If you’ve been house hunting over the past several months, you may have noticed that the real estate market has “softened“. There are more homes on the market at the same time, giving many home buyers time to breathe. And time to choose. So it’s only natural to wonder, “Are bidding wars now over? Can we finally say goodbye to bidding wars?“
Bidding Wars – A Quick Review
The short answer is “no”. Bidding wars are here to stay. In fact, they’ve always been part of the real estate landscape. What makes bidding wars such a heart-sinker in the current housing market is their intensity. And since hurricane season is just around the corner, let’s use an analogy.
Hurricane categories can’t predict everything about a storm, but they can give an indication as to how it will affect damage to property. Hurricanes come in levels of intensity, ranging from a Category 1 up to a Category 5. Looking at the real estate market, the bidding wars that have emerged since the pandemic have been a jaw-dropping Category 5.
What makes these bidding wars a Category 5 has been the extremely high number of competing offers. Heightening the intensity of these bidding wars is their swiftness. The “call for all offers” by listing agents frequently has been announced on the very first day the house becomes active on the MLS (Multiple Listing Service). And when you overlay a series of “sweeteners” that home buyers include in their offers, buying a home has been fiercely competitive. A “sweetener” is a term I use to describe an additional contractual provision that a buyer includes with the offer. An example of a popular sweetener is to give a free “rent back” to the sellers. This allows the sellers to close on the house and stay rent free ($1.00 plus utilities), typically up to 60 days. Here in Northern New Jersey, a separate Use and Occupancy Agreement is prepared by a real estate attorney. One of the more creative sweeteners from buyers is to pay for all or a portion of the seller’s moving expenses. The wave of such unprecedented concessions from potential home buyers has catapulted bidding wars to a Category 5.
House Hunting During Bidding War Season
If you were looking to make a home purchase during these many months of extreme bidding wars, you know first-hand how challenging the buying process can be. So many buyers with outstanding offers, and there can be only one victor in the end. And with overwhelming excessive buyer demand, each time a house came onto the market, a bidding war would follow. Bidding wars were simply the norm of real estate.
So if the housing market has “softened”, what does this mean for bidding wars? Let’s take a step back and first gain an understanding as to what this term really means.
Bidding War Defined
If we re-frame the term “bidding wars’ and use “multiple offers” instead, we immediately feel the intensity lessen.
Ask any home buyer and they will tell you that they don’t want to participate in a “bidding war”. However, buyers naturally want to buy a house that others want. It validates their decision that this is a house worth having. Conversely, if a house is sitting on the market longer than expected in the current market, buyers will ask, “What’s wrong with this house?“
A house that is reasonably priced (based on location and condition) and shows well when it comes onto the market will generally attract some degree of buyer interest. And when the asking price is compelling, the number of potential home buyers increases. In other words, the greater the likelihood of more than one offer on the property. When there is more than one offer competing for the same house at the same time, then we have – you guessed it- multiple offers.
The term “bidding war” has come to mean intense competition whereby it’s not just a few buyers vying for the same house, but a dozen or more. This is why the buyer’s realtor will almost always ask how many offers the listing agent are expecting. Just like the hurricane example above, as the number of offers increases, so does the intensity. And the intensity can swirl even more.
The Swirl of Bidding Wars
If you’ve ever participated in a “call for all offers“, you hopefully were made aware that “it’s not over ’til it’s over”. You see, the “call for all offers” to be submitted by a specific day and time is actually for “highest and best” offers. This is quite different from saying “best and final”. This is because the seller reserves the right to go back to the potential buyers and ask them to “improve” their offer. This can happen when there are 2 or more offers which are nearly identical. This scenario can trigger a second call for “highest and best” offers. In fact, in some extreme scenarios, the call to “improve” your offer could happen several times. As you might expect, with each additional call to improve the offer, some buyers might simply drop out of the offer process completely.
Making your offer stand out in a crowded multiple offer process can be daunting for buyers. So what happens when you lose the bidding war? You try again of course! You keep trying, and each time you make an offer, you “up your game” and add a few sweeteners.
All of this swirling and then losing the bidding war has led many home buyers across the country to the realization that it is Groundhog Day. These buyers keep making offers on homes as they come onto the market until one of two things happens: 1) the seller chooses your offer or 2) you withdraw from the house hunting process as buyer fatigue sets in.
But just like the weather, the real estate housing market can change at any moment. And that moment is now.
The Softening Real Estate Market
As I mentioned in my article last month, The Tide is Turning for Home Sellers, the real estate market has been shifting and getting softer, less frenzied. This is good news for home buyers. The bidding wars are no longer a Category 5.
To help illustrate what buyers can expect in this new softening real estate market, I developed the following Guide to Multiple Offers.
This chart shows that as the number of buyers submitting an offer on a home increases, there is a shift in the multiple offer Category. Each category shows a range of where the various offers submitted may fall with respect to the list price. Defining “Slightly Above” or “Very Competitive“, for example, will depend on what is happening in your local real estate market for a specific price range. This could be expressed as either a flat dollar amount (e.g. $10,000 above the list price) or as a percentage (e.g. 2% above the list price).
With the softening of the real estate market, the overall number of offers submitted on a property is declining. As shown in this chart, fewer buyers can mean less intense competition. For example. I recently listed a cape cod style home here in Northern New Jersey. It has 4 bedrooms and 2 full bathrooms. The house was vacant and the seller agreed to stage the house. Within 2 days of listing the home, we had 2 offers, and that was prior to the Open House. Ultimately, we received a total of 6 offers. Had this been back in March, we might have received upwards of 10 offers.
We are still seeing multiple offers on many properties. A lot of course depends on the pricing. But that would be true in any market. Real estate is hyper-local and specific to each home for sale. However, it’s important to note that the highest priced offer isn’t necessarily the best offer. We are seeing a growing number of instances where properties with extreme offers come back onto the market after an offer has been accepted. There are buyers who offered the highest price during the frenzied and fast-moving market and have changed their minds. Some of these buyers, caught up in the swirl of multiple offers, are no longer feeling comfortable with the very high price of their offers submitted so quickly.
The wonderful news for buyers is that you can now take more time and choose wisely. With less intensity, you have a bit more breathing room in the house hunting process.This can help you to make your decision from your heart with less stress. And by feeling less pressured, you are more likely to make an offer that you feel truly good about rather than feeling “pressured” into.
Although even as the current market softens, it is still keeping buyers and sellers on their toes. This changing market condition is catalyzing forward momentum in getting your dream home. So if you are looking to make a home purchase, you now have more negotiating leverage than compared to earlier in the year. And you just might not need to include any “sweeteners” at all. How sweet is that!
Let’s Move Forward
For greater insights as to how to successfully navigate the 2022 housing market, reach out to me at 908-239-9261 or [email protected] Whether you are house hunting or selling in New Jersey or in another state, I can help you. Additionally, when appropriate, I can collaborate with my Compass colleagues located in over 300 cities across the U.S.
© 2022 SUZY MINKEN
Did you miss my article in July? Here is the link: The Tide is Turning for Sellers: Changes You Need to Make Now for 2nd Half of 2022 – Suzy Minken
My Bird’s-eye View
Home Buyers are Asking, “Bye Bye Multiple Bids?”
© 2022 Suzy Minken
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