All-cash offers are most likely to improve a buyers’ odds of winning a bidding war, followed by waiving the financing contingency, according to Redfin data.
Prospective homebuyers who offer all cash nearly quadruple their chances of winning a bidding war, making it the most effective strategy tracked by Redfin to win a home in a competitive situation.
That’s according to an analysis of data on thousands of offers written by Redfin agents on behalf of their homebuying clients from July 2020 to February 2021.
Finding ways to make a buyer’s offer more attractive is particularly important in today’s hot housing market. Nationwide, 56% of Redfin offers faced bidding wars in January, the ninth consecutive month in which more than half of home offers written by Redfin agents faced competition.
Waiving the financing contingency is the second-most effective bidding-war strategy, improving homebuyers’ odds of winning by 66%. Including an escalation clause, waiving the inspection contingency and conducting a pre-inspection (meaning the buyer conducted an inspection before making an offer) had no significant impact on whether a prospective buyer wins a bidding war, according to Redfin data.
Although the data shows that waiving the inspection contingency and including an escalation clause don’t up buyers’ chances of winning a bidding war, that’s likely because those strategies are so common in a competitive market. Many buyers waive the inspection contingency and include an escalation clause when they know a home will receive multiple offers, so neither strategy ups one buyer’s chances over that of a competitor.
|Bidding-war strategy||Improves a competitive offer’s likelihood of success by…. (July 2020 to Feb. 2021)|
|Waive financing contingency||66%|
|Escalation clause||No significant impact|
|Waive inspection contingency||No significant impact|
|Pre-inspection||No significant impact|
Redfin agents are reporting that well-priced single-family homes are receiving dozens of offers, and in some areas desirable homes are so competitive that they’re selling for hundreds of thousands of dollars over asking price.
“All-cash offers are usually an effective bidding-war strategy, but the market is so hot that even the number-one strategy has evolved this year,” said Orlando Redfin agent Nicole Dege. “All-cash buyers used to be able to go in a little below list price, but now I’m seeing a lot of cash offers that are at list price or higher. Anything below list price, regardless of the terms, just can’t compete.”
Most buyers don’t have the option to offer all cash, so many agents work with buyers to come up with creative ways to make offers attractive.
“I do my best to help my buyers identify what the seller is most looking for in an offer and try to make that happen,” said Rachel Wilson, a Redfin agent in Spokane, WA. “It’s important for buyers to sweeten their offer in any way they realistically can. Sometimes that’s more cash, sometimes it’s waiving contingencies, but other times it’s a matter of figuring out what the seller wants, like a fast close or a provision to allow the sellers to rent the home back for a few months.”
According to Redfin agents, many winning offers in recent months also waive the appraisal contingency, which can involve putting additional cash on the table.
“I educate my buyers on the market so they’re not shocked when listing agents ask them to waive the appraisal contingency, which is often necessary in a competitive market because sale prices can be bid up well over the appraised value,” said San Diego Redfin agent Jim Johnston. “When that happens, sellers want to know buyers have the cash to cover the difference between the appraised value and the sale price. I recommend my buyers look at homes listed about $75,000 below their budget so they have room to negotiate.”
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.