All-cash bids, waiving financing top strategies to win bidding wars

Consumers who need to get a mortgage might be losing out to those able to make an all-cash offer in a bidding war, a Redfin report found.

But mortgage lenders could end up on the short-end of the equation, losing business or taking on more risk, if bidders use this and other apparently successful strategies.

Being able to pay the purchase price entirely in cash increased the likelihood of the offer being accepted by 290%, according to a Redfin analysis of offers written by its agents for clients between July 2020 and February.

For the ninth consecutive month, more than half of the offers made by Redfin clients, 56%, were in competition with other buyers in January.

A new aspect to the trend in all-cash offers is that they are coming in at the list price or even higher, rather than at a discount, Redfin said. All-cash offers are usually under list price because they afford the seller some certainty that the deal will close and so in normal circumstances they would take less money.

For mortgage lenders, there might be an opportunity to refinance the buyer after the home sale closes, or provide a home equity loan.

The only other bidding war strategy that seems to be effective in the current environment is for the buyer to waive the contingency clause, which allows them to terminate the transaction if they are unable to obtain a mortgage. Waiving that increased the odds of an offer being accepted by 66%, according to Redfin.

Another successful strategy involves waiving the appraisal contingency, Redfin found. In that case, if the appraisal of the property comes in under the sale price, which is common in bidding war situations, the buyer is willing to make up the difference by increasing the cash portion of their offer. But that leads to properties being overvalued by buyers, which injects a level of risk.

Waiving the inspection clause (also known as the due diligence clause), or including an escalation clause — allowing the bid to be automatically increased if topped — seems to have little impact on winning a bidding war. Because they are so common in a competitive marketplace, neither strategy significantly impacts whether a bid is accepted, Redfin said.