How Bidding Works – A Guide for Home Buyers

Bidding is one of the most exciting and crucial parts of a real estate transaction. Here, we go through how the process works, what rules apply, and what strategies you can use to maximize your chances of winning the bidding.

What is Bidding & How Does It Work?

When multiple buyers are interested in the same property, a bidding process may occur. The process usually begins after potential buyers have attended a viewing and registered their interest. Bidding is typically open, where bids and bidders are visible to all participants. The real estate agent acts as an intermediary and communicates bids to the seller, who has the right to choose freely. This means the seller is not obligated to sell the property to the highest bidder but can choose a buyer based on factors like financing terms or the move-in date.

It is important to note that a bid is not legally binding until a purchase contract is signed by both parties. Until then, both the seller and the buyer can withdraw from the deal without legal consequences.

Different Types of Bidding

Open Bidding

The most common form in Sweden is open bidding, where all interested buyers can follow the bidding in real time. Each bid is recorded by the real estate agent and communicated to the participants. This transparent process can lead to a rapid price increase, especially when demand is high.

Closed Bidding

In closed bidding, buyers submit their bids without knowing what others have offered. This means each buyer must make their own assessment of the property's value and their maximum bid. This method is sometimes used for exclusive properties where the seller wants a more structured process.

Hidden Bid

A hidden bid is a bid that is only disclosed to the seller and the real estate agent, without informing other buyers. This can be a strategy to close a deal quickly and avoid a public bidding war. The seller decides whether to accept hidden bids, and it is up to the real estate agent to inform other buyers that a hidden bid has been placed. However, it is important to understand that hidden bids can create uncertainty for other buyers and affect the sales process dynamics.

Direct Negotiation

In some cases, the seller may choose to negotiate directly with a buyer, for example, if the buyer offers particularly favorable terms. This can happen through a preemptive bid, where a buyer attempts to purchase the property before an open bidding process begins.

Strategies to Win a Bidding War

1. Have Your Financing Ready

Having a loan pre-approval from the bank is crucial to acting quickly in a bidding war. Sellers and real estate agents prefer buyers with secured financing, as it reduces the risk of the deal falling through.

2. Act Strategically

Bid early and decisively to signal seriousness, or wait and analyze competitors' bidding patterns. Adapting your strategy to the situation can make a big difference.

3. Set a Maximum Limit

Bidding can be intense, and it’s easy to get caught up in the moment. Decide on an upper limit in advance and stick to it to avoid overpaying beyond what the property is worth to you.

4. Build a Personal Connection

Some sellers value a smooth transaction more than the highest bid. Communicating that you are a serious buyer with flexible terms can give you an advantage.

What Happens After Bidding?

Once the seller has chosen a buyer, a meeting is scheduled for contract signing. The deal becomes legally binding only when the contract is signed by both parties. At this point, a deposit, typically 10% of the purchase price, is paid. The final payment is made on the move-in day, when the keys are handed over.

Summary

Bidding is a central part of buying a home and can be both exciting and challenging. By understanding the process, using smart strategies, and managing your finances well, you can increase your chances of making a successful purchase.

Need advice before entering a bidding war? Contact us at Notar for expert tips and guidance on your next home purchase!