Even in a housing market where bidding wars are on the decline, three strategies significantly increase a competitive offer’s likelihood of success.
When it comes to a bidding war, prospective homebuyers who offer all cash more than triple their odds of winning. That’s the most successful bidding-war strategy tracked by Redfin, and its success rate is up from 2017, when an all-cash offer doubled a buyer’s odds of getting an offer accepted in a competitive situation.
Though the housing market has become less competitive since we presented the most effective bidding-war strategies in 2018—just 13 percent of Redfin offers faced competition from January through September 2019, compared with 55 percent during that same time period in 2017—a handful of strategies still improve a homebuyer’s odds in a bidding war.
Following cash, writing a personal letter to the seller is the second-most effective strategy and improves a buyer’s odds by 59 percent, up from 52 percent in 2017. Next comes waiving the financing contingency, which improves a competitive offer’s likelihood of success by 20 percent, down from 58 percent in 2017.
These bidding war strategy figures come from an analysis of data on thousands of offers Redfin agents wrote on behalf of their homebuying customers in the last two years.
| Bidding-War Strategies, Ranked From Most to Least Effective | ||
| Strategy | Improves a competitive offer’s likelihood of success by… (2018-Sept. 2019) | Improves a competitive offer’s likelihood of success by… (2016-2017) |
| All Cash | 206% | 97% |
| Client Letter | 59% | 52% |
| Waived Financing Contingency | 20% | 58% |
| Pre-Inspection | No significant gain | No significant gain |
| Waived Inspection Contingency | No significant gain | No significant gain |
“A couple of years ago, the market was much more competitive than it is now. Sellers might have had multiple all-cash bids to choose from, and offer price more often ended up being the determining factor,” said Redfin chief economist Daryl Fairweather. “Now that bidding wars are less common, an all-cash offer is often enough to make an offer the winning bid. Sometimes, financed offers fall through because the lender decides the buyer can’t afford the purchase or the buyer is too risky a customer. Especially in a less competitive market, sellers value an offer they know isn’t dependent on financing.”
The pre-inspection and waiving the inspection contingency do not significantly improve a competitive offer, showing no change since 2017. For homes facing competition, buyers will often begin by waiving an inspection contingency, knowing that any other bidders will be doing the same. Meanwhile, many sellers complete a pre-inspection in hopes that the homebuyer will then waive the inspection contingency and the sale process will be easier. Due to the varied use of these strategies, and their common prevalence in bidding wars, neither provide a significant competitive advantage.
While offering all cash is not an option for most people, homebuyers can still increase their odds of winning a bidding war by waiving the financing contingency or writing a personal letter to the seller.
“For buyers facing multiple offers, first ask your lender for an underwritten pre-approval, which helps ensure you’ll be approved for what you’re purchasing, prior to making an offer,” said Seattle Redfin agent Shoshana Godwin. “After that, discuss with your lender if waiving financing contingencies—and possibly losing your earnest money—is a risk you’re willing to take. If you and your lender are very confident about the loan being approved, it could be a good option for making your offer more competitive.”
While offer price and financing are major factors in winning an offer, a genuine, personal letter to the seller, who likely has an emotional connection to the home, may work well as a tiebreaker between similar competing offers, explained Godwin.
“During a home tour, a client of mine spotted a hummingbird outside the front door and mentioned to me that they are a source of comfort and a sign of direction for her, because they are a reminder of her mother,” said Godwin. “She fell in love with the house and I encouraged her to write a letter to the seller about the significance of seeing a hummingbird at the home. With the letter and our competitive offer, the sellers accepted.”
Every home sale is different. If you encounter a bidding war, talk to your local Redfin agent to come up with the most effective combination of strategies for you.
Methodology
To determine how each bidding war strategy affected the associated offer’s odds of getting accepted, we used data on about 9,000 offers Redfin agents wrote on behalf of their homebuying customers from January 2018 through September 2019 who faced competition.
This post first appeared on Redfin.com. To see the original, click here.