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When Bidding in a Hot Real Estate Market Backfires

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If you have been following me for some time, then you know that we are in the midst of selling our home and buying another one.  Our current home has been pending sale since the end of March.  We are supposed to close soon, which is a good thing.  We have been on the house hunt for two months now and it has been crazy.  I wrote about how my decision making process might be holding us back and it really has.

I have had the hardest time pulling the trigger on almost everything.  When I do pull it, I still have to fully think through the entire thing before my mind is at ease.  Being a defensive pessimist, I have a hard time making a decision, but I have come to the conclusion that I don’t have much time in the current real estate market.  On top of that, we have been in many bidding wars and it hasn’t gone so well.  You can almost say that it has backfired on us.

Being Conservative in Real Estate

I have to admit that I am a conservative when it comes to real estate, and specifically, home buying.  I don’t see it as a bad thing at all. I wish that more people were like me when they are trying to buy a home.  I analyze numbers until they start oozing out of my head.  I make sure this scenario is covered, then I check it again.  I look at the worst case scenario and make sure I can figure it out.  Home buying is not my favorite thing to do, but I do understand the numbers pretty well. While being a conservative when buying a home is what you want to be, it is not the case in a hot real estate market.

The area where we are trying to live is on fire right now.  People are snatching up homes left and right.  I can’t say this is the case where we live, nor is it the case in other areas around the county.  This is only true for the select zip codes that we are trying to enter.  Location, location, location, right?  This area has great schools, great amenities, and is close to many of the bigger employers.  It makes sense, but I can say that we were not prepared for how crazy the home market was.  Being a conservative in a hot real estate market is a problem.

Being Conservative in a Bidding War

So far, we have been in four real estate bidding wars.  It has been ruthless.  After I finally came to the realization that the price we were looking at was going to be the spot, I got a little more comfortable with making an offer.  Unfortunately, when there is a hot market, everyone else is looking at those same homes.  The homes are only on the market for a few days. Sometimes only one day at the most.  Sellers know this, so they don’t worry about having to drop their price.  If the home is in good condition, then it will be swooped up quickly.

I am not a fan of being in a bidding war.  You have no idea what the other buyers are offering, so you have to just go with your best and highest amount. I would rather jump in an auction and throw up my paddle. At least I would know what others are willing to do and I can just move on.  With these bidding wars, I have been conservative in my offer increases.  I have fully weighed the previous home sales and looked into the price per square foot.  I want to make sure that I am not over paying for the home.

I wish others were doing the same.  We have reached a point where people are over paying for the homes.  We have been outbid on all bidding wars because of my conservative processes.  I refuse to pay too much for our next home. I just don’t see the point.  I will immediately lose equity when I overpay.  No thanks!

Though we both really want to get into a new home, we don’t want to take part of this crazy bidding process.  I wish I had enough power to change the way real estate purchases were done, but I doubt that is going to happen.  We just have to find a home that will accept our first offer and call it a day.  If we can get our offer in early and at full price, then we should be able to stave off other bids.  That is going to be our strategy going forward and hopefully it doesn’t backfire on us like all of the other bidding strategies have done.

 

So, what do you think?  Would you keep bidding up in order to score a house in a hot market or would you just move on? What’s your approach to real estate? Are you a conservative like me or do you like to live a little more on the edge?

 

Photo courtesy of: Pallspera

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Grayson is the owner of Debt Roundup and Empowered Shopper. He also co-owns Sprout Wealth and Eyes on the Dollar. After going to battle and winning against consumer debt, he decided it was time to learn how to use credit wisely and grow his wealth. He discusses all things personal finance and is not afraid of being controversial. He also is a freelance writer and blog manager.

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36 Comments

  • Vince says:

    Out of curiousity, what state are you looking to buy in?

  • I think you’re on the right track, Grayson. We went through the same thing when we bought our suburbia house. Luckily, we came upon that house the day it went on the market, the realtor got us in right away, and although there were two others getting ready to put in offers, we got ours in first and the sellers accepted it. You guys will get your house – just wait and see. 🙂

  • It is so tempting to get caught in the moment with bidding wars, especially when you love the property, but this is where the home buying budget becomes critical. It is so important to do your research in advance and make sure you have all of your numbers right so that when you hit the ceiling of your budget you know that you absolutely have to walk away no matter how crazy you are about the home.

    • Grayson Bell says:

      I don’t like the bidding wars in their current state. It is silent bidding and you have no idea what the other buyers are bidding. I would rather have an auction!

  • I’m not a fan of bidding wars. The reason I liked the house we bought so much was two-fold. First, it needed some cosmetic upgrades and we could put a lot of sweat equity in it. Second, it had been on the market a while and there was clearly no bidding war going on.

    • Grayson Bell says:

      Nice work DC! We have seen a few that have been on the market for some time, but we are not looking for a fixer upper right now. We need one that we can just move in with little repairs as possible.

  • Spencer Knapp-Owens says:

    YOU do not need to be in a bidding war. Let the Realtor you hire and hire the best work for you!

    • Grayson Bell says:

      Do tell on what the Realtor will do to not get into a bidding war when there are hundreds of people looking for homes with only one or two on the market at a time? A Realtor can’t do anything when the sellers wait for a few days after they receive first offers. They are the ones creating the bidding market.

  • My parents were looking at a ONE BEDROOM apartment in NYC that was selling for $700,000. They didn’t make an offer, but after the bidding war, I think it sold for over a MILLION!

  • I agree with you that the entire home buying process needs changing. I wonder how soon it will be before someone comes up with a new way to complete a real estate transaction. There are more and more “for sale by owner” sales but they are still small in comparison.

    For me personally, I just find it crazy that the agent gets so much money for selling a house.

    • Grayson Bell says:

      It really does. I wish I had the power to change it, but I am sure Realtors love the bidding wars as they get a higher commission.

      I also find it crazy that Realtors get paid so much. They all go with the same commission fee. The FSBO is really such a small market now and many Realtors won’t show them to their buyers as they won’t be getting a cut.

  • Kim says:

    I’ve never lived anywhere that might experience bidding wars, but I think it would be really tough. I can also see how you’d let emotion take over and pay more than you should, which is why there were so many people in trouble a few years ago. I think your strategy is absolutely right. I’ve also heard that writing a personal letter to the seller with your offer helps sometimes. I’ve never tried it myself, but have heard good things when multiple offers are a reality.

  • Alexandria says:

    I am from the Bay Area, which has mostly only been insane crazy bidding war, for decades. We have bought two homes in crazy insane sellers market.

    I have never been in a bidding war. I don’t think we will ever partake. A few stories about that. After hearing all the horror stories, we went into buying a condo assuming we would have to bid some crazy 5 or 6 six figure sum above asking price. IT didn’t sound fun. We ended up finding a property that had been on the market 6 months. Our initial reaction was to run the other way, but we stopped and dug further. Turns out the selling realtor was horrible. Maybe seller had been unreasonable up front, but they had turned desperate. That has come to be our unintended buying M.O. To sniff out the bad selling realtors. We were the only offer on that home. We almost purchased a third home in a similar situation. They hadn’t advertised half of that the house had. Beyond that, just look where other people aren’t looking. Just because the sheep go there doesn’t mean it’s the best house. (Our current home was new construction. Same kind of market so lotteries and so on to get into these homes. We went with a less popular home builder. They were infinitely cheaper. As far as I can tell we just didn’t get the name brand. What is extra interesting is most the resale market could care less who built the home, so that has been an excellent investment).

    I’ve never heard of anyone else following this strategy. BUT, my friend has been looking for a home in San Francisco for well over a decade. Trying to seriously get in last year, but beyond frustrated with the all cash offers, etc. She stumbled upon a home that had unadvertised square footage (an entire attic big enough to convert to living space; the storage space alone would be worth a small fortune even if it was a 3-foot ceiling) and parking. ??? Seriously, this realtor should not be able to keep their license!! A little too good to be true. and skeptical about it. But, she put a low ball offer in, as it was beyond her price range anyway. They turned it down but they got no other offers. So they came crawling back and she offered a lower price. & got it. How absurd is that?

    My SIL also just swooped up a house with no other bids. The selling agent sounded about as good as the rest in this story. So more of our friends and relatives are coming up with similar experiences. For us, I think we just got very lucky the first time we ever home shopped. But, as such, we always go into real estate shopping full aware there is a deal out there that no one else is paying attention to. & that is what we look for. Oh, and by the way. When we sold that first condo we bought, it took us 5 minutes to sell it. 😀

    • Grayson Bell says:

      That is a great way to do it, especially in San Fran. The problem here is that we don’t have homes sitting on the market for some time. The ones that we do are typically in bad disrepair. I don’t have the time, nor the money to deal with that kind of home. Bidding wars are just common place here right now.

  • Lauren says:

    I’ve never shopped for a home, but I definitely would not want to overpay and bid higher just to win a place. Of course, it’s hard when people get emotionally invested in a property that they view, and then they get their heart set on it. Buying a home sounds so stressful!

  • Those bidding wars can get fierce. I’ve encountered a few of those in my efforts to buy rental properties. The danger is when you really, really want a particular house and get caught up in bidding against someone. It can become very emotional and those emotions can lead to some poor decisions. As tough as it is, I wouldn’t move beyond my price point. There will always be another house out there.

  • It sounds like you have the correct strategy, in a sellers market you need to be on top of new listings quickly, make an offer high enough that the seller will agree with immediately, and also high enough that other buyers won’t want to start a bidding war at. It’s all about the early bird gets the worm.

    • Grayson Bell says:

      The biggest issue is that most sellers won’t accept your offer right away. They are being told to wait for a few days and that is causing the bidding wars. Most homes go live close to the weekend and in all cases, we have had to wait until Monday to hear back.

      • You’re right, sellers will sit and wait to see if other offers roll in. But they can only sit on an offer for so long. I think when I was putting in offers on a house there was a clause in there that they had to respond within 2 business days. In a sellers market it probably does take a little luck too. So good luck on your search!

        • Grayson Bell says:

          Unfortunately, in the hot market here, if you put in a clause, your offer is likely to get thrown out. We tried that once and it didn’t go well. My Realtor advised against it, but we did it anyway. There have been no offers that have had such a clause.

  • I can empathize with you Grayson! What area are you in? We’re in NYC and of course the market is pretty hot here too! Back in the fall, I didn’t realize it was a hot market and we just started looking. I was trying to get the seller to come down in price which they did when another bidder started bidding up the price. Now here we are in Spring and I know I can’t look back, but the prices are higher and it hurts to pay more for something I think I could have got for much less a few months ago. It is tough out there. I don’t want to get into bidding wars, but I’m not sure if that’s an option right now if you want to buy. Good luck bro.

    • Grayson Bell says:

      I am in Raleigh, but there are only a few places here that are hot. Unfortunately, the city that we are in is hot in specific areas. There are three zip codes that have a lot of activity, then others that have almost none.

  • I’m only a fan of bidding wars when it’s on my own home. Otherwise I do no like them. 🙂 We’ve gotten caught up in a few and I’m like you – I know how much I am willing to pay and once bids go higher, we drop out. And it’s hard. So hard when you really, really love a home. But I don’t want to regret it later when I no longer have money to do others things I love because I bought too much home.

    • Grayson Bell says:

      Haha, I hear you there Shannon! Bidding wars are great when you are selling a home. They suck on the other end. The problem is that we have no idea where the bid is going. They want the highest price we are willing to pay, but then you don’t know if someone else is even going to go that high. Most of the bidding wars here have been “best and highest” offers, so you don’t get a third chance.

  • debt debs says:

    My husband is a real estate appraiser and he has seen deals fall through because the offer was overpriced. The bank would not approve the mortgage once the appraisal was conducted. But then, appraisals are impacted by recent sales in the neighborhood, so if they are being completed then it should not negatively impact the appraised value unless you are not comparing like properties.

    • Grayson Bell says:

      Yeah, that is one thing that our lender is telling us. Many homes have fallen through because they offered too much and they had to come up with the extra cash to get the mortgage.

  • Dave Lalonde says:

    With my own personal experience, bidding back and forth on a house is something I don’t want to do. I always felt like maybe there would be something better in store for me. The bidding back and forth can get so competitive, and by having a frugal look on it, it’s just not worth my time or my budget.

    • Grayson Bell says:

      So what do you do when there are no other options than to just bid? When you are blind bidding, you don’t get to go back and forth much. It is typically “best and highest” offer and if you don’t come close, you don’t get a second chance. I have my budget and I won’t surpass it, but it makes it hard to find a home.

  • Hey Grayson, I don’t yet own a home and I’ve never been in that situation. So, I’m not sure what I would do. However, I do love to win…I think I’m leaning more toward bidding up just for the win. I know, it’s probably stupid, but it’s most likely how I would handle the situation.

    • Grayson Bell says:

      Ah, so you would be the type that I would not like bidding against. You are just going for the win, while I am trying to get a house at the right price!

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