In 2020, shopping for a home has become a combat sport.
Motivated by mortgage rates at record-shattering lows, would-be homebuyers venturing into the housing market this year have often found few homes for sale — but plenty of competition.
The result is bidding wars, as buyers submit offers on houses and find themselves vying with others who also are hoping to wind up with the keys.
Real estate brokerage Redfin is reporting that October was the sixth month in a row that more than half the offers submitted by its agents encountered bidding wars, meaning there was at least one competing bid.
Bidding wars are more common in some cities than in others. But the thing to keep in mind is that you can win a bidding war without going way over your budget.
Compared to musical chairs
Homebuying remains fiercely competitive because of a perfect storm of factors, says Redfin economist Taylor Marr.
"Bidding wars continue to be fueled by historically low mortgage rates and fewer homes up for sale than almost any time in the last two decades," Marr says. Also toss in the pandemic's shift to remote work, which has made it easier for Americans to look for new surroundings.
Rates on 30-year fixed-rate mortgages are currently averaging just 2.84%, according to mortgage giant Freddie Mac. That's down almost one full percentage point from a year ago, when the average was 3.75%. Rates have set new all-time lows 12 times in 2020.
Marr has compared the bidding wars to games of musical chairs, where only the best bidders get seats. Last month, 56.8% of offers on homes drew competing bids, Redfin says.
"Generally, if you're bidding on a house that's in great condition in a good location with multiple offers, you've gotta go at least $20,000 over ask," says New Jersey Redfin agent Anthony Gonzalez. "Every single time that my client does, they win the deal."
America's bidding war hot spots
Salt Lake City is the nation's hottest bidding war battlefield, with 75% of offers drawing rival bids in the Utah capital last month, Redfin says.
In second place is San Diego, where 73.2% of offers ran into competition. Then comes San Francisco and the neighboring Silicon Valley; bidding wars occurred there 69.6% of the time in October, Redfin agents reported.
The cities with the lowest bidding war rates last month were Las Vegas (where 38.2% of offers had competition), followed by Miami (38.5%) and Chicago (at 41.1%).
If you're house hunting, bidding wars are nothing to be afraid of, whether you're shopping in a market where they're commonplace or a relative rarity. After all, somebody's going to win. And it might as well be you.
How to win a bidding war
The most obvious way to emerge victorious from a bidding war is by being ready to make an offer that beats the competition. To do that, buyers need a strategy, says Corey Burr, senior vice president with Sotheby's International Realty in Chevy Chase, Maryland.
"They need to know other recent sales for comparison, work with an agent who knows how to win in competitive bid situations, have their loan essentially approved with a reputable lender, be willing to get a trusted inspector through a house prior to making a bid so that an inspection contingency is not necessary, and be willing to meet a seller’s ideal settlement timing," Burr says.
You do need to shop for your mortgage beforehand and get a preapproval letter from a lender, certifying that your income, assets and credit score qualify you for a loan large enough to buy a home you're bidding on. Shop around and gather rate quotes from multiple lenders, to get the best mortgage deal you can.
Other tips for bidding warriors include:
Making an all-cash offer. If you're able to pull together the money, cash is king and will appeal to most sellers. Sales that don't involve a mortgage will move more quickly and have fewer complications and potential roadblocks.
Taking a preemptive strike. Ask the seller's agent if there's a dollar amount that would nip a bidding war in the bud. If that price is something you can afford, offer it — and spare yourself the anxiety and aggravation of competitive bidding.
Send the seller a personal note. Many real estate agents swear that this approach works. Write a letter telling the seller why you love the house and how badly you want it. If you can make a personal connection with the homeowner, you might give yourself a competitive edge.