What Is A Bidding War?
A bidding war is a situation where two or more entities compete to own a property or business.
After searching for months, you finally found your dream home. However, something is standing between you and your dream home – it is not money; other people consider it their dream home. A bidding war is when two or more prospective home buyers outbid each other continuously on the same property to get their seller to sell to them instead of the others.
A bidding war occurs when several potential buyers desire the ownership of a particular property. As a result, they place a series of competitive price bids to get the seller to accept their respective offers. Like an auction, bidding wars expose potential buyers to rash and emotional investment decisions. Often, they end with buyers pushing the final sales price higher than the property’s original value.
Bidding wars can be frustrating for all the involved parties, especially for parties that lose the bid. Since it can potentially lead participants to pay excessively, some buyers choose not to engage in it. There are certain conditions in which participating in bidding wars is worth it, and they include and are not limited to:
Price is lower than your budget: If the listing price is reasonable or lower than your budget, then you may engage in a bidding war. For instance, you planned to spend up to $400,000 on a home, but you saw a great property listed at $355,000. It is okay to engage in a bidding war that costs you $25,000 since it is still within your budget.
The home is perfect: If you find a home that checks off all the right boxes, paying a little extra to acquire it may be worth it since you may struggle to find another home that matches your requirements.
Bidding War Example
Mark found his dream home listed at $300,000 on a website. He contacts the seller to place an offer. Before the deal closes, another potential buyer, Andrew, makes an offer. The seller informs Andrew that Mark already offered the same price, so he ups his bid to $310,000. On learning about the new development, Mark raises his initial offer to $320,000. The duo goes back and forth until Andrew concedes after Mark offered $355,000. The seller accepts Mark’s offer and sells them home to him.« Back to Glossary Index