Prospective homebuyers who offered all cash were more than four times as likely to win a bidding war as those who didn’t in 2021, according to a Redfin report. That makes all-cash offers the most effective strategy by far to win a home when there are multiple offers.
Other effective strategies include waiving the financing contingency, which made buyers 31 percent more likely to win a bidding war than those who didn’t, and conducting a pre-inspection (25 percent).
Escalation clauses and waiving the inspection contingency didn’t increase potential homebuyers’ chances of winning a bidding war. Redfin speculates it’s because those strategies are common in a competitive market and often don’t benefit one buyer relative to the competition.
More than half of Redfin offers faced competition each month of 2021, and competition has intensified, with January marking the most competitive month on record. Competition for homes is contributing to rapidly rising home prices, with more than 30 percent of homes selling above list price each month last year. The share increased to 43 percent in February.
Redfin agent Amanda Peterson in Fort Worth, Texas, said she educates her clients about the likelihood of competition and advises them to get their finances prepared, especially in the current market where there’s such low supply.
“I let buyers know what to expect and try to prepare them, financially and emotionally. The home they’re touring will probably sell for significantly over asking price,” she said in a release. “We have detailed conversations about how much over asking price they’re willing to go and which contingencies they can waive. If a buyer has a low down payment or another scenario that doesn’t typically win a bidding war, I’ve had success explaining buyers’ unique situations to the listing agent and making it clear that their finances are reliable and the deal will close.”
Redfin agents also report that it’s common to put in offers above the asking price, which means buyers may want to start their search with homes listed below their price range. Many buyers are also waiving the appraisal contingency, which means the buyer commits to paying the agreed-upon price, even if the appraisal comes in lower.
Redfin predicts competition from homes could ease by the second half of the year if the supply of for-sale homes increases and mortgage rates rise, but bidding wars are still likely to be commonplace.