3 Signs You Should Walk Away From a Bidding War

In today's real estate market, bidding wars are common. But if these things apply to you, you may want to bail out of one.

Buyers in today's real estate market are struggling for one big reason -- there's not enough inventory to go around. Because there are so few available homes on the market, buyers are duking it out in bidding wars over the same limited number of properties. Bidding wars are great for sellers because they commonly result in higher sale prices. But they're bad for buyers, who risk greatly overpaying for homes and taking on higher mortgages than they bargained for.

If you've landed in a bidding war, it's important to know when to call it quits. Here are three signs that you may be better off pulling out.

1. The home was overpriced to begin with

It's one thing to try to outbid another buyer for a home with a reasonable listing price. But if the home you're bidding on has an asking price higher than most comparable homes in that neighborhood, then it's a sign you should walk away.

What's more, if you make a really high offer and it's accepted, there's a chance the home won't appraise for a high enough value to allow you to get a mortgage for the full amount. Plus, paying too much for a home now could mean taking a serious loss if you end up needing to sell it in a few years.

2. There's more than one buyer competing against you

Going head to head with one competing buyer during a bidding war is stressful enough. But if you're one of several buyers vying for the same home, you may want to bow out. The more competition you have, the more stressful the process can be. And also, the greater the chances of that home's sale price rising beyond your financial comfort level.

3. It's not your dream home

If you've managed to find a home that truly checks off all the right boxes on your wishlist, then it may be worth fighting for -- even if it means paying more than you'd like. But there's little sense in getting deep into a bidding war on a home you could take or leave.

If you've found a home in your target neighborhood that's decent enough, but doesn't have some of the features you want or isn't as updated as you would've liked, then there's little sense in battling it out and paying more for it. You're probably better off spending your money on a home that really is your dream house.

In today's housing market, bidding wars may be a pretty common fixture for the near term -- at least until more inventory gets added and buyers have more homes to choose from. But that doesn't mean sticking with a bidding war is always a good idea. Knowing when to walk away could spare you from overpaying for a home that isn't even ideal for you to begin with. And it could also spare you a world of stress.