Demand for real estate has surged over the last year in many regions of the U.S., particularly in the suburbs of large cities. Low mortgage interest rates and the pressures of the ongoing pandemic have compelled many urban buyers to rethink their lifestyles, and seek larger homes with outdoor space.
On top of this, low inventory in these in-demand regions is fueling fierce competition and bidding wars among buyers. This is especially the case in the New York City suburbs: In Westchester, for instance, the time from listing to closing was only two months for single-family homes this winter, while in Greenwich, Connecticut, there were 108 signed deals in February, compared to 42 in February 2020.
“We’ve been seeing outflow from Manhattan into Connecticut, and it has been crazy,” said Cliff Smith, managing partner with The Agency in New Canaan, Connecticut. “There’s not much inventory right now, so there’s super-high demand, and we’re flooded with buyers for every quality listing.”
Demand is particularly intense for single-family homes in turnkey condition, brokers say. And that demand is creating an emotionally charged environment in which would-be buyers are engaging in bidding wars and driving up prices, sometimes significantly.
“People are getting caught up in a frenzy, and are going over the asking price anywhere from 5% to 20%,” said Heidi Henshaw, a broker with Corcoran Legends Realty in Westchester. “I know what the number should be, and I can’t believe how prices are spiking, all because there’s incredible demand mostly coming out of the city.”
In this environment, it can be a challenge for buyers to know when a home is priced correctly, and whether to enter a bidding war. It’s essential that buyers work with experienced brokers, familiarize themselves with how comparable properties have sold, and consider the outlook for appreciation when deciding whether to bid.
“Buyers need to do their homework before deciding to bid,” said Jennifer Leahy, a broker with Douglas Elliman in Connecticut. “You don’t know what you want until you’ve experienced going to 10 houses minimum, and have looked at comps that traded near the one you want.”
Ms. Leahy said that she has advised buyers to tap out of bidding wars when she felt that prices were being driven up too much from the initial ask and the buyers could lose money when it came time to sell.
“There was a property purchased a month before Covid for $699,000, and then it was listed for $100,000 more,” she said. “I told my client I didn’t feel comfortable about them purchasing it, because the price had gone out of control, and I didn’t know how they’d trade out of it.”
Competition Heating up Among Buyers
Brokers agree that the Covid-19 pandemic is the primary factor behind the rise in demand, and that spacious, turnkey properties tend to draw the fiercest competition.
This is the case not only in the suburbs, but also in Manhattan, where the real estate market had been sluggish until recently. Now, there are signs of a comeback: in the first quarter of 2021, co-op and condo closings were up by 2.1% year over year. And though luxury sales still lag, signed contracts in Manhattan have been increasing since December. In March, luxury condo sales increased to 89 from only six recorded a year ago.
“In the beginning you saw a lot of panic, but now that there is a light at the end of the tunnel, people are realizing they want to be in Manhattan and take advantage of pricing,” said Jared Halpern, an agent with Douglas Elliman’s Michael Lorber Team in New York. “At the high end, there is not a lot of finished product in the new development pipeline, so buyers want to get back into the market now.”
At the same time, there is an outmigration of buyers from the cities to the suburbs, which agents expect to continue as many offices keep remote work policies in place.
“Because of work-from-home culture, people realize they don’t have to live in the city, and we’re seeing a number of people who would prefer to be in the suburbs,” Mr. Smith said. “The homes garnering the most attention are ones that can accommodate multiple workspaces and have outdoor space. Everyone wants their own oasis now.”
And with more buyers descending on open houses in search of their own oasis, bidding wars are becoming the norm.
Developers of new luxury high-rises are seeing a similar frenzy, including in South Florida, where demand was high from buyers seeking a tax haven even before Covid. Many of these buyers were initially looking for single-family properties, only to find there are few available.
“The pandemic brought a lot more people to Florida, with buyers looking for larger luxury buildings with a lot of services,” said Manuel Grosskopf, CEO of Château Group and developer of The Ritz-Carlton Residences in Sunny Isles Beach. “A lot of these buyers were looking for single-family homes, but the inventory was the lowest it’s been for 10 to 14 years, and for the last couple of months we’ve had huge traffic in our buildings.”
Deciding Whether to Bid
Given the intensification of demand, it can be difficult for buyers to assess whether a home is priced correctly and if it’s worthwhile to put in a bid.
“More than ever it’s important to work with a broker who’s going to put together all the data,” Mr. Halpern said. “With bidding wars, I always show clients data and tell them what I think is a fair price for the home. I let them know if we’re about to cross that line of what I think is too high for the property.”
In some cases, he added, buyers will decide to go ahead with bidding anyway, because they’ve become attached to the home and don’t expect to find a similar property on the market any time soon. Since inventory in many hot markets is low, this is a real possibility and should be part of buyers’ decision-making.
“It’s a balancing act, working with a buyer in a multi-bid situation,” Mr. Smith said. “It’s a question of how much do you want this home? Can you wait for another to come onto the market? Frankly, everyone is overpaying now, but it’s a personal decision.”
Looking at comps is an important part of calculating an offer, but they don’t tell the whole story, especially in light of how the market has fluctuated over the past year.
The pandemic has slowed many closings, which means when a buyer looks at comps, the prices they’re seeing may be out of date. In such a climate, it’s important to work with an experienced broker and settle on an offer amount you’re comfortable with and won’t go over, experts say.
“The comps lag because closings are taking longer and sold prices are from months ago,” Ms. Henshaw said. “And it’s easy to get carried away by the competition and feel like you need to have a house. Don’t overextend, be sensible and stick to your number. Five percent over ask is OK, but I’m seeing crazy numbers, like 20% over ask on a $900,000 home.”
In addition to comps, buyers can get a fuller picture of a home’s value by looking at its history, including renovations, and considering its neighborhood and surrounding properties.
“I’ve told buyers I’ll be aggressive and go 10% above ask, if we know that there are comparable homes that have traded near the one they want,” Ms. Leahy said. “In any market, a home will do as well as the comp homes nearby. But I’m not a fan of being in the most expensive home on the block.”
But it may be worthwhile to bid above asking price if you plan to keep the home for many years, as the odds are good that its value will appreciate over a long period of time.
“Prices are always increasing,” Mr. Grosskopf said. “If it’s something you like in your price range, you should immediately act on it, because based on the last 20 years, eventually the property is going to be worth more.”
How Buyers Can Stay Competitive
There are ways to stand out from the competition beyond bidding higher than other would-be buyers, brokers say. Flexibility and preparedness go a long way toward making offers stand out.
“It’s not just about the purchase price, it’s about everything around it. A strong candidate makes a clean offer with as little contingencies as possible,” Mr. Halpern said. “And the sooner you can close, the better.”
For buyers who are financing, it’s important to be preapproved and have other documentation organized so that they can put in offers as soon as they see a home they like.
It’s becoming more common for buyers in particularly competitive areas to waive contingencies, but they should exercise caution in doing so.
“I don’t recommend waiving contingencies unless you have a ton of cash,” Ms. Henshaw said. “Putting down as much cash as you can, and having a flexible close date, are all attractive things to the seller.”
Above all, she advised, try to keep a cool head and don’t get too caught up in the bidding frenzy.
“Everyone is trying to get a deal done and move on to better places for their situations, but there are ways to do it where it doesn’t have to be stressful,” Ms. Henshaw said. “Remember there are other things in life, and lots of expenses that go along with a house.”