8 Ways to Know When to Step Away From a Bidding War

In the current competitive real estate market, bidding wars have become commonplace. In February 2022 alone, 71.4% of home sales emerged from bidding wars, according to data from Redfin.

If you're looking to buy a property, perhaps you're already deep into a bidding war of your own. But should you keep fighting? Here are eight reasons that it might be time for you to move on.

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When you enter a bidding war, there is a good chance the price could get boosted up over the property's appraisal value. A lender will only give you what the home is appraised for, which means you'll be stuck laying out the cash to make up the difference.

If you're going to have the most expensive home on the block, let it be because it's also the biggest, most beautiful one -- not because you were the winner of a bidding war.

ALSO READ: 4 Ways To Determine How Much Your Home Is Worth in 2022

It goes without saying that if you have to tighten your belt another notch each time you make a higher offer on the house, it might be better to find a new property. Keep an eye on your monthly nut as the bidding war drives up the price -- only stay in if you can handle it.

When you're going head-to-head with another buyer, you've got a 50/50 chance of winning that financial staring contest, as it were. But if there's a pool of buyers, that just means more interest will continue to drive up the price. When more competitors stay in the fray, it will take longer for the battle to be over.

It's one thing if you're searching for a vacation property. But if you're on the hunt for a primary residence, then you could be losing valuable time just by staying in the bidding war.

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You've likely already ponied up a sizeable down payment to make a competitive offer for this property. Perhaps a few thousand dollars more won't do much damage to the percentage of your down payment, but what if the current price has jumped by tens of thousands of dollars?

You'll have to pay private mortgage insurance (PMI) if your down payment drops below 20% -- and that's on top of a higher mortgage payment. Crunch the numbers to see if you can handle a bigger monthly nut before staying in the competition.

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Remember, you'll want to save some money for any repairs or upgrades, so don't let a bidding war cut too much into any funds you had earmarked for those purposes.

Of course, if you're already making a list of things that need to be repaired or renovated, then the house probably needs more work than you're actually giving it credit for -- which is another excellent reason to continue your property search.

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Waiving a home inspection is a risky move, but that hasn't stopped many buyers from doing it in the hopes of vanquishing a bidding war. If you've already waived this contingency and you're submitting a higher bid, you are increasing your risk as a real estate investor. Not knowing what's wrong with the house means you're on the hook for fixing it, so if you're not flush with cash, it might be time to get out.

ALSO READ: How to Start Investing in Real Estate: The Basics

Take a moment and think about why you want the house. Is it the structure itself or is it the location? If it's the latter, keep a close watch on new listings that come onto the local market. While everyone's paying attention to this current one, you might be able to snag another one a bit more easily.

A bidding war is an adrenaline rush for some buyers, but it could put a damper on the spirit of others. If you find yourself daydreaming about another house on the market as your offer on the current one inches up, take that as a sign to move on. Victory is sweet, but finding a home you really love is even sweeter.

ALSO READ: 3 Rules to Live By When Looking for a New Home

It's never easy to admit defeat. But when it's your bottom line that's at stake, it's time to call it a day -- and time to find another property to purchase.

Barbara Bellesi Zito has no position in any of the stocks mentioned. The Motley Fool owns and recommends Redfin. The Motley Fool recommends the following options: long May 2022 $22 calls on Redfin, short May 2022 $26 calls on Redfin, and short May 2022 $28 calls on Redfin. The Motley Fool has a disclosure policy.