Bidding wars are becoming more commonplace in many suburban markets this spring as home buyers face stiffer competition for a tight supply of inventory.
“We’re seeing houses with 20 or 30 offers on it,” said Andy Sachs, an agent for Keller Williams, “and prices going for $50,000 to $100,000, or more, over asking.”
Buyers can easily get caught up in the multiple-offer frenzy. “They see a house and start imagining their lives there, with all their furnishings and their kids,” said Dana Schwern, who works at Compass. “It can get very emotional.”
But she and other agents say it’s best to push emotions aside, regardless of how difficult that might seem. To succeed in a bidding war you’ll need to begin the home search with a fully equipped arsenal. This usually means having your finances in order, researching target neighborhoods, and selecting experienced professionals well ahead of time to help move a deal along, from bankers and real estate brokers to lawyers and engineers.
“You’ll want to decide what is the maximum comfortable number you’ll pay for a house,” Mr. Sachs said, “and that doesn’t necessarily mean what a bank will approve for you.”
A willingness to compromise is also key. “The bottom line is right now sellers have the option of asking for the world,” said Caroline Gosselin, an agent for Sotheby’s International Realty in Short Hills, N.J., “and they get it.”
Here are some ways to come out ahead:
One of the first and most important steps is getting preapproved for a mortgage. This shows the seller that you’re not only a serious buyer, but a qualified one. And it will also allow you to act swiftly in this competitive market.
“You have to make a snap decision in some cases, and if you have preapproval in advance, that gives you the ability to do that,” said Ryan Barry, a senior loan consultant for the Lenders Corporation.
Mr. Barry noted, too, that real estate agents are often reluctant to entertain an offer without a preapproval letter in hand — unless, of course, the buyer is offering all cash. (Also, many agents say they prefer to work with lenders who are familiar with a local market.)
A preapproval should not be confused with the less rigorous prequalification, which provides a quick estimate of what you might be able to afford, usually based on unverified financial information you provide.
In a preapproval, lenders will thoroughly review your income, assets and credit scores to determine exactly how much you can borrow and which loan might be best suited for you. This can take from a few hours to a few days to complete. “You’ll need to provide two months of bank statements, two pay stubs and two years of tax returns,” said Mark Yecies, an owner of SunQuest Funding in Cranford, N.J.
Both Mr. Barry and Mr. Yecies say they provide approval letters for each property a buyer makes an offer on.
Contingency clauses allow buyers to back out of a contract if certain conditions aren’t met. But many sellers see them as road blocks to a sale, and these days they’re far more likely to accept an offer with fewer contingencies or none at all.
The most common is the mortgage contingency, which lets you pull out of a deal if you can’t secure financing for the property. Waiving this, said Angela Dooley, an agent with Compass on Long Island’s North Shore, “could put you in first or second place in a bidding war.” But not everyone should do this. “Only those people who are very, very confident they’re going to get a mortgage,” she said.
Among some of the other contingencies, a contract could be terminated if a home’s appraised value comes in less than the amount you offered, if an inspection uncovers certain repair issues, or you’re unable to sell your current home.
“A very strong offer will waive all of them,” Ms. Gosselin said, “but there will be things you cannot do and that will be OK. For instance, you may not be able to waive the appraisal clause because you don’t have the money to make up the difference,” if an appraisal comes in lower than the sale price.
Ms. Gosselin and other agents say it’s also becoming more common right now to limit the seller’s responsibilities for inspection-related repairs to just major structural, mechanical and environmental issues. “Most people are waiving the right to ask for small things,” she said.
Chrissy D’Aleo Fels, 38, and Adam Fels, 39, who beat out 18 bidders last year for a move-in-ready, four-bedroom Victorian in Upper Montclair, agreed to cover the first $5,000 in repairs noted in the inspection, among other concessions. Their local lender also waived the appraisal altogether.
“He knows that sales prices in the area are way above what homes would be appraised at,” said Ms. Fels, who works as an arts administrator and cultural engagement director at Montclair State University. Mr. Fels is a senior vice president for marketing at Epicured, a meal delivery service. The couple paid about 25 percent over the asking price.
Be Quick and Flexible…
Homes are selling at a fast clip in many markets — usually within days, sometimes hours — so if you see something that meets your criteria that you think you can afford, don’t wait to submit a competitive bid.
Have your mortgage preapproval letter in hand, too, along with an experienced real estate lawyer lined up to review the sales contract, and an engineer for an inspection.
“If you show a seller you are ready, that is very appealing,” Ms. Dooley said.
Buyers should also be flexible when it comes to closing and move-in dates. “You’re trying to create a path with as little speed bumps as possible,” Mr. Sachs added.
John Bruno, 29, and his wife, Mirza Dolmo-Bruno, 30, renters, wasted no time in bidding on a two-bedroom condominium in Maplewood, N.J. “As soon as it came on the market, we asked to see it,” said Mr. Bruno, a private investigator. And after their bid ($10,000 over the asking price) was accepted over other buyers last month, they agreed to a quick closing in late April. “We didn’t have a home to sell, so we were ready to go,” he said.
Not all sellers are in a rush, though. Nancy Chu, an agent, noted that some purchasers were allowing sellers to stay in their homes within 60 days after closing by renting it back to them for next to nothing. “They’re offering dollar-a-day occupancy,” she said, “and sellers are really taking advantage of it.”
One more thing to keep in mind: Just because another buyer was chosen over you doesn’t necessarily mean all is lost. Some transactions ultimately fall through for various reasons, so if you have a strong enough bid and you’re ready to act soon, you may be next on the seller’s list.
Offer All Cash…
Most people, of course, won’t have the financial means to do this. But if you do have the cash available — say you just sold a home and are now downsizing from a more expensive market — this strategy will almost certainly put you at the front of the crowd.
“Buyers moving to the suburbs from the city may have pockets of cash available after selling their place there,” Ms. Schwern said. She added that all-cash buyers must be prepared to show proof of their available funds.
A recent survey by the online brokerage firm Redfin found that buyers who offered all cash almost quadrupled their chances of winning a bidding war, based on an analysis of offers from its clients between July 2020 and February 2021.
Buyers can add an escalation clause, also known as an escalator, to their purchase offer. This allows them to increase their bid incrementally, up to a capped amount, should a higher, competing offer surface. But not all real estate agents will accept them, preferring individual offers instead.
And then there are the so-called love letters that buyers write to sellers hoping to sway their decision in choosing an offer. Some will include photographs of the buyer’s family. The National Association of Realtors discourages such letters, maintaining they “raise fair housing concerns, and could open real estate professionals and their clients to fair housing violations.” But agents say that many buyers are still eager to write them.