Bidding Wars Hit The Housing Market
MIAMI (CBSMiami) - Brandt Elliot found his dream home the day it went on the market, and he knew he had to move fast.
"I was the first one to see it at 10 o'clock. By 4 o'clock, when I had sent my wife over there in the afternoon, they had already had another offer," said Elliot.
Not sure he'd find another house he liked as much, Elliot placed a competing offer.
"I was a little surprised to get in a bidding war because it was literally less than a day," said Elliot.
But bidding wars are becoming more and more the norm, according to Jennifer McKinney with the National Association of Realtors, who blames high rent prices and low inventory.
"Inventory has everything to do with bidding wars right now. It's basic economics. It's supply and demand," said McKinney.
Some argue sellers are intentionally under-pricing homes -- a tactic to get multiple offers and sell quickly -- but McKinney disagrees.
"I think sellers are really pricing their property to sell and it's causing a flurry of activity and buyers are having to overbid in order to secure a property," said McKinney.
Real estate attorney Elizabeth Vinings sees it, too.
"Just today, I have a seller who had 17 offers on their home," said Vinings.
Some of the contracts clearing her desk involve all-cash purchases -- a strategy McKinney says typically gets the win when it comes to bidding wars. Many times it's an investor making the cash offer, and that means the average homebuyer loses out.
"Obviously, if you put a cash offer up versus a 5, 10 percent offer, and investors are willing to waive more contingencies, the investor's chances are they're going to win," said McKinney.
Contract contingencies are a big part of the bidding process, too, and Vining sees buyers putting themselves at real risk in order to beat out the competition. The three she sees most often: the seller negotiating to remain in the property, even after closing; the buyer waiving the right to a home inspection; and the third, waiving the mortgage contingency, which may mean the buyer has to bring a lot more money to the closing table.
"If a year ago you were buying a house and you're putting 20 percent down, you would have a mortgage contingency for a mortgage of 80 percent of your purchase price. To get a mortgage of 80 percent, the property has to appraise for the purchase price. And therein lies the rub right now. Because people are bidding with multiple offers, they're often not supported by the appraisals," said Vining.
That means a buyer has to come up with the difference.
"They are doing it, because I feel like a lot of buyers are desperate," said McKinney.
Elliot feels he was lucky with his bidding war.
"The only compromise we made was price, and frankly, I think the seller was under-valuing the price," said Elliot.
Sellers face risks, too, and have to be careful to choose the right bid. The highest may not be the best. For instance, if the buyer's financing falls through, you're back to square one and it doesn't matter how high the offer was. So there are several factors to consider when selling.
