How to Know if It's Worth Entering a Bidding War on a Home

Here's how to tell if a home is worth fighting for.

If you've been keeping tabs on the housing market at all, you may be aware that right now, there's a major shortage of available homes for sale. Throw in the fact that mortgage rates are very competitive, and it's not surprising that bidding wars have become extremely commonplace among buyers.

In a bidding war, two or more prospective home buyers keep outbidding each other on the same property in the hopes of getting its seller to accept their respective offers. Bidding wars can be extremely frustrating for everyone involved -- even more so when you lose one -- so it pays to enter them strategically. Here are a few signs that getting involved in a bidding war makes sense.

1. The sale price is competitive to begin with

In today's red-hot real estate market, a lot of homes are being listed at sky-high prices. But if you find a home you like with a reasonable listing price, then it may be worth entering a bidding war, especially if the asking price in question is well below the top end of your price range.

Imagine you're able to spend up to $500,000 on a home and you see a great property listed at $475,000. At that point, even if you enter a bidding war and wind up having to pay an extra $20,000 in the process, you're within your financial comfort zone as far as cost goes.

2. The home checks off all the right boxes

If you find a home that you can take or leave, then it's not worth putting yourself through a bidding war in the hopes of calling it your own. On the other hand, if you manage to find a home that's really perfect for you -- it has the right layout, number of bedrooms, and features you want -- then that may be a home worth fighting for.

This especially holds true in today's market. Since inventory is so limited, you might really struggle to find a home that meets your requirements -- so a home that does is one you shouldn't give up on so easily.

3. There's only one other potential buyer as far as you know

Entering a bidding war with multiple buyers could be a harrowing process, and one you may want to avoid. But if it's only you and one other buyer, that's a different story. At that point, the process of bidding on the same home may not be all that prolonged, so it could pay to go up against that buyer and see if you can get that person to back down.

Bidding wars have become very common in today's housing market, but there's no rule stating that you have to enter one. That said, if you are going to enter a bidding war on a home, do so strategically and heed the advice of your real estate agent. The last thing you want to do is get stuck paying too much for a home, so be careful when doing your bidding and know when to walk away.