Low mortgage rates are pushing home prices, but so is lack of inventory.
What is a bidding war?
A bidding war occurs when there are multiple, competing offers for a piece of property or item that escalate the price. This usually results in a happy seller.
Bidding wars are most common in real estate, though they can happen in any venue where items are auctioned. A bidding war depends on the right circumstances to unfold. These include:
- A seller’s market (in the case of real estate).
- Limited options for buyers.
- Some limiting constraint for the buyers, usually time.
- Multiple interested buyers.
A bidding war may begin with the first bid. In the real estate market, when an agent knows that someone has put a bid on a home, he or she may call other interested buyers to solicit their bids.
Once this happens, the bidding war can turn into a multiparty showdown, with the most tenacious and often highest bidder winning the property. Sellers and listing agents are the biggest benefactors from such a competition.
For the buyer who has time to invest in controlling a bidding war, such a contest usually doesn’t make a big difference in the process. In the example of a home, if there isn’t a significant time constraint or need to be in a certain location because of school districts or some other limiting factor, then they can move on if they lose a bidding war.
Bidding wars generally escalate because buyers fear they won’t meet an important deadline or they won’t get an address in a certain desirable neighborhood. Sometimes, the winner of a particularly challenging bidding war with constantly jumping prices may experience some degree of buyer’s remorse or “winner’s curse” after obtaining the property in question.
Bidding war example
If you’re purchasing a new home during the summer and want to ensure you get an address in the district where you want your children to attend school, you may end up in a bidding war over a house. To win the house, you will need to make counteroffers to beat those you’re competing with. If you can’t beat the other offers, you will not win the property that you want.
Want buyers to engage in a bidding war on your home? Here are some tips to ignite one.