seller to cover some of the difference, or back out entirely.
If you really want to set a seller’s mind at ease about the appraisal, include an appraisal-gap guarantee in your offer. This tells them that if the appraisal does come in low, you’re committing to pay the difference out of pocket -- no matter how much it may be.
Avoiding a bidding war as a buyer or investor
Obviously, avoiding a bidding war altogether is your best bet when buying a property. Though there’s no surefire way to do that, there are some strategies that can increase your chances.
- Act fast and be the first offer on the table.
- Focus on fixer-uppers, distressed homes, or properties in low-demand areas.
- Purchase a new-construction home.
- Buy directly from a homeowner you know.
- Pay attention to coming-soon listings.
Choosing a well-connected real estate agent can also help. They may know of pocket listings or have access to other properties before they hit the market.
The bottom line
Multiple offers are pretty common in today’s market. Want to be successful when you face a multiple-offer situation? Work with a good agent, have a good handle on your priorities, and be prepared. If all else fails, consider a new-construction home or focus on lower-demand homes or locales.