How to Survive a Bidding War

You've found your perfect house and you are ready to make an offer. You sit down with your agent and decide on a price that seems fair given the condition of both the house and the local real estate market. You spend up to an hour deciding on your desired possession date and any conditions you want to place on the transaction. After sending your agent off to present the offer, you giddily cross your fingers and imagine what all your furniture will look like in your new home.

But not so fast: your agent returns and tells you that another person is interested in the home and is also making an offer. You're baffled because you were there first so it's only fair that they give your offer priority, right?

Wrong.

Unfortunately for you, you're about to enter into what is known as a bidding war; in this case, two or more parties are interested in the same property at the same time and, in order to come to a decision, the seller will request that both parties submit an offer at the same time. Once the offer is submitted, the seller and their agent will go over it in detail and pick the higher bid; however, if the offers are very similar, other variables will be weighed. For instance, if both potential buyers offer identical bids, the seller will consider the deposit each aspiring buyer is willing to put down, what their curent living status is- are they ready to move in or do they still need to sell their own home?- and even arbitrary things like whether or not they like they buyer's agent.

Now that you find yourself in this veritable real estate pickle, it is important to know that there is a right way and a wrong way to handle a bidding war. Being taken off guard in this situation can lead to you making some very poor decisions that will impact your financial health for years to come. Here's how you can protect yourself and your interests in this unexpected and stressful state of affairs:

Don't Let Emotion Get the Best of You

In a situation like this, it's only natural to be upset, but try to remember that sulking isn't going to get you what you want. The fact is, you are taking part in a business transaction involving large amounts of (potentially) your money, so let cooler heads prevail. Tell yourself that this isn't personal and put things in perspective by putting yourself in the seller's shoes- you shopped around for houses and picked the best one, now the seller, essentially, has to shop the buyers. You don't know where the other buyers stand so don't assume that they have a leg up, just trust your agent and yourself, proceed calmly and don't start calluing your relatives and crazily demanding that they cash in their 401k so you can make an outrageous offer the seller can't refuse.

Don't Adopt a Win/Lose Mentality

Although it's called a "bidding war", it shouldn't be approached as some kind of combat where one party emerges victorious and the other person lays slain on the real estate battlefield. The reality is, even if you push your limits and offer the most you can afford, you aren't making a prudent decision. Try to think about what you might need to spend money on after you move in. You might need extra money for updated light fixtures, extra furnishings, new carpeting in high traffic areas, or paint to cover the life-sized drawings of sasquatches on the walls of the playroom. Don't let the need to "win" strip you of your common sense, or at least try to adopt a vision of winning that encomnpasses many scenarios. For example, if you wind up getting the house at too high a cost, you might regret it later when you're sitting at home being house poor and that's certainly not a "win". If you lose the sale of the house, but emerge from the bidding war with your budget intact, you win. If you get the hoiuse for a reasonable price that you can afford, you win. The only instance in which you lose is that in which you unwittingly bite off more than you can chew. Don't lose sight of that.

Establish a "Point of No Return"

Before you write up another offer, take a few minutes and outline a strategy identifying your "point of no return"; that is, the things you are willing to budge on and the things you are not. By doing this right off the bat, you are giving yourself the best possible odds for a successful outcome. It is important to remember that you can't control what the seller will do, but you can decide how far you're willing to go and what you are willing to concede. Choose a clear "point of no return" and don't waver, lest you be carried away by the high-stress process of a bidding war.

With so much riding on this one decision, it is crucial to remember what you want to get out of buying a home. Keep these tips in mind and you'll be able to handle a bidding war with your budget and dignity intact.