How hard is it to buy a home right now? "Beyond crazy and frustrating."

The pandemic-era real estate market has emerged as a windfall for sellers and a headache for buyers. A shortage of for-sale homes continues to boost prices across the nation by double-digits — and is pushing house hunters to go to extremes to win bids. 

Take a home near the Microsoft campus outside of Seattle that was listed for about $725,000. The buyers made a bid without seeing the home, offering $400,000 above asking price and waiving all contingencies — meaning no inspection or mortgage-financing contingencies were required, recalled Ryan Dibble, the chief operating officer of Flyhomes, which represented the seller in the deal. 

"Even we were a little bit like, 'Wow, that's aggressive'," Dibble recalled. 

Increasingly, offering above asking price isn't enough to win a bid in the ultra-tight pandemic housing market, according to realtors and buyers. Indeed, going above the asking price is simply the first step in winning an offer, with buyers increasingly offering additional enticements, including waiving inspections for hidden structural problems and providing free "leasebacks" to sellers, or offers for sellers to remain in the homes between one to six months after closing — free of rental charges. 

That's raising concerns among some market observers that real estate prices may be getting overheated, with memories of the 2006 housing bubble that ended in an ugly burst. At the end of 2020, home prices were about 15% higher than a year earlier, before the pandemic shuttered the U.S. economy, according to the National Association of Realtors.

The pandemic real estate market is "beyond crazy and frustrating" for buyers, said George Ratiu, senior economist for Realtor.com. "I wouldn't call this a normal market."

Ratiu, who said he believes the market is overheated but hasn't yet turned into a bubble, said several trends are conspiring to turn the tide against buyers. Almost 5 million millennials are turning 30 each year, entering the decade of their lives when they're settling down and looking to own their homes, he noted. And historically low mortgage rates are helping to make home purchases more affordable for first-time buyers. 

The pandemic also prompted people to look for new homes, especially properties with home offices and outdoor space given the confinement and work-from-home trends of the last year. And while existing homeowners can get eye-popping premiums for their properties, some are reluctant to sell because they worry about their ability to find a new home given rising prices and widespread lack of inventory, which is adding to the logjam in the supply of available housing. 

"Because of the new reset in pricing, you have to ask yourself, 'Can I replace this home anywhere else?," and secondly, 'Will I be priced out of my own home, my own neighborhood?'" said Daniel de la Vega, president of ONE Sotheby's International Realty in Florida. "I was talking with an ex-NBA player. He said, 'I don't care if they offer me $20 million for my home, I'm not selling,' and his home is worth $5 million now."

The result is that for-sale homes are getting more offers than before the pandemic, with Flyhomes' data showing that sellers are now receiving an average of 11 bids, compared with about 5 bids before the crisis.

"I definitely felt discouraged"

That's adding up to a headache for buyers. Matthew Karlsson, who started house hunting with his fiancee earlier this year in the Boston area, estimates they viewed about 100 homes and spent much of their free time combing through listings, going to showings and making offers.

"You see six to seven houses a day, and after a while they blend together," he said. "I definitely felt discouraged."

Karlsson said they were "maybe a little naive" at the start of the process. "We made a few offers here and there," none of them successfully, he explained. "Our buyers' agent had back channels in with the sellers' agent, it came down to not only were we not offering enough above listing, but [winning bidders] were waving all kinds of contingencies to win the house."

Some open houses were shut down before they got to see the home, such as one home that closed its showing early after 150 people had come through to see it, he recalled. 

In the end, one of their offers was accepted in mid-April, and they are preparing to move in later this month. To win the bid, they offered $90,000 over asking, settling on a price just over $700,000. They also waived the normal inspection contingency. Even so, Karlsson said they did a more informal walk-through inspection that helped them suss out whether there were any major defects with the home.

"A regular inspection is really, really thorough," he said. "It assumes you will renegotiate on price, and that's not realistic in this market. It's such a strong sellers market that you won't be able to renegotiate the price" because the sellers can simply select another buyer willing to forgo the inspection, he noted.

About 1 in 5 first-time homebuyers had to go above their budgets to buy a home, and more than 1 in 10 waived contingencies, according to a Realtor.com survey earlier this year. Another 1 in 5 spent more than a year on their real-estate hunt, the survey found. 

"It shows that this has been a very difficult, arduous process" for new buyers, Ratiu of Realtor.com said.

All-cash offers

About 15% of first-time buyers made all-cash offers, which is higher than in a typical year, Ratiu said. Well less than 10% of first-timers go all-cash in a typical year, he estimated. 

In competitive markets, some buyers are offering all-cash bids and then financing the home after the closing, said Ruthie Assouline, a real estate broker in New York and Miami who focuses on properties listing for $2 million or above. High-end buyers are flush with money, thanks to record-high stock prices and a strong recovery for professional workers, who were less likely to lose their jobs in the pandemic than working-class employees. 

"In the last several years, with all our listings, I'd get emails from agents saying, 'How negotiable is this seller?'" she recalled. "Now, every email starts, 'Is this still available?'"

Some companies are helping buyers make all-cash offers, such as Flyhomes, which ponies up the cash for a buyer to make the offer. In essence, Flyhomes buys the property with cash, and then the buyer finances the home to buy it back from Flyhomes.

"We can make them a cash offer and be the most competitive offer on the home," Dibble of Flyhomes said. "Our offer is designed to level the the playing field with the traditional all-cash buyer."

Housing bubble or not?

The real estate market's surge in prices and demand is stirring up memories of the housing bubble leading up to 2006. The painful bursting of that boom, which fed into the Great Recession of 2008, is raising questions about whether the market is repeating history. 

But lending standards are much tighter than they were prior to 2006, with buyers being required to provide tax data, paychecks and other information to confirm they can afford a mortgage, and that decreases the likelihood of a repeat housing crisis, experts said. 

But some homebuyers might be at risk for overpaying, especially those who plan to move within a few years: If the market softens at some point, they may not recoup their money.

"If you are a first-time buyer and you are young and you don't know if you want to live somewhere for more than three years, it might make sense to wait," Ratiu said. "The cost of buying a home isn't insignificant. When you throw in a bidding war, the chance that you might overpay is there."