How to handle a bidding war in a booming real estate market
NEW YORK, June 17 (Reuters) – Over the past few years, if you were trying to buy a house in the United States, you were usually faced with another bidder for the sales made.
Last fall, that average rose to two more 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 real estate auction warfare.
You don’t have to tell John Colantoni. The Jersey City, New Jersey associate law firm was recently searching for property in Pinehurst, North Carolina, a frequent site of the US Open golf championship.
Unfortunately, a lot of other people were too – which is why he and his investment partners have been outbid three times, usually around $ 50,000. Finally, when they spotted an attractive four-bedroom $ 300,000, they were tired of losing – and had to exceed the asking price of $ 40,000 to win the auction.
“It’s a gold rush,” Colantoni says.
Bidding wars are the natural result of a hot housing market. With economic growth and wages rebounding intelligently from our pandemic year, COVID-19 pushing many families to more spacious homes in the suburbs, huge investors entering residential real estate, and interest rates still relatively low, housing has emerged as a very attractive asset class.
In fact, the S&P CoreLogic Case-Shiller Index saw national home prices rise 13.2% annually in March, up from 12% the month before. This is the tenth consecutive month of acceleration in earnings and the fastest increase since December 2005.
“The share of homes selling above their list price, which usually indicates a bidding war, is more than double what we saw a year earlier,” said Dan Handy, economic data analyst for the popular real estate site Zillow.
Increasing your auction game may require more due diligence on how your local market is doing; know how long houses stay on the market and what they tend to be; and selecting the right terms to make sellers choose your offer over others.
It may also require flexibility – to adjust your bid as needed, or to revise your expectations. And, as with any negotiation, you may need to back out.
Here are some tips from the experts:
DO NOT FALL IN LOVE
If the houses get five bidders each, it is very likely that you will be outbid, perhaps multiple times. But you can’t lose focus.
“Don’t get emotionally attached to any house and start imagining your life there,” says Ryan Serhant, manager of Serhant brokerage, 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 house, try not to be devastated by 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 can’t really afford, that’s not a solution. Instead, revise expectations about what your budget will bring you: “Look for homes that are listed below your maximum budget, so that you have some room to bid above the list.” advises Zillow’s Handy.
TO BE REALISTIC
In a more typical housing market, there are a number of conditions you can haggle with the seller under – from the time of the closing date to the unexpected to what repairs are needed.
But in today’s market, sellers hold most of the leverage. This is the situation Colantoni faced, when sellers wanted to rent out their homes for a while until their new home was ready.
“Everything we pushed back, they had all the power,” he says.
HAVE AN AGENT IN YOUR CORNER
Especially in this hyper-competitive environment, it makes it possible to exploit the resources of an agent. They have relationships with other brokers, know of properties that may not be officially on the market yet, and can point you to the price that will get you the property.
Said Serhant, “Work with a strong agent and not go into battle all naked alone.”
The good news is that buyers can still win in the long run. Like Colantoni, who is looking to make a pretty nap on golf fanatics for years to come with his new purchase at Pinehurst.
“In the first few days, we were booked solid for two months,” says Colantoni. “I don’t think I’ll ever sell this house.”
Editing by Lauren Young and Lisa Shumaker Follow us on @ReutersMoney or on http://www.reuters.com/finance/personal-finance.
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