Bidding wars can be brutal. Here’s how to avoid losing one.

---

Key points

• Limited housing inventory is forcing buyers to fight for limited properties for sale.
• With the right strategy, you can emerge victorious from a bidding war.
• Having an escalation clause, a pre-approval letter, and a great real estate agent can all help you get the home you want.

---

There’s a reason so many people have struggled to buy homes since the pandemic began: The real estate market has been starved of inventory, and that’s forced homebuyers to compete to an extreme degree. .

In a recent HomeAdvisor Survey, 79% of people who bought a home during the pandemic lost an auction on at least one property during their search. If you want to avoid a scenario where you will come out the loser in a bidding war, here are three key steps to follow.

1. Include an escalation clause in your offer

An escalation clause in a real estate offer means that you, as the buyer, are automatically willing to increase the offer you made on a home if the seller receives a higher competing offer.

You might, for example, be interested in buying a house listed at $500,000 and make an offer of $515,000. You can then include an escalation clause in your offer stating that you are willing to match competing offers up to $550,000. That way, if another buyer comes along and offers $525,000, you won’t automatically lose.

Although an escalation clause can help you win a bidding war, you’ll need to be careful when including one in your bid. You don’t want to find yourself stuck paying a price you can’t really afford – and having to deal with a higher mortgage payment as a result. But if you carefully analyze the numbers beforehand to see what you can swing, you will know what limit you need to set.

2. Enter with a Mortgage Pre-Approval Letter

A mortgage pre-approval letter sends an important message to sellers that you are a serious buyer who is financially strong enough to afford a home at a certain price. The last thing a seller wants is to see their real estate deal fail because their buyer can’t get a mortgage. By presenting a pre-approval letter, you help minimize this risk, thereby encouraging a salesperson to work with you.

Now, to be clear, a pre-approval letter does not actually guarantee that a mortgage lender will approve you. But if your financial situation doesn’t worsen between the time this letter is granted and the time you apply for your mortgage, there’s no reason to think your home loan won’t materialize.

3. Work with a knowledgeable real estate agent

Using an experienced real estate agent could help you avoid a bidding war in the first place. This is because an agent may be able to help you get your offer upfront.

Going back to our example, let’s say you want to buy a house listed at $500,000. You might think that an offer of $515,000 will give you a good chance of getting your offer accepted, but a realtor might advise you to go for $525,000 instead. If the seller then accepts your $525,000, it could result in a lower purchase price than you would have to pay after a bidding war.

Bidding wars have been a mainstay of the pandemic housing market, and they have undoubtedly caused a lot of stress for recent buyers. If you want to avoid a scenario where you lose a home you’re interested in, use these three tips to increase your chances of success.