Lured by the lowest mortgage rates ever seen, would-be homebuyers are emerging from COVID-19 quarantine ready to go shopping. But they're not necessarily ready for a housing market version of Black Friday.
In many metro areas, houses for sale are in limited supply, like the deeply discounted flat-screen TVs on the morning after Thanksgiving. And homebuyers are finding they need to be aggressive and competitive, just like the shoppers at the big-box store.
Real estate brokerage Redfin says when its agents submit offers on homes, they're now more than likely to encounter a bidding war. That is, the home attracts at least one competing bid.
"This is the most competitive real estate market I can remember," says James Gulden, a Boston Redfin agent since 2012.
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.
'Like a game of musical chairs'
For today's homebuyers, the odds are better than 50-50 that you'll find yourself in a bidding war when you make an offer on a house. That's the conclusion to be drawn from Redfin's data, which shows 53.7% of its agents' offers ran into competition during June, and 51.8% did in May.
"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," said Redfin economist Taylor Marr.
Amid the financial fallout for the coronavirus pandemic, rates on 30-year fixed-rate mortgages have plummeted below 3% for the very first time.
The current average rate is just 2.98%, says mortgage giant Freddie Mac. On a typical home, a borrower will wind up with a mortgage that costs $125 less per month than it would have cost at last year's rates, says Danielle Hale, chief economist at Realtor.com.
Meanwhile, 32% fewer homes are listed for sale right now compared to this time last year, Realtor.com says. Many homeowners reluctant to put their houses on the market during the health crisis.
The result is too few homes for sale and too many buyers who want one.
"It’s like a game of musical chairs where only the best bidders get a seat," says Redfin's Marr.
America's bidding war hot spots
Boston is the nation's hottest bidding war battlefield, where 72.4% of offers drew rival bids last month, Redfin says.
"There are multiple bids on nearly every property I see, whether I’m representing the buyer or the seller," says Gulden, the Boston Redfin agent.
He was working with one house shopper whose bid was vying with five others. "Despite my client offering about $20,000 over the asking price with no contingencies, the house went to someone else who offered even more," Gulden says.
In second place is San Diego, where 65.7% of offers ran into competition. Then comes Salt Lake City; bidding wars occurred there 63.8% of the time in June, Redfin agents reported.
The cities with the lowest bidding war rates last month were Miami (where 32.4% of offers had competition), followed by Chicago (37.8%) and Las Vegas (at 39.2%).
But 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 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.