Homebuyers are facing nothing but ugly in the housing market: Scant inventory, soaring prices, intense competition, and rising mortgage rates — the last factor sending buyers racing to get a contract in place before their rate lock runs out.
To do that, making an offer stand out in a bidding war is key.
And the best way to win against other bids is forgoing a down payment and forking over all cash, according to a recent Redfin analysis.
“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,” Dana Anderson, a data journalist at Redfin, wrote in the analysis, “making it by far the most effective strategy to win a home when there are multiple offers.”
Redfin found that 55% of homes priced between $200,000-$800,000 faced a bidding war in 2021, with the probability of a bidding war increasing as the listing price climbed. For instance, homes in the $800,000 to $1 million range experienced bidding wars 64.6% of the time.
Aside from offering all cash, which improved the likelihood of success in winning against multiple offers by 334%, there are other less successful strategies a buyer can use if their pockets aren’t lined with money.
For instance, waiving the financing contingency improved the likelihood of winning a bidding war by 31%, according to the analysis, while waiving the pre-inspection increased the success chances by 25%.
“A financing contingency allows a buyer to cancel a deal if their loan doesn’t come through by a certain date, and a pre-inspection means a buyer completes an inspection of the home before making an offer,” according to Redfin.
The pre-inspection isn’t the same as the inspection contingency that happens after an offer is accepted and allows the buyer to cancel or negotiate if repair issues are found.
Redfin found that offering to waive the inspection contingency of adding an escalation clause to increase an offer to match a competing bid didn’t “increase potential homebuyers’ chances of winning a bidding war…because those strategies are so common in a competitive market and often don’t benefit one buyer relative to the competition.”
Redfin agents said offering more than the asking price or waiving the appraisal — meaning the buyer goes forward with the deal even if the appraisal comes in lower than the offer — are other ways potential buyers can distinguish themselves from the crowd. But the analysis did not evaluate the effectiveness of these strategies.
Still, buyers shouldn’t offer with abandon. Homebuyers’ remorse was up in 2021 with many homeowners citing paying too much for the home and maintenance costs as regrets. Waiving an inspection that can reveal problems with the home may not be the best alternative for most buyers.
“I tell my buyers not to compromise everything by giving up all the contingencies and safeguards that are in place to protect them,” real estate agent Jennifer Ciacci told Redfin. “They need to be aggressive in order to win, but shouldn’t put their family’s financial health in jeopardy by doing things like blindly waiving inspections altogether.”
Ronda is a personal finance senior reporter for Yahoo Money and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda