Return of the Bidding War

Throughout 2012 we’ve seen continued improvements in our housing markets, and our predictions of enjoying the best real estate year in the Bay Area since 2006 seem to be coming true.

The third quarter has also brought the re-emergence of another characteristic of the heights of Bay Area real estate: bidding wars.

Multiple offers on desirable properties have become common, and the bidding wars that result can test the nerves of the most seasoned real-estate veteran.

Sellers in many Bay Area regions may receive 10 to 20 competing offers for a well-priced home; some homes are even luring 30 offers.

THE LAW OF SUPPLY AND DEMAND
A robust economy, a skyrocketing housing market, and waves of tech dollars flowing from Silicon Valley spurred bidding wars during the real estate boom of the last decade. Today’s bidding wars owe more to the laws of supply and demand: too few homes on the market for too many eager buyers.

After years of stagnation, the pent-up demand for homes in the Bay Area today is palpable, fueled by historically low interest rates, economic growth, and an increasingly expensive rental market.

The problem: There’s precious little to buy.

Prospective sellers are waiting on the sidelines, unwilling or unable to enter the marketplace. More than a quarter of all Bay Area homeowners today think they are underwater, even if the current market might say otherwise. Others won’t sell because they don’t have enough equity yet to buy another home, or are holding out for higher price points.

This reluctance has driven down the supply of housing inventory across the Bay Area, which usually averages four to six months, to below two months in many regions. Cue the feeding frenzy, as hungry buyers compete against each other to land one of those homes.

THE POSITIVE SIDE OF BIDDING WARS
Bidding wars can be great news for sellers who price their properties appropriately. Looking ahead, multiple offers will likely stay on the scene for a year or more, although gradual increases in home values will bring more homeowners above water and back in the market.

BIDDING — AND WINNING
Meanwhile, although it can be frustrating for buyers to compete in a bidding war, it’s not necessarily a losing proposition. To improve your odds:

• Get pre-approved — not just prequalified — and use a local lender.
• Choose a well regarded agent to convey your offer to the seller. The seller's agent will be wary of a buyer's agent from outside the local area. Relationships matter.
• Consider doing inspections in advance of your offer. The seller would likely respect your intent — and you may then consider waiving any unnecessary contingencies to expedite the process and allay a seller's fears that you will change your mind later.

And don't 'think yourself out of a purchase.'  In an increasing market, relying too much on sales data from a few months back will just about always ensure that your price will be lower than what the current batch of buyers is willing to pay. Collect as much information as you can, and make your offer with confidence.