According to a new report from Redfin, prospective homebuyers who offered cash payments were more than four times as likely to win a bidding war as those who didn’t in 2021, currently making all-cash offers the most effective strategy to secure a home with multiple offers.
Waiving the financing contingency and conducting a pre-inspection, both of which help a deal close faster, are also effective strategies. Homebuyers who used those strategies were 31% and 25% more likely to win than those who didn’t—although some experts say escalation clauses and waiving the inspection contingency won’t increase potential homebuyers’ chances of winning a bidding war.
Effective bidding-war strategies are essential for homebuyers in today’s unprecedented market, with a limited number of homes for sale making each one highly valued. More than half of Redfin offers faced competition each month of 2021, and competition has intensified, with January marking the most competitive month on record.
Competition for homes is contributing to rapidly rising home prices, with more than 30% of U.S. homes selling above list price each month last year. The share has since increased, climbing to 43% in February. Experts say competition may ease by the second half of the year if the supply of for-sale homes increases and mortgage rates rise, although bidding wars are likely to remain.
“I let buyers know what to expect and try to prepare them, financially and emotionally. The home they’re touring will probably sell for significantly over asking price,” said Fort Worth, TX Redfin Agent Amanda Peterson. “We have detailed conversations about how much over asking price they’re willing to go and which contingencies they can waive. If a buyer has a low down-payment or another scenario that doesn’t typically win a bidding war, I’ve had success explaining buyers’ unique situations to the listing agent and making it clear that their finances are reliable, and the deal will close.”
Redfin agents have also reported that it’s common to put in offers above the asking price, encouraging buyers to start their home search listed below their price range. Many buyers are also waiving the appraisal contingency, meaning the buyer commits to paying the agreed-upon price, even if the appraisal comes in lower. While Redfin’s data doesn’t track this strategy, it has become increasingly common in recent years, according to Redfin agents.
To read the full report, click here.