NEW YORK (Reuters) – Over the last few years, if you were trying to buy a home in the United States, you were typically up against one other bidder for sales that closed.
Last fall, that average rose to two other bidders, according to data from the National Association of Realtors.
Last winter, that number rose to three.
In April? Try four.
Welcome to the era of the real estate bidding war.
You do not have to tell John Colantoni. The law firm partner from Jersey City, New Jersey, was recently looking for a property in Pinehurst, North Carolina, frequent site of the U.S. Open golf championship.
Unfortunately, so were a lot of other people – which is why he and his investment partners got outbid three different times, usually by around $50,000. Finally, when they spotted an attractive four-bedroom for $300,000, they had enough of losing – and had to go $40,000 over the asking price to win the bid.
“It’s a gold rush,” Colantoni says.
Bidding wars are the natural outcome of a red-hot housing market. With economic growth and wages rebounding smartly from our pandemic year, COVID-19 pushing many families towards more spacious homes in the suburbs, huge investors getting into residential real estate and interest rates still relatively low, housing has found itself as a very attractive asset class.
In fact, the S&P CoreLogic Case-Shiller Index saw national home prices advance at a 13.2% annual clip in March, up from 12% the previous month. That is the tenth consecutive month of accelerating gains, and the fastest rise since December 2005.
“The share of homes that sell above their list price, which usually indicates a bidding war, is more than twice what we were seeing a year earlier,” says Dan Handy, economic data analyst for popular real estate site Zillow.
Upping your bidding game might require more due diligence on how your local market has been faring; knowing how long homes are staying on the market, and what they are tending to go for; and selecting the right terms to nudge sellers to pick your offer over others.
It might also require flexibility – to adjust your bid if need be, or to revise your expectations. And, as with any negotiations, it might require you to walk away.
Here are a few tips from experts:
DO NOT FALL IN LOVE
If homes are getting five bidders apiece, it is very likely you are going to get outbid, perhaps multiple times. But you cannot lose focus.
“Don’t get emotionally attached to any home, and start imagining your lives there,” says Ryan Serhant, head of brokerage Serhant, star of Bravo’s “Million Dollar Listing New York,” and author of “Big Money Energy”. “It’s hard to do, but if you don’t get a particular home, try not to be devastated about it.”
RUN THE NUMBERS
The obvious temptation in any bidding war is to offer the moon. But if that locks you into long-term debt that you cannot truly afford, then that’s no solution. Instead, revise expectations about what your budget will get you: “Look for homes with list prices below your max budget, to provide some breathing room to make an above-list offer,” advises Zillow’s Handy.
BE REALISTIC
In a more typical housing market, there are any number of terms where you can haggle with the seller – from the timing of the closing date, to contingencies, to needed repairs.
But in the current market sellers hold most of the leverage. That’s the situation Colantoni faced, when the sellers wanted to rent their place back for a while until their new home was ready.
“Anything we pushed back on, they had all the power,” he says.
HAVE AN AGENT IN YOUR CORNER
Especially in this hyper-competitive environment, it helps to tap the resources of an agent. They have relationships with other brokers, knowledge of properties that may not be officially on the market yet and can steer you to the price point that will actually get you the property.
Says Serhant: “Work with a strong agent and don’t go into battle buck naked all by yourself.”
The good news is that buyers can still come out on top in the long run. Like Colantoni, who looks to make a tidy sum from golf fanatics for years to come with his new Pinehurst purchase.
“Within the first few days, we were booked solid for two months,” Colantoni says. “I don’t think I’ll ever sell that house.”
(Editing by Lauren Young and Lisa Shumaker; Follow us @ReutersMoney or at http://www.reuters.com/finance/personal-finance)
