Table of Contents

Bidding War: What It Means, Example, FAQs

By

澳洲幸运5开奖号码历史查询:James Chen

Updated October 18, 2024

Reviewed by

Somer Anderson

Fact checked by

Katrina Munichiello

Part of the Series

The Complete Homebuying Guide

Getting Started

Budgeting

Finding Your Home

Protect Yourself

Mortgage Basics

The Buying Process

People standing in front of a house and talking before a bidding war in the auction for the house starts. — Steve Cicero / Getty Images

Definition

A bidding war in real estate is a competitive situation where two or more buyers increase their offers for a property, often driving the final sale price above the original listing price.

What Is a Bidding War?

A bidding war is when two or more prospective property buyers compete for ownership through 🍒incrementally increasing bids. Often, a bidding war occurs in real estate when housing stock is low in a popular location.

Key Takeaways

A bidding war occurs when two or more entities vie for ownership of a property or business.
As with an auction, a bidding war often happens rapidly, leaving the participants vulnerable to making ill-advised investment choices.
Speculators often include an escalation clause in their bids, which can automatically up the bid by a set amount when a competing offer is made, up to an agreed-upon maximum limit.
Bidding wars on homes may happen more often in a tight real estate market.

How a Bidding War Works

A bidding war occurs when potential property buyers compete for ownership through a series of increasing price bids, sometimes pushing the final price up past the property's original value. Bidding wars commonly occur when buyers vie for ownership of a house, a building, or a business in a desirable location (especially amid a 澳洲幸运5开奖号码历史查询:seller’s market).

Similar to an auction, a bidding ﷽war often occurs rapidly, meaning that during a bidding war, potential buyeౠrs are vulnerable to making rash or emotional investment decisions.

Example of a Bidding War

Alice and Brynne each desire to buy a house listed at $350,000. Alice offers the list price, and Brynne responds with an offer of $36♏0,000. Determined to buy the house, Alice offers $370,000. Brynne counters with a $380,000 offer. Alice recognizes that she has a bidding cap of $400,000, so her next bid is a $20,000 raise. Brynne concedes, and Alice purchases the home for $50,000 more than the original list price, making the seller quite happy.

Important

E♍sꦅcalation clauses can backfire if a competitor has advance knowledge of the clause’s maximum limit.

Special Considerations

When a real estate market becomes highly competitive, some investors and speculators choose to implement escalation clauses into their bidding contracts on a property. An escalation clause is a statement indicating a base bid price for the property and an agreement to automatically increase that bid by a certain amount if another buyer submits a verified higher bid. Typi🌠cally, an escalation clause will also include the maximum price the buyer is willing to pay for that property.

If, for instance, in the above example, Alice and Brynn🍎e each had incorporated escalation clauses, increasing their bids by $10,000 until meeting a $400,000 cap, the outcome would be different. Alice’s initial offer of $350,000 would be met with Brynne’s offer of $360,000. Alice’s escalation clause would respond with a $370,000 offer, and Brynne would offer $380,000. After Alice’s subsequent offer of $ﷺ390,000, Brynne would win the bidding war with a $400,000 bid.

This strategy, while convenient, has its drawbacks. Typically, a property seller will be aware of the 澳洲幸运5开奖号码历史查询:maximum price set in an escal🌱ation clause, meaning the seller can know how much the potential buyer is willing to ꦫpay.

How Do Bidding Wars Work?

A bidding war can break out when there are multiple offers on a property, home, or business. When this occurs, the price continues to rise as people bid over the price of the last bid in the hope of "winning" the bidding war and buying the property, home, or business.

How Do I Win a Bidding War on a House?

The person who offers the most money usually wins the bidding war. To prepare for a bidding war, work with your 澳洲幸运5开奖号码历史查询:mortgage lender, ensure you are pre-approved for a mortgage, have cash on hand for the downpayment, make a competitive offer, and waive contingencies, like a 澳洲幸运5开奖号码历史查询:home inspection. Many sellers prefer buyers who can pay all cash versus using a mortgage, so even if you offer less than the ꦐhighest bid, you might win the war if you can pay for the home in all cash.

Is a Bidding War Better for the Buyer or the Seller?

A bidding war almost always happens in a 澳洲幸运5开奖号码历史查询:seller's market, and it always benefits the seller, who may find themselves selling for much more than their original asking price.

The Bottom Line

In a seller's market where housing inventory is scarce, potential homebuyers feel pressured to offer above asking to compete with other homebuyers for a property. These escalating bids often happen quickly, forcing interested buyers to make financial decisions fast. Bidding wars always end well for the seller, who walks away making more than they originally asked for the property.