Depending on where you live, the housing market may be extremely competitive. There are many cities and counties where demand for homes outpaces the supply, which can lead to bidding wars and disappointed buyers. Fortunately, you can circumvent this problem and avoid a bidding war on houses by following a few key steps and even choosing new construction homes.
In fact, a new construction home may offer other advantages that you can't find with a pre-owned property. For example, they're easier to shop for, you know they don't need renovations anytime soon, and the price is fixed. But we’re getting ahead of ourselves!
So, with that in mind, let's look at why bidding wars happen and how you can best avoid one when you’re ready to buy a new home.
The Bidding War Dilemma: What Is It and Why Do They Happen?
A bidding war is when multiple buyers are interested in purchasing a property and begin making increasingly higher offers to beat out the competition. This situation is competitive and can significantly drive up the price of a property.
Realistically, the only people who benefit from a bidding war on a house are the sellers because they can often walk away with more money than the listing price. And yet, bidding wars are relatively common in white-hot housing markets like San Francisco, Seattle, and Los Angeles.
They are also quite common amid a seller’s market, like many of the markets across the country during the pandemic. In fact, during the height of the pandemic, as many as 56% of homebuyers faced bidding wars during their search.
Why is that? Well, it all comes down to an issue of supply and demand. When there are more people looking to buy a house than there are units available, the price invariably goes up. The opposite is true in a buyer's market, which is when more people are selling than want to buy new properties.
For example, let's say that three buyers all want the same house for different reasons. The price of the home is $250,000. So, to entice the seller, each one makes an offer. Buyer one offers the sales amount, while buyer two offers $275,000 and buyer three offers $300,000. In this case, it’s likely that buyer three will win the bidding war unless another buyer offers a higher amount.
How to Avoid a Bidding War When Buying a House
While buying a new construction home can prevent bidding wars, this option isn't always available. For example, you may be looking at a saturated market where new homes are not being built. In those instances, you can utilize various tactics to try to avoid a bidding war, such as:
- Getting Pre-Qualified—If you get pre-qualified for a mortgage, you can close faster than someone who still needs approval. So before you start your new home search, meet with a loan provider to get pre-approved. This could help you win a bidding war and even secure a lower interest rate.
- Cash Offer—Paying cash is a great way to put yourself ahead of a competing offer. This way, the seller gets all the money upfront, eliminating the risk of the buyer’s loan not going through and being unable to close. You may be able to go this route if you just sold your old house and can pay cash for a new one.
- Trying Off-Market Homes—In some places, houses get snapped up as soon as they hit a multiple listing site like Zillow. To avoid a multiple listing site, you can work with real estate agents who may be able to find off-market properties. Since only a handful of people may know the home is for sale, you don't have to worry about other buyers driving up the price. Less competition could well mean less money out of your pocket.
- Building Relationships—If you can meet the seller or provide insight into your situation, they may choose you over other buyers. Buyer letters are popular ways to communicate this information, but if you choose this route, be sure to not include personal information that may violate Fair Housing laws.
Why New Construction Homes May Be the Answer
Typically, a bidding war on a house happens with properties that currently have inhabitants. However, what about a newly constructed home that has never been owned? In this case, instead of haggling prices with a home seller, you're either working with the construction company or home community representative directly.
Are There Bidding Wars on New Construction Homes?
Generally, there are no bidding wars on new construction homes. The reason these conflicts don't occur is that the price is often fixed. Again, you're working with a company, not an individual person. A seller may hold out for more money, but in general a company operates on a first-come, first-served basis.
Can You Negotiate Price on New Construction Homes?
The prices for new construction properties are generally non-negotiable. This can be particularly beneficial to the buyer in a hot housing market since the amount is likely fixed and won’t go up like a typical home's price might.
New Construction Homes Have Other Advantages As Well
If possible, moving into a new construction property can make the most sense when trying to avoid a bidding war. In addition to the fixed price, there are other advantages of buying a newly built home, such as:
- Lower Maintenance—Older houses can require constant upkeep and renovations, while new construction properties generally don't.
- Newer Amenities—Many areas with new construction homes also come with other developments like shopping centers, office buildings, and entertainment options.
- Energy Efficiency—Modern building codes can make homes more energy-efficient than ever before. Older houses can often be less energy-efficient because of air leaks in cracks and doors.
There Are Also Other Ways to Avoid a Bidding War
Even if you are in a seller’s market, there are a few different ways to try to avoid a bidding war. One way you can show the buyer you are serious is by having less contingencies in your contract. Some other methods include making a cash offer, getting prequalified for a home loan before you make an offer, and looking for properties outside of hotspots.
However, if the idea of triggering a bidding war on a house is too overwhelming, you may want to go with another option.
Depending on where you're trying to live, new construction homes may offer far more benefits at a much lower price point. To help you see what's available, explore our beautiful properties today. The home of your dreams may just be one click or call away.