Summer has arrived, and the temperature is not the only thing on the rise. The bidding wars between home buyers that began in the Spring are predicted to heat up substantially throughout the next few months. Fanning the flame is a significant housing shortage brought on, in part, by the Covid-19 pandemic. According to realtor.com, new listings were down 29% annually for the week ending May 9th creating a supply and demand conflict for home buyers across the nation.
In Dallas, nearly 61% of Redfin agents reported facing a bidding war, followed by 57% in Washington, D.C. Other metros seeing bidding war rates above 50% were Salt Lake City; Denver; Seattle; Austin, Texas; San Francisco/San Jose, Calif.; Minneapolis; Los Angeles; Portland, Ore.
The New Normal
No one could have predicted the many ways that the virus would affect our daily lives or how long it will last. The uncertainty has left homeowners wondering if this is their “new normal.”
While working from home under quarantine, many homeowners took stock of their surroundings and identified the need for more space in case their home office became a permanent situation. Other homeowners cited the need for more privacy in and around their home, including more distance from neighbors. It is safe to say that 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, especially for homes priced below $1 million.
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% 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 by using what is called an escalation clause. It is essentially a contract addendum that states you are willing to increase your offer incrementally up to a certain limit if other offers come in that match or top your initial bid. When using an escalation clause, offering 1% above the purchase price is a guide, especially if you are not willing to lose it over that 1% difference.
Find Out What They 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. Also, do not be afraid to get personal. 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 is always good to submit all your financing documentation to your lender before looking at homes and certainly before writing any offers. That way you can pounce quickly when you find the home you want and avoid the stress of submitting pre-approval paperwork and writing an offer at the same time.
Compress Contingency Timelines
During a contingency period, a buyer can back out of the contract for a variety of reasons. But you can appeal to sellers who are looking to close the deal quickly by reducing your contingency period timeline. It is also good to limit your contingencies such as asking the seller to purchase a home warranty or requesting that the seller leaves or repairs certain items. Having too many of these items in your contract will make it likely that a seller tells you ‘no’ over another offer.
There’s no way to tell how long the bidding wars will last or what other effects the pandemic may have on the industry, but utilizing these helpful techniques can help you turn down the heat and help flush out the competition.
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:
*Not all borrowers will qualify. Contact us for more information on fees and terms.
“Bidding Wars Heat Back Up.” Realtor Magazine, 22 June 2020, magazine. realtor/daily-news/2020/06/19/bidding-wars-heat-back-up.