Almost Half of Home Buyers Fear Bidding Wars. Here's How to Win One

Bidding wars can be bad news for sellers. Here's how to come out ahead.

When the real estate market lacks enough homes to meet buyer demand, there's a trend that tends to emerge -- bidding wars. During a bidding war, two or more buyers duke it out over the same property by going back and forth with higher offers.

Of course, the problem with bidding wars is that they can easily drive home prices up, and that's what's been happening in the housing market this year. But bidding wars can also be extremely stressful, and losing one can be disheartening.

It's not surprising, then, to learn that 47% of home buyers feel anxious about entering a bidding war, according to a recent survey by Ally Financial. If bidding wars make you nervous, here are a few effective strategies to employ.

1. Crunch the numbers beforehand

You don't want to overspend on a home and struggle with higher mortgage payments than you can afford. Before you make an offer on a home, run the numbers to find the highest price you can afford. That helps protect you if you wind up battling it out with another buyer, because you know when you have to walk away.

2. Get pre-approved for a mortgage

Getting pre-approved for a mortgage is not the same thing as actually getting approved for one. But it's a step in that direction.

Just as importantly, mortgage pre-approval sends a message to sellers that you're not only a serious buyer, but that a lender has reviewed your finances and determined what loan amount you qualify for. If you're battling it out with another buyer, but you're the only one with a pre-approval letter in hand, that alone might give you a solid edge.

3. Appeal to your seller in non-financial ways

It's natural for any seller to want to get as much money for a home as possible. But money may not be the only factor driving a seller to accept an offer. So if you write a seller a letter explaining why you want to buy their home, that might sway that seller to accept your offer over another.

For example, say your seller's kids have grown up and moved out, and now your seller is downsizing and looking for a buyer. If you talk about how you can see your kids growing up in that home, you might appeal to that seller from a sentimental standpoint. And if your offer is competitive, that could be your ticket to victory in a bidding war.

Keep in mind that in Oregon, these types of letters are not allowed. And there may be legal repercussions on both the buyer and seller side for writing or considering appeal letters due to housing discrimination concerns. Consult with your real estate agent to make sure this practice is common in your area, or even ask a real estate lawyer, assuming you've retained one, for an opinion.

Bidding wars can be unquestionably stressful. But knowing how to approach one could make you less worried about the prospect. And if you go in prepared, you'll be more likely to succeed at winning a bidding war, even when the competition you're facing is fierce.