Bidding wars: Sellers love ’em, buyers hate ’em.
By Lisa Johnson Mandell
In the rollicking seller's market we’ve had over the past couple of years, sellers have enjoyed watching homebuyers bend over backward to outdo one another, with ever-higher home prices, fewer (or no) contingencies, and other perks in an effort to entice sellers to pick their offer over all others.
But a subtle shift is afoot. Interest rates are rising, slashing buyers’ borrowing power. Plus, the Realtor.com® June Housing Report shows an uptick in the number of homes for sale.
“The biggest positive for buyers is that they’re seeing more homes on the market now,” says Realtor.com Chief Economist Danielle Hale. “This means more options for them to consider in their home search.”
While the market still has a long way to go before it tilts definitively in buyers’ favor, sellers today can no longer kick back and just presume a bidding war will roll in.
“As the market is transitioning, buyer psychology is also transitioning,” says Lauren Schaffer of Triplemint in New York. “Bidding war fatigue coupled with a softening market has created a newfound sentiment that buyers don’t need to engage in a bidding war in order to secure a home.”
However, home seller psychology has yet to catch up to this new reality, putting many at risk of making a variety of mistakes that could squash their odds of receiving multiple offers—or of coming out ahead if they do. Here are some missteps sellers will want to avoid in today’s changing market.
Keeping an eligible homebuyer waiting too long because you’re hoping for a bidding war
Schaffer in New York currently has a three-bedroom condo that should have sold weeks ago.
“When the listing first hit the market, we received a ton of interest and even received an offer from a qualified buyer over asking price within the first week, ” she says. However, “instead of accepting the offer right away and pushing to contract, our seller wanted to take some time to let the offer ‘breathe.'”
In the past, this breathing room might have allowed time for more offers to roll in. But that did not happen this time.
“When we shared with other buyers that we had an over-ask offer on the table, everybody flaked,” Schaffer says. “For some buyers, there was an immediate and visible adverse reaction to the update. For others, it took a few days for them to circle back, only to say, ‘thanks, but no thanks—we don’t want to engage in a bidding war.'”
You can guess what happened next.
“From there, we circled back to accept the first buyer’s offer, but that buyer also decided to move on,” says Shaffer. The condo is still on the market today.
The moral of this story: If you get a decent offer, especially over the asking price, accept it in a reasonable amount of time, which is typically no more than a few days. No one likes to feel like you’re holding out for something better, and today’s buyers have other options, too—and may very well move on.
Expecting homebuyers to bend to your every whim
In the past, home sellers had so much leverage that their “negotiation” with buyers seemed more like sellers simply telling them how it is. Want buyers to waive their home inspection or home appraisal contingency? No problem. Buyers would have to fall in line or else would lose the house.
Now, however, this lopsided, somewhat despotic dynamic is no longer a given.
“We are seeing more contingencies for inspections, financing, and more modest earnest money deposits,” says Jenn Cameron, managing partner of The Agency Seattle.
Today, sellers in many markets can’t really expect buyers to waive contingencies. And if an inspector finds something seriously wrong with the roof, for example, the seller is more likely to have to give the buyers a credit to get it fixed. Buyers might also make additional requests, like certain pieces of furniture being thrown in or other seller concessions.
Don’t be offended; be flexible.
“Sellers would be best advised to go with the flow,” says Cameron. “This doesn’t mean automatically dropping their price. But it does mean being realistic. This is not the time to be steadfastly fixed in any one position. Sometimes you only need to give a little to get a lot.”
Skimping on presentation
There was a point, not too long ago, when homebuyers were so desperate to purchase property that sellers need not lift a finger in terms of making their home look its best. Many buyers were even willing to buy homes sight unseen.
But with housing inventory rising and rabid homebuyer desperation in the rear-view mirror, sellers are again having to step up their game and spruce up their homes. So put a little elbow grease into the presentation of your home, and expect buyers to be as particular as they were before COVID-19.
“Setting the stage for obtaining multiple strong offers is very important,” says Cindy O’Gorman of The Agency Los Altos. “Sellers need to take great care in preparing their homes to bring in the most amount of buyers at the highest price. This is what creates a successful bidding war for the seller.”
Accepting the highest offer, even if it’s on shaky ground
Steve Brown of Las Vegas chose to accept the highest offer on his house, even though the buyer requested a four-month escrow.
“I thought a long escrow would be just fine, since it would give me plenty of time to look for my next home,” he recalls. But you know what they say about the best-laid plans.
“During the first month, I found two homes I really wanted to buy, but lost out in bidding wars because I had to request a longer escrow myself,” he laments. “To make matters worse, at the end of the four months, my buyer backed out of his offer, and I had to go through the hassle of putting my house on the market all over again.”
Brown says he really wishes he would have chosen the second-highest offer on his house the first time around, even though it was $15,000 less than the highest.
The lesson: Don’t be deceived by dollar signs. Certain other deal factors, like an all-cash offer or release of contingencies, can be worth far more than the difference in price. Carefully consider the pluses and minuses of every offer, even if it’s not one of the highest.
Pricing your home way below market value in anticipation of a bidding war—which may not happen
During the home-selling heyday a year ago, one Tampa, FL, homeowner with the initials J.R. (who prefers anonymity) saw his neighbors price their homes below their estimated value. He soon saw why with the insane bidding war that ensued, driving the final sales price well over the asking price.
“So I listed my house about $10,000 below the estimated value, thinking a lot of buyers would see that and jump in,” he says. “I hate to admit it, but I guess my timing was off. I couldn’t believe it when I started getting offers that were actually below my list price.”
With an increased number of homes in the same price range on the market, buyers had more choices and weren’t as desperate. It’s a good lesson that sellers can’t take anything for granted these days, and that the old ploy of pricing low to sell high might have lost its oomph. As always, this will vary by area, so make sure to check the sales price of comparable properties, aka comps, and consult with a real estate agent on the best pricing strategy for you.
Getting frustrated by how long it’s taking for offers to roll in
All that said, just because the market is shifting a bit definitely does not mean sellers will never see a bidding war again.
According to real estate agents, residential properties are still receiving multiple offers. It’s just taking a wee bit longer to get them, and there might not be quite as many bidders as the deluge a home might have received a year earlier.
“It’s likely sellers will experience longer market times,” says Cameron. She adds that the wait can be frustrating for sellers, many of whom have come to expect a swift sale. But in most cases, it’s worth the wait.
Lisa Johnson Mandell is an award-winning writer who covers lifestyle, entertainment, real estate, design, and travel. Find her on ReallyRather.com