By Isobella Harkrider at Reform Austin, November 18, 2020
Bidding wars are happening in Texas as demand for homes is outpacing supply. Two experts explain why bidding wars are happening and what to do if you get caught up in one.
When there are multiple buyers who want to own the same property, they compete against each other, each making more attractive bids driving up the price of the home often much higher than what the home was originally priced at.
The lack of inventory can cause bidding wars.
“There was not enough shelter going into the pandemic, there won’t be enough coming out of it,” Mark Sprague, state director of information capital for Independence Title in Austin said.
“Put on top of that that you delayed your sales surge that comes in March, April and May into the summer months you already don’t have enough inventory now exacerbated with a higher demand,” Sprague added.
Cindi Bulla, 2020 Chairman of Texas REALTORS, says bidding wars have continued unabated throughout the pandemic, and will likely continue in a post-pandemic market.
“Most metropolitan areas in Texas have recorded strong increases in both sales and median price. During the third quarter, the lower Rio Grande Valley reported increases in home sales that exceeded 20% over the same period last year,” wrote Bulla in an email on Wednesday.
“Continued high demand and short supply, especially in median price ranges affordable to most Texas wage earners, create multiple offer situations, sometimes referred to as bidding wars,” she added.
Population growth also affects bidding wars, as the Lone Star State continues to grow in population, drawing residents from out of state, competition for the supply of available properties increases, Bulla explained.
What should you do if you get caught up in a bidding war?
When it comes to how much should you bid over the asking price Sprague says typically most people bid emotionally, because they have lost out on other dream homes, but logically you should look at median values and annual appreciation.
Bulla says having access to powerful data tools and expertise can help Texas buyers make informed decisions on how to craft a winning offer or bid.
“Sellers look at more than just dollars and cents. Often, buyer contingencies, timing, possession and other factors will weigh in. If a buyer is willing to pay a premium, that buyer should do so knowing the potential risks. Knowing when to walk away is equally important,” said Bulla.
Sprague suggests asking yourself these three questions when making bids:
What is the top value per ft. in the neighborhood?
How many years are you going to stay in that home?
If you are staying 10+ years, take the annual median appreciation and multiply by anywhere from 3 to 5 years.
“That way even though you overpaid initially the market catches up to you,” he added.
Sprague provides advice when it comes to the stresses around bidding wars. “Try not to pay over the highest value in the neighborhood. Why? Because that is your ego making that decision rather than analytics. But ultimately it’s like any choice, you decide how much,” he said.
Thinking of selling your home?
Sprague says that if you are selling during a pandemic to first understand how strong the market is.
“If it is less than 6 months inventory in your priced point and neighborhood it’s a sellers market,” Sprague said. “For example the seller does not need to negotiate much if at all due to the strength of the market and the number of buyers.”
If inventory is less than 2 months Sprague says this is a ‘robust sellers’ market meaning that the possibility of bidding above asking price is probably the only way you get the home you want in the neighborhood you want, in the timeline you want.
Also Sprague says if you are selling during a pandemic, understand that you should have shelter already lined up to move to.
Bulla says if you planning to sell your home to employ the latest in technology tools for preliminary showings and you’ll need to observe careful health and safety protocols during the process, and unavoidable delays can occur at any time, but especially during a pandemic.
“You’ll want the forms and resources to deal with and plan for the extra “what if” scenarios,” she added.
Here’s more on how the pandemic has changed the residential real estate market.
The Houston Chronicle reported this fall on “massive bidding wars going on.”
Real Estate Center at Texas A&M University has a new report on housing sales in Texas rebounding 6.3 percent in September 2020 and homeownership rate rising to an all-time high of 70 percent.
See the original article: https://www.reformaustin.org/lifestyle/real-estate-bidding-wars-in-texas-experts-explain-why/