Housing Markets Around the Country are Experiencing Bidding Wars

Bidding wars aren’t just occurring in a few select housing markets. Depending on where you live, anywhere from 67% to 90% of properties may be subject to multiple offers – which frequently drive up the price.

Major metropolitan areas, such as Boston, Washington D.C., Seattle and New York are generating bidding wars approximately 67% of the time. Some markets are up to 75% involved in bidding wars, while desirable places in California, such as San Francisco and Sacramento, are finding a whopping 90% of their properties closing on bidding wars. One property alone in a California subdivision received 62 separate bids. A set of two condo units in Cambridge, Massachusetts came up recently, and within two weeks, brokers had more than 250 bids on the properties.

The new reality is here – bidding wars are becoming more rule than exception.

How to Deal with a Bidding War

As a buyer, dealing with a bidding war can be very frustrating. There are a few rules of thumb that can help you navigate this tough market:

• Know how much you can spend. You may have a very attractive offer, but the buyer may be holding out for a little more. Know whether you can keep bidding or whether you should bow out gracefully.
• Lead with a good offer. Don’t lead with a low offer hoping to get a discount on the home. If you’re in a market subject to bidding wars, lead with an offer that’s at least the asking price – or maybe even above the asking price.
• Do your research. Find out how comparable properties are selling. Are they coming in above the asking price? If so, how much higher? If you do your research, you know how much you have to come up and you can lead with an attractive offer.

Bidding wars don’t have to spell the end of your home-buying dream – just be prepared to keep looking, and lead strong. If you’re patient, you’ll eventually find the right deal.

What’s a Nimble Buyer?

Buyers are gaining an increased sense of urgency when it comes to the home shopping process, and that’s a good thing. It makes them better prepared to become nimble buyers. What does this mean?

When you’re shopping for a home, you may need to be prepared to drop everything and  go right out to look at that new property that just came on the market. There’s likely to be some competition, so you can’t afford to wait until the weekend because it’s more convenient.

It goes without saying, you should run the numbers and know what you can and can’t afford before you start your search. Get pre-approved for a mortgage. Your offer will look more attractive to buyers if you have 20 percent for a downpayment, and you’re pre-approved – there will be less chance of an issue procuring financing if you’ve got all of your paperwork lined up. Have all the paperwork ready so you can lock in your mortgage as soon as you find the right property.

Finally, be prepared to make a quick decision and get an offer in quickly. Competition is great for sellers, but it’s deadly for buyers – you could easily find your offer passed over, or find yourself in a bidding war, if the seller waits long enough to get multiple offers. The sooner you’ve got an offer in and it’s accepted, the better for you.

Be a nimble buyer – have all of your paperwork ready and be prepared to jump on a desirable property when it comes along – and you may find yourself in a good position in this year’s spring market.

The MID

The Mortgage Interest Deduction, or MID, is one of the most commonly discussed and utilized home ownership tax benefit. The MID enables homeowners who itemize to deduct the amount that they pay in mortgage interest from their income for the basis of determining taxes. Unfortunately, this benefit is only available for homeowners who itemize their deductions – which is apparently roughly one-third of taxpayers. The roughly two-third who take the standard deduction don’t get the benefit of this deduction. Of tax incentives, the MID is considered “one of the most difficult to justify on policy grounds. Both theory and available evidence suggests it does little to encourage home ownership, but instead mostly encourages upper-middle-households to buy larger and more expensive homes.”

Alternate Suggestions for Home Ownership Tax Incentives

One suggestion at this hearing was a uniform credit that would apply to all homeowners, as well as placing limits on the amount of debt eligible for the subsidy, and the use of the subsidy for home equity loans and second homes. The idea behind this uniform credit is that it would benefit all homeowners, and upper-middle-households wouldn’t have incentive to buy larger and more expensive homes because of the limits on the debt eligible for the subsidy, as well as its use for home equity loans and second homes. This would, in theory, make it more equitable for all households – but such a change is a long way away, if it should ever occur at all.

For now, tax reform is in the theoretical stage – policymakers and scholars study how the current system influences and incentivizes home ownership, and how they might improve that. But there’s no doubt that changes to the tax code will affect home ownership, when those changes begin to occur.

Uniting Kitchen and Living Space

Uniting the kitchen and living space is one of the most common remodels for homeowners today. Open-concept living has really taken off, and gone are the days of the formal living and dining rooms. Parents want to be able to keep an eye on kids while they cook, and a kitchen island is great for entertaining.

Pamper Yourself in the Master Bedroom

Stressed-out homeowners are making the master bedroom more luxurious and spa-like to give themselves a pampering retreat at home. Today’s master bedrooms often have their own seating areas and entertainment nooks, and they provide a personal retreat away from everything. Lush cushions, luxurious fabrics, soothing colors and beautiful window treatments contribute to the spa-like atmosphere.

Increase the Square Footage of Your Closets

Closet space is more in-demand than ever, and it’s not just for storage! Designers today are providing elaborate modular systems for rods and shelving to properly hang and hold clothes and accessories. Many of today’s closets are now also being tasked to serve as dressing areas, as well as holding more clothes and shoes. Walk-in closets with good storage systems are becoming a big draw in today’s homes.

Don’t just confine yourself to a very limited subset of homes that fit your idea of a dream home. Look for homes to serve as a foundation, and don’t be afraid to undertake renovations to turn it into your dream home. This gives you a lot more flexibility about location and home price, and the ability to get exactly what you want when you buy – because you’re creating the space you want yourself!

What’s the Aggregate Tax Rate and What Does It Include?

When you pay property taxes, you aren’t just paying a single tax. Your aggregate tax rate is a combination of all of the individual taxes that apply to your property. You’re typically paying a county tax, a township rate, something for the school district, a city rate if you live within an incorporated municipality, and rates for any special districts, such as fire and sanitary, which service the area. Your aggregate rate is a total of all of the taxes that apply to your property, and is subject to change if there is a change to any individual rate. It’s a good idea to look out for any big projects on the horizon that a district may elect to fund by raising your property tax.

How are Assessed Values Determined?

The property tax you pay is based on the assessed value of your home. Property tax assessment procedures vary depending on the assessing office, so you’d need to consult your local tax assessor to determine the exact formula used. Typically, assessors look at either the market value of your home, or the cost approach – i.e. how much it would cost to replace the structure with a similar one, plus the cost of the land – and determine the tax assessment as a percentage of this value. Some places assess at 100%, while others assess at a lower percentage. They may also look at renovations and improvements to the property – so if you’ve filed a permit but haven’t completed the renovation, your property may be over-assessed.

What This Means for Sellers

For sellers, this is great news. Gone are the days of heavy concessions and price drops just to sell a home. We’re returning to the glory days of multiple offers and even bidding wars, in some housing markets. For sellers, this means that homes are selling faster and at higher prices – this is the absolute best time to sell a home compared to the past five years. However, home prices in many areas haven’t rebounded to the levels they were at before the recession, which has made some sellers reluctant to sell and take a cash loss. This has led to some inventory issues; not enough homes to sell, and could slow down home sales throughout later quarters in the year.

What This Means for Buyers

For buyers, this is not-so-great news. With homes selling more quickly in this year’s spring market, buyers have fewer homes to look at and less inventory to choose from. Buyers are also being forced to choose and jump quickly, because properties are selling faster. And buyers are on the wrong end of those bidding wars, with prices climbing thousands or tens of thousands of dollars for a desirable property. This doesn’t mean that buyers shouldn’t buy now – but it does mean that buyers should go into the home-buying process with a strategy, and stick to it.

Check for Loose, Leaky Gutters or Drainage Issues

Drainage issues can cause huge problems when it comes time to sell a home. Start your spring off right by checking for any loose, leaky or clogged gutters. Clear clogs, secure loose gutters, and replace or repair leaky gutters. Gutter problems can cause roof issues, problems with walls and siding, structural damage to the foundation, and basement flooding – all of which are very costly and can absolutely kill your attempt to sell your home. Taking a few minutes in spring and fall to check gutters and drainage can save you tens of thousands of dollars.

Take a Look at the Roof

Winters are hard on the roof. Check out your roof, and look for any missing or loose shingles. Is the roof water damaged, or will replacing a few shingles fix the issue? Keeping your shingles in good shape can prolong the life of your roof – and the last thing you want to do when you’re trying to sell your home is spend ten thousand dollars replacing your roof – or cut the buyer a discount because he’ll have to turn around and replace the roof.

Service Your Heating and Cooling System

Before the summer heat kicks in, it’s a good time to have the professionals come out and service your heating and cooling system – particularly if you have an outdoor air conditioning unit. Clean coils operate more efficiently, which reduces your cooling costs, and an annual service call can help catch problems early before they become expensive issues. Keep your system working at peak performance and prolong its life. Also, now’s the time to replace interior filters, while you’re paying attention.

A little time and money goes a long way, so take care of these issues while they’re simple and inexpensive in order to avoid developing big, costly problems.

The Spring Market can be a Feeding Frenzy

The spring market is the busiest time of year to buy or sell a home, which means it can turn into a feeding frenzy. It’s not uncommon to find multiple homes that you love, but by the time you put in an offer, you may find that the seller has two or three other offers. It can be frustrating if you’re beat out of good homes time and time again. It’s important to resist the urge to buy into the “we’ll never get a home!” mentality, and avoid hiking up your price point or getting involved in bidding wars if you’re budget restricted. You may buy a home. You may not. Real estate sales don’t end with spring, so beware of (and be prepared for!) the feeding frenzy.

Work with a Neighborhood Specialist

Working with a neighborhood specialist pays. Neighborhood specialists often find out about new listings sooner, and they can give you a lot of good insight into the area that a partner from somewhere else just can’t provide. Once you’ve narrowed down your options, find someone who specializes in that area to give you the best information, property comps and heads-up on new listings.

Be Prepared to Pay

In the spring market, it’s generally not common for buyers to get big discounts off the asking price. Be prepared to pay the listing price – particularly in this year’s spring market, which analysts predict will be more favorable to sellers than buyers. If you can’t afford the listing prices in a neighborhood you’re considering, it may be a good idea to shift your focus to somewhere more affordable, or wait until an off-peak real estate market to do your serious looking.

Factors Contributing to Lower Sales Volume

There are two factors contributing to the lower sales volumes in some markets this spring: low inventory, and comparison with a strong previous year of sales. What does this mean?

With low inventory, we’re seeing fewer sales as a result. It’s simply a factor of there being fewer homes on the market. That being said, the low inventory has resulted in some bidding wars, which pushes home sales up above the asking price. When prices rise, more homeowners list their properties for sale, so this type of trend is unlikely to continue; an increase in inventory is likely. However, the increase in inventory may make bidding wars less likely, which could in turn limit the asking prices that sellers can command – the best we can ask for is balance in this year’s spring market.

The other factor; comparison with a strong previous year of sales; is a bit of a mixed blessing. The strong real estate market in the past year has signaled that the economy is recovering, and indeed has helped to fuel that recovery somewhat. However, the economy is currently in a delicate balance; not every sector of the economy has recovered, and many people are still in a cautious spending state of mind, making it a precarious balance.

Without a strong upward drive, housing sales this year may mimic last year’s sales, which were good – but may not signal a strong continuing improvement. As a result, it may look like sales aren’t as good this year, when in reality, this is likely a temporary state; we should see these markets trending upward again once things balance in terms of inventory and economic health.

Buyers are now more strategic about viewing homes as investments, lest another recession come and have similar effects on the housing market. Fortunately, there’s a factor that can make buyers feel more confident in a home as an investment: a recent study has concluded that homes near transit options make better investments.

American Public Transportation Association Study Concludes Transit is Good for Housing Investments

It sounds almost like common sense, but the recent American Public Transportation Association study assigned some values to this idea, making it a very compelling selling point. This study looked at housing market data from major metropolitan areas, including Phoenix, Boston, San Francisco, Minneapolis-St. Paul, and Chicago from 2006 to 2011. The study found that residential property values near public transit options performed a whopping 41 percent better than other property values!

Heavy rail, light rail, bus rapid transit and frequent service and transfer options help real estate prices. The study found that these transportation options made more of an impact than commuter rail transit options typically found in suburbs, so suburban homes near commuter rail train stops didn’t benefit as much from public transit.

Ultimately, someone who is buying a home takes into consideration a variety of factors; not just transit. However, public transit offers serious money-saving elements – studies found that residents within a half mile of public transit spend up to $300 less per month on transportation than the regional average! This has made it a catalyst for real estate sales and retaining property values in a time when much of the country struggled.

Is nearby transit the only reason to buy a home? Of course not. But if you’re looking at a home as an investment, this definitely adds some strategic value to the equation.