COVID-19 is creating bidding wars for homes — here’s how to win
Would-be buyers who venture forth over the next several months are likely to find the number of houses for sale so sparse that they’ll end up bidding against each other for the best properties. Bidding wars are great for sellers, because they often drive prices far higher. But they’re tough on buyers, who must decide between offering more than they want to spend — or can realistically afford — or losing the place to someone else.
Not only that, but they have to make up their minds fast. Bidding wars occur when the inventory of houses is low and demand is high. And because of the pandemic, owners have been reluctant to put their homes on the market. According to realtor.com, the number of houses for sale in late June was down 30% from the same time a year ago.
But sales activity is starting to pick up. Buoyed by mortgage rates at their lowest levels in five decades, buyers are snapping up houses almost as fast as they are put on the market. The result can especially be seen in places like Boston, Salt Lake City and San Diego, according to Redfin agents in those markets. In June, more than half of all Redfin listings nationwide drew more than one bid. But in Boston, nearly 3 out of 4 buyers faced competition; in Salt Lake City and San Diego, about 2 of 3 buyers are bidding against each other.
Consequently, sellers need to be prepared for the possibility of receiving multiple offers, and buyers need to put forth their best from the get-go. Now is not the time to start low and try to negotiate.
Here’s a look at some bidding war strategies, from both the seller’s and the buyer’s points of view.
Don’t entertain offers piecemeal, one at a time. After a reasonable amount of showing time, your agent should set a deadline for accepting any and all bids. Then, you and your agent can go over them and decide which, if any, you will accept.
The agent should also specify that he or she is expecting multiple offers, so buyers will put forth their best bids right out of the box. State laws differ, but for the most part, you can consider as many offers as you like. You can accept, reject or counter any offer, or do nothing and wait for others. You don’t have to accept the highest offer; you could take a lower offer based on other terms or conditions.
You may allow one buyer the chance to submit another bid, or you can tell a few — or even all — to try again. Bear in mind, though, that if you disclose the fact that you have received multiple offers to one potential buyer, you have to disclose it to all of them. “It’s either all or none,” says Austin, Texas, agent Donna Harris.
In New York (and most other states), there is no obligation on the seller’s part until there is a fully executed contract, says Mitchell Hall of Compass in Manhattan. And sellers should not entertain anything other than a written offer. One anonymous agent told me that a verbal offer “is not worth the paper it’s not written on.”
If you can make an allcash offer, you are ahead of the game. All-cash bids are golden because they come with no financing strings attached. Even though the sellers will get all their money at closing whether you pay cash or take out a mortgage, there’s always the possibility that the buyer’s financing will fall through. So green is, indeed, gold.
If you have to rob your retirement plan to make a cash offer, realize there are loan programs that allow you to refinance the property within about six months of purchasing it, so you can get the lion’s share of your cash back to replenish your old-age account. But make sure you qualify and understand the rules first before you go this route.
If you must finance the purchase, secure a lender’s approval in advance. It’s free and shouldn’t take long — certainly not more than 24 hours, if you have at hand all the documentation you’ll need, says Rob Spinosa of Guaranteed Rate in Marin County, California. Among other things, you’ll need proof of income, employment and assets. The process could take longer if your situation is complex, so start early.
In addition to the above, a lender will want to see proof of self-employment, perhaps a profit and loss statement, two years’ worth of tax returns and current leases on all rental properties you own. These days, you can do most of the legwork online at no cost. But depending on your situation, it might be better to seek a no-cost consultation with a loan officer or mortgage broker.
No matter what price range you are searching in, it’s best to max-out your preapproval to the largest amount you qualify for, suggests Dixie Sanders with Homebridge Financial Services in Sugar Land, Texas. That way, she says, “you won’t need to circle back later” if you find a place that exceeds your original search criteria. You may not need to actually borrow that much, but you’ll be ready if the need arises.
Next Week: More bidding war tactics for buyers.
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.