The No. 1 strategy for winning a real-estate bidding war

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Want to be sure that you’ll place the winning bid a home? Then you better be prepared to pay in cash.

A new report from real-estate brokerage Redfin examined the most successful strategies to use when dealing with competing bids for homes. Far and away, the best approach was to make an all-cash offer, researchers found.

Committing to buy a home without financing more than tripled the likelihood of placing the winning bid. The study was based on an analysis of the outcomes of 9,000 offers that Redfin agents wrote on behalf of home buyers who faced competition for their desired property between January 2018 and September 2019.

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The last time Redfin RDFN, -0.60%  analyzed the best strategies for approaching a bidding war back in 2017, all-cash offers also came out on top of the list. But at that time, making an all-cash offer only increased the likelihood of success by 97%.

“A couple of years ago, the market was much more competitive than it is now,” Redfin chief economist Daryl Fairweather said in the report. “Sellers might have had multiple all-cash bids to choose from, and offer price more often ended up being the determining factor.”

A separate report released by Redfin last week indicated that only 10% of offers written by the brokerage’s agents sparked a bidding war, representing a 10-year low. Nevertheless, all-cash offers remain competitive because of the hurdles securing financing can pose. As a result, sellers in today’s market appreciate the assurances all-cash offers provide that the deal won’t fall through.

The second-most effective strategy from the 2019 analysis was writing a personal letter to the home’s seller. This increased the odds of success by 59%.

One strategy that has become far less effective as the market has cooled over the past two years is offering to waive a financing contingency. These clauses indicate that the offer is dependent on the buyer receiving financing for the purchase from a lender and are designed to protect the buyer from liability in the event that a sale falls through because they couldn’t secure a loan.

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While waiving this contingency was previously shown to increase the odds of winning a bidding war by 58%, nowadays it will only boost a buyer’s chance by 20%.

Redfin also investigated the effectiveness of two additional strategies some buyers pursue — waiving the inspection contingency and conducting a pre-inspection of the property. The analysis showed these approaches did not lead to an increased likelihood of winning a bidding war.

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