They’re getting more and more popular in some cities… They could be the biggest fuel for the housing market’s recovery in the first part of 2013… According to a recent study by Coldwell Banker, some of America’s wealthier homebuyers are willing to pay 20% over the asking price just to avoid them…
So, just how “down and dirty” are home bidding wars these days? If you don’t want to get involved in one, that’s fine (and completely understandable!). Luckily, we’ve done some research so that you can see what it’s like inside one, without actually having to get yourself (or your wallet!) involved in one. First things first – where are you most likely to find a bidding war? As a general rule, you’re likely to see home bidding wars on the “edges” of the country (i.e. on the eastern and western coasts). This excessive competition has started popping up in Southern California, Seattle, Phoenix (where investors have made flipping trendy again), Washington, D.C. (where one home reportedly fetched 168 offers!), Atlanta, and parts of South Florida. But, of course, our untraditional housing market wouldn’t be complete without a few exceptions.
There have even been a couple of reports of bidding wars in Detroit, where the housing market has been anything-but-rosy for years! So, what are buyers facing in these trenches? Lots of disappointment. In some cases, even offering way more than the asking price isn’t enough these days. Before you know it, someone comes along with deeper pockets or an all-cash offer (which is much more appealing to most sellers than dealing with the red tape that comes along with a traditional lender-based sale). Some homes are fetching more than a dozen offers. Some buyers hit the emotional angle – coming equipped with handwritten letters or PowerPoint presentations to explain why they should get the home. Some write a thank you note to the seller for simply considering their offer. Others bring in family photo albums to show off the young children who want to grow up there. And, surprisingly, the holidays haven’t slowed these bidding wars down. In years past, home buying slowed down during November and December. This year, however, the buying frenzy actually sped up as we got closer to the holiday season! But why are buyers going crazy for homes?
Why get involved in bidding wars in the first place? The issue boils down to one very simple thing – there are more buyers than there are sellers. Since the housing market has been so slow for so long, the inventory of available properties just isn’t what it should be in a “normal” economy. However, there are still people out there who want to buy. So, there’s a demand, but the supply isn’t big enough to meet it. The potential downside? Bidding wars can lead to buyer’s remorse if buyers get caught up in the heat of the moment. Plus, all of that competition can lead to artificial price increases. However, since we’re trying to come out of such a deep recession, there’s a good chance that sellers have undervalued their homes in the first place. So, it may be awhile before we see any bubble-type price increases like we saw in the mid-2000’s. Plus, lenders have made it much tougher to qualify for big mortgages. So, buyers will only be able to bid so high. They won’t be able to make bids that they can’t afford, unlike a few years ago – which helped lead to the recession in the first place! Bottom line – even with their potential downsides, home bidding wars are a welcome sign. In fact, they’re one of the best things we could be seeing right now. As they become more and more common, more sellers will be tempted to put their homes on the market, and that will do even more to boost the nation’s housing market!
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