If you’re buying a home right now, you’ve got a lot of company. Maybe you’ve already found yourself in multiple-offer situations. It’s possible you’ve even had trouble booking appointments to see homes you’re interested in because so many other buyers are trying to see them, too.
We’ve heard agents with decades of experience say they’ve never seen a more competitive market than they’re seeing right now. If that sounds scary, we understand. A market like this creates frustration for buyers. It can even break hearts. We’re here to help!
There’s no single solution to less-stress homebuying in an ultra-busy market, but there are options. We talked to Flyhomes agents in extra-hot markets—the Bay Area, Southern California, and Seattle—for insight on exactly what’s happening in the market and how to navigate through heavy competition.
Just how crowded is the real estate market?
“This current climate is at or near the top of competitiveness I’ve seen in my career,” says Lanz Camacho, Flyhomes Client Advisor Lead in the Bay Area, who has been an agent in the area for almost two decades. “Many homes are getting twenty to thirty offers.”
Because competition is essentially guaranteed, many sellers are using the listing strategy of under pricing homes. This tactic is intended to drive up the home’s sale price—buyers offer as much as they’re willing to pay instead of as much as the home is worth according to comparable sales.
“You almost never see a home listed at comp value in northern California,” he says. “And value estimates online are oftentimes still lower than we find through our research.”
Lanz says under pricing by five to ten percent is typical across the Bay Area and as much as ten to twenty percent is unsurprising in the hottest areas. Sometimes, the gap between list price and sale price is even wider. He recently helped a client who loved a home that sold for almost forty percent more than the list price. It was priced at about $1,100,00 and sold for about $1,500,00.
In an extreme example, one Berkeley home was listed in March for $1,150,000 and is expected to close above $2,000,000, per the listing agent. Even she was astounded at the huge difference —she told Lanz’s teammate, whose client made an offer, that she expected it to sell closer to $1,700,000.
The Bay Area isn’t the only place where the under pricing trend is common. Flyhomes Client Advisor Jack Schwabeland sees it in Seattle, too.
“We are deeply into a seller’s market right now,” he says. “Buyers have to be prepared to do what it takes to get a home. At the end of the day, it’s going to boil down to whether you like the home enough to pay more than the next person … and they’re probably willing to pay a lot.”
Be sure to discuss the gap between what a home is “worth” and the sale price with your agent. There are pitfalls they can help you understand.
For example, when you buy a home at a price that’s been driven up by competition, you may risk a low appraisal, which can cause you to pay more at closing than you were planning to cover the gap. There are other ways to deal with a low appraisal, but in today’s market, it’s smart to talk with your agent about working this potential payment into your budget.
What’s it like to be in a real estate bidding war?
While every situation is different, let’s take a look at a recent multiple-offer situation to set the stage for what it’s like to buy a home in the current market.
Trina Daniels, the Flyhomes Client Advisor Lead in Southern California, has been helping people buy and sell homes for more than 20 years. At the end of February, she listed a single family home in La Mirada for $740,000. She knew competition would be hot, but she wasn’t prepared for what happened: the seller received 45 offers!
Here’s how it went:
- The home was listed with “coming soon” status (which is available on the Multiple Listing Service only in some states) on a Monday. Before the listing was officially live, two full days of showings were booked.
- That number of tours was surprising. Trina said: “In a normal market, or even six months ago, you’d request a showing a day or two before. You don’t book a tour for Saturday on Monday. I’ve never had that happen before.”
- The listing officially went live late on a Thursday night. By Friday, Trina had received 96 showing requests. The logistics of managing that many showings is a lot of work, so she’s grateful she had two team members helping.
- Potential buyers toured the house every fifteen minutes from morning through night on Friday, Saturday, and Sunday. The team had to turn some people away.
- Trina asked all of the buyers’ agents to submit their clients’ highest and best offer from the start and not to expect counter offers from the seller.
- Offers were due to the seller at 3:00 pm on Monday. The first came in on Saturday afternoon. By Sunday afternoon, 12 offers were on the table.
- “My email went bonkers on Monday morning,” Trina said. She received more than 30 additional offers.
- The average price among the offers was about $780,000 (five percent over list price). Several offers removed contingencies. One was an all cash offer.
- Two offers came in at $800,000. The seller accepted the one that waived all contingencies except for a three-day inspection contingency.
The big takeaways here are that buyers in today’s market need to expect competition and work with their agents to move quickly, consider waiving contingencies, and start with their strongest offer.
How to approach homebuying in a hot market
Even in such a crowded market, you can t buy a home you love. By using your agent’s local expertise and setting yourself up with realistic expectations, you’ll have more success and less stress.
- Get pre-underwritten. Being pre-approved or pre-qualified means you have a guesstimate of what loan amount you’ll be approved for. Pre-underwriting is an on-paper commitment from a lender to give you a certain loan (as long as your financial picture doesn’t change meaningfully—don’t buy a boat while you’re shopping for a home!). It gives you absolute confidence in your budget and it gives the seller certainty that you won’t back out because of a lack of funding.
- Search with the market in mind. Now that you know homes are often under priced, and you’re aware of the potential payment that can come with a low appraisal, think about your budget accordingly. If you can spend $600,000, look for homes priced closer to the $475,000 to $525,000 range.
- Consider looking at homes in your second or third choice areas. When you buy a home, you effectively buy a neighborhood, too. While you’ll go into your home search with favorite areas, it’s well worth exploring outside of your expected targets. You may find less competition in slightly less popular areas. At Flyhomes, we often see buyers who are open-minded to different neighborhoods having a less stressful experience than those that are hyper-focused on one buzzy zip code.
- Think about whether a townhouse or condo might work for you. Much of the competition in the market surrounds single family homes. Talk to your agent about townhouses and condos in your area to decide if you may want to visit a few and feel out if one of those options may meet your needs. You may come up against fewer other buyers if you’re willing to adjust the types of homes you’re open to buying.
- Start with your strongest offer. Don’t expect the seller to make a counter offer. Holding back expecting to negotiate into a higher price or better terms for the seller will likely leave you behind the pack when the seller reviews all of their options. Flyhomes can help you strengthen your offer by making it a cash offer.
- Understand what a low appraisal is and the risk that comes with it. As we mentioned above, a low appraisal is when a professional appraiser determines the value of a home to be less than the price you’ve offered to pay for that home. Your lender won’t lend you money to pay above the appraised value. Because paying over market value is so common in a hot market, it’s important to understand that this scenario is not uncommon. Talk to your agent up front about your options in case of a low appraisal.
- Be open to PMI. Putting less than 20% down on a home is more common than you may think. If you put down less, you may be able to put more of your budget toward covering a gap that comes from a low appraisal or other expenses associated with buying a home. A lower down payment means you’ll also pay private mortgage insurance (PMI) for some time, and many buyers don’t like the sound of that. However, with today’s lower mortgage interest rates, your month-to-month payment even with PMI factored in may be very reasonable.
- Remove as many contingencies as possible. Contingencies are essentially escape hatches that let a buyer walk away from a home offer if certain parameters aren’t met. For example, an appraisal contingency protects the buyer in case of a low appraisal. While they protect buyers, they give sellers reasons to doubt that an offer will go through. For that reason, Flyhomes has programs designed to make it less risky for buyers to remove contingencies.
- Know that lowball offers are very, very unlikely to win. Sometimes, homebuyers can offer under list price and still have their offer accepted by the seller. In a hot market, that situation is extremely rare. With more buyers looking for homes than there are homes to buy, you can count on someone else offering above list price.
Keeping an eye on the latest market updates will help you track what’s going on for buyers, too. The more educated you are, the more confident you’ll be about making the big decisions that lead to your new home.
We’re here to help!