NYC-based boutique law firm Pardalis & Nohavicka brings the latest legal updates from the world of real estate. Pardalis & Nohavicka handles an eclectic array of matters, representing individuals and business owners in civil litigation, criminal cases and business transactions, currently litigating and representing clients throughout the United States and around the world. 

In today’s hypercompetitive real estate market, bidding wars on valuable properties are common. Fortunately, there are a few ways to resolve any challenges created when buyers compete against one another, as well as when multiple offers are placed on a property. Below, we’ll cover what a bidding war is, as well as the risks that some buyers and investors may be willing to take in a bidding war.

A bidding war is when multiple buyers are competing to purchase a residential property. This happens when there are multiple offers on a single property, which then increases the property’s asking price.

Investors and realtors start bidding wars by deferring showings of the sale of a home. For instance, they might list the home for sale at the beginning of the week, but then may not show the house until Friday. Then, multiple cash buyers put offers on the property, thereby driving up the property’s price. The seller then puts up an offer deadline on the home.

In New York City, a bidding war is escalating in the luxury apartment industry with two- to four-bedroom apartments becoming hot commodities as of early this year. Specifically, the availability of inventory — as well as young people returning as the COVID-19 pandemic eases — is causing people to look for homes in Williamsburg, downtown Manhattan, West Village and Chelsea.

As an example, a realtor recently put a luxury apartment located in Greenpoint, two blocks from McCarren Park. and, within the course of 90 minutes, had already shown it to 18 people and secured six applications for rentals.

The best way to avoid a bidding war is to have an adequate amount of cash on hand. This allows the buyer to avoid waiting for mortgage approval to secure the purchase of their home. That’s because a serious cash bidder is most likely to prevail over non-cash bidders in most bidding wars.

Buyers can avoid bidding wars by agreeing to waive contingency clauses in the real estate sales contract. The most common contingency waived is the home repair inspection.

Ordinarily, a home repair inspection requires the buyer to spend $400 to $1,000 to have a licensed inspector search for structural defects in a home. Inspectors often check for leaky roofs; defective heating or air conditioning systems; unsafe radon levels; or latent rodent or insect infestation. The inspection may also reveal undisclosed high levels of mold, asbestos or lead paint in the home.

Waiving the home repair contingency usually makes the buyer more attractive to a seller in a bidding war because the seller won’t have to wait weeks for the inspection to be completed before closing on the property. However, while this may be good for an anxious buyer who’s eager to buy their first beach home in the Hamptons, they may also be walking into some obvious pitfalls after closing — which will raise  their expenses moving forward.

By waiving the home contingency inspection, the buyer risks immediately incurring the responsibility after closing for thousands of additional dollars to fix home leaks, deteriorating floors, and defective appliances potentially affected by faulty wiring or water damage.