Things are heating up out there, and no, we’re not referring to summer temperatures. The bidding wars between homebuyers that started in the spring are predicted to heat up substantially over the next several months. A surge in demand following months long lockdowns due to COVID-19 coupled with a lack of supply in homes is a recipe for bidding wars. According to Realtor.com, new listings were down 29 percent year-over-year for the week ending May 9, creating a housing crunch for shoppers nationwide.
The New Normal
No one could have ever predicted the impact the virus would have on our daily lives or the uncertainty around finding a cure in the form of a vaccine or therapeutics. This great unknown has left homeowners scratching their heads wondering if this is the “new normal.”
Being in a nice neighborhood, having a yard, and ample garage space were the features homebuyers wanted the most. And while those are still important, buyers have taken stock of their surroundings and are searching for more space, as their home will become an office and school. Other homeowners cited the need for more privacy in and around their home, including more distance from neighbors. It is safe to say the quarantine has led to a heightened interest in finding a new home to meet what might be the new normal for families.
On the other side of the spectrum, homeowners under quarantine felt insecure in their financial situation and though they may have been planning to list their home on the market, decided to wait. Both these scenarios have helped to create what may be one of the biggest bidding wars in years.
As cities around the nation began lifting stay-at-home orders in May, the bidding wars increased. House hunters are attending open houses for the first time in months and have a renewed sense of confidence to compete with other buyers.
In fact, according to a new study from Clever Real Estate, “42% of buyers who purchased a home between January and May were in a bidding war. Further, the brokerage, Redfin, reported this week that half of its agents’ offers faced competition in May, up from 44 percent in April.”
Stay Cool and Stay in the Game
As the competition heats up, it is important that you remain cool. Here are a few tips to help bring the temperature down a little and chill-out your competitors.
Win the Battle and Stop the War
Ask the sellers if they have a price in mind that would compel them to call off the bidding war. The seller may respond well to a bold, preemptive offer.
You can also strengthen your offer with an escalation clause. It’s essentially a contract that establishes the buyer is the highest bidder in the event the seller receives an offer that’s higher than the original bid. Typically, an escalation clause will include a cap to make sure the buyer does not go over their home loan limit.
What Do Sellers Really Want?
For many sellers, it is not always about the money. That is why it is important to find out what they really want. They made need a 45-day escrow or want to keep the washer and dryer. It can be that simple. Sellers want to know a little about the people taking over their precious nest. Let them know how much you love the neighborhood and want to become an active part of it.
A pre-approval letter shows that an underwriter has reviewed the homebuyer’s financial information and the lender is prepared to offer a mortgage up to a specific amount. Having that pre-approval letter might help your offer move to the top of the pile. It’s a good rule of thumb to submit all of your financial documentation to your lender prior to starting your home search. That way you can act fast on a home you really like and avoid wasting time and unnecessary stress of trying to get all of the pre-approval paperwork in order.
A real estate contract may include a contingency clause, which gives both parties (sellers and buyers) the right to back out of a deal under certain circumstances. If the conditions of the contingency clause are not met, the contract becomes null and voided.
As a buyer, you can attract sellers who are looking to close a deal on a home quickly by reducing your contingency period timeline and (i.e., asking the seller to purchase a home warranty or requesting specific repairs). The shorter the contingency clause, the more likely the seller will say “yes” to an offer.
It is also important to share these tips with your buyers, so that they too can remain calm during a bidding war. Here’s a video that can help:
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“Bidding Wars Heat Back Up.” Realtor Magazine, 22 June 2020, magazine.realtor/daily-news/2020/06/19/bidding-wars-heat-back-up.
Clever Real Estate. “2020 Home Buyer Report.” Clever Real Estate, Clever Real Estate, 14 July 2020, listwithclever.com/research/covid-19-induced-fears/.
Williams, Terri. “6 Strategies to Help Home Buyers Win a Bidding War>.” Real Estate News and Advice | Realtor.com®, Realtor.com, 10 Oct. 2019, www.realtor.com/advice/buy/how-to-win-bidding-war-home-you-want/.