79% of Recent Buyers Lost Out on a Home They Wanted. 3 Ways to Prevent That From Happening to You

Bidding wars can be brutal. Here's how to avoid losing one.

There's a reason so many people have struggled to buy homes since the start of the pandemic: The real estate market has been starved for inventory, and that's forced home buyers to compete with one another to an extreme degree.

In a recent HomeAdvisor survey, 79% of people who bought a home during the pandemic lost a bid on at least one property during their search. If you want to avoid a scenario where you come out on the losing end of a bidding war, here are three key steps to take.

1. Include an escalation clause in your offer

An escalation clause in the context of a real estate offer means that you, as a buyer, are automatically willing to increase the offer you've made on a home if the seller receives a competing offer that's higher.

You might, for example, be interested in buying a home that's listed for $500,000 and make an offer of $515,000. You might then include an escalation clause in your offer stating you're willing to match competing offers up to $550,000. That way, if another buyer comes in and offers $525,000, you won't automatically lose out.

Though an escalation clause could help you win a bidding war, you'll need to be careful when including one in your offer. You don't want to get stuck paying a price you can't really afford -- and having to manage a higher mortgage payment as a result. But if you run the numbers carefully beforehand to see what you can swing, you'll know what limit you'll need to set.

2. Go in with a mortgage pre-approval letter

A mortgage pre-approval letter sends an important message to sellers that you're a serious buyer who's in a strong-enough financial position to afford a home of a certain price. The last thing any seller wants is to see their real estate deal fall through because their buyer can't get a mortgage. By presenting a pre-approval letter, you help minimize that risk, thereby encouraging a seller to work with you.

Now to be clear, a pre-approval letter doesn't actually guarantee a mortgage lender will approve you. But if your financial situation doesn't change for the worse between the time that letter is granted and the time of your mortgage application, then there's no reason to think your home loan won't come through.

3. Work with a savvy real estate agent

Enlisting the help of an experienced real estate agent could help you avoid a bidding war in the first place. That's because an agent may be able to help you get your offer just right from the start.

Going back to our example, say you want to buy a home listed for $500,000. You might think an offer of $515,000 will give you a good chance at getting your offer accepted, but a real estate agent might advise you to go in at $525,000 instead. If the seller then accepts your $525,000, it could result in a lower purchase price than what you'd wind up having to pay after a bidding war.

Bidding wars have been a mainstay of the pandemic housing market, and they've no doubt caused recent buyers a lot of stress. If you want to avoid a scenario where you lose out on a home you're interested in owning, employ these three tips to increase your chances of success.