Bidding Wars Are Back. Here's How to Win Your Dream Home
When Lindsey Morris saw a contemporary two-story house for sale online, she knew it was “the one.” It was a unique property for the Canton, Michigan area. “Most of the homes are either quad levels or colonials,” said Morris. “This one was modern, it stood out.”
After touring on a Thursday in early July, Morris was sure the house would sell quickly. But her real estate agent suggested waiting a few days before making a bid, explaining that sellers usually want to get as many offers as possible and then accept the best among them.
Morris hurriedly gathered documents to get pre-approved for a mortgage. The good news was she found out she was preapproved the following Monday. The bad news was, that same day, her agent texted her a screenshot indicating the property had sold to someone else. Morris’ dream home had slipped through her fingers. “I feel like I wasn’t really even given the opportunity to move fast because it went so fast,” she said.
For the four-week period ending July 12, the total number of homes for sale was down 28% from the same period a year ago, according to real estate brokerage Redfin. Five percent fewer new listings hit the market during that period as well, making the imbalance between supply and demand even worse. In June, 54% of Redfin offers faced competing bids.
“The sales recovery is strong, as buyers were eager to purchase homes and properties that they had been eyeing during the shutdown,” said Lawrence Yun, National Association of Realtors chief economist. “This revitalization looks to be sustainable for many months ahead as long as mortgage rates remain low and job gains continue.”
The housing market has continued to heat up despite increasing coronavirus cases and new shutdown orders. In Miami, where coronavirus cases are surging, “not much has changed,” observed local Redfin agent Carlos Mahone. Adding “Since the initial lockdown ended, buyers have been much less fearful and are operating like they did before, including wanting to walk through homes with an agent, often after seeing the home first via a video chat tour.”
Be prepared to pay list price—or more.
Home sellers are setting higher bars on the list prices of their homes, and buyers are willing to meet them.
Chicago resident John Frigo has been searching for a home in the Tampa-St. Petersburg, Florida area for several months after being beaten out by higher offers. “Anything that’s not in disrepair and is priced appropriately isn’t lasting more than a couple days max before getting an offer,” said Frigo. “I recently offered the full asking price on a property in cash. By the time my real estate agent put in a call to the listing agent, the home already had multiple offers.” He was told he would need to increase his offer by $15,000 to get the house. Instead, Frigo continues looking for a new home.
Study up.
If it seems like a bidding war is heating up, a buyer needs a plan to beat the competition and a clear understanding of what the seller is looking for in a buyer.
“There are really two types of people that are looking for places outside of New York,” said Martin Eiden, associate broker with the Martin Eiden Team at Compass in New York, who has been holding virtual relocation sessions for people considering leaving the city. The first are people who were planning to relocate within the next five years, but decided to accelerate their move because of the coronavirus. There are also second-home buyers seeking refuge in more peaceful (and spacious) settings. “Those two crowds are creating bidding wars either in the second-home market for metropolitan New York, as well as the suburbs,” he said.
Especially when moving to a new place, it’s critical to know your market. “Study what has recently been sold, within the last six months,” explained Eiden. “That should give you an idea of a starting place on a price. And if you’re with a good agent, the agent should be able to guide you to a price.”
Get pre-approved for a mortgage.
Joe Stacy, senior vice president and general sales manager of Berkshire Hathaway HomeServices in Chicago, recommends getting a strong pre-approval from a reliable lender.
“We are seeing some lenders that are more focused on refi business, and because refinancing is so strong right now, they are not making their commitment dates on purchase contracts. That’s a problem,” he said, explaining that home buyers need to make sure they choose a lender that specializes in processing purchase applications.
Eiden cautions against making a generic pitch. Instead, obtain a pre-approval mortgage letter citing the specific property and address. For instance, “They are qualified to buy a property on 123 Main Street for $500,000.”
Don't get greedy.
Waiving contingencies is a common strategy buyers use in a hot market to make their offers more competitive. A contingency is a condition that must occur before the deal can close. For example, a home inspection is a common contingency that allows buyers to cancel the contract or negotiate repairs if they are not comfortable with the inspector’s findings.
According to Redfin, 20% of successful offers submitted by its agents waived the inspection contingency in June, compared with just 13% during the same period in 2019. More buyers also waived appraisal contingencies.
Stacy said this is not the market for requesting personal items such as a pool table or washer and dryer and hoping someone will bite. “If you’re in a multiple-offer situation, you want to have the strongest offer possible,” he explained. “Putting some of those contingencies in can dilute the quality of the offer and make a seller go with somebody else.”
Make it personal.
The buyer who offers the highest price is not always the winner. In some cases, writing a heartfelt letter can resonate with a seller.
"I think it’s important that you gush up a little bit," suggested Eiden. "I love the beautiful landscaping you’ve done. As soon as I walked into the family room with a fireplace, I envisioned having my own family here. I noticed you’ve taken really good care of the property. I love the color choices you made. Anything like that, because I think every seller wants to make sure that their property is going to be enjoyed.”
Offer the unexpected.
Most people bid in round numbers. So Eiden has found throwing in an unexpected digit to be a highly effective negotiation tactic.“If it’s a bidding war, if everyone bids $550,000, and you bid $553,000, guess who gets the property — you.”
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