Beware the Bidding War Bonanza
It's hardly a secret that we are currently in a seller's market, and anyone who has tried to buy or sell a home in the past six months only knows one thing for sure: expect a bidding war.
What's with all the frenzy?
Covid's impact on the real estate market deserves its own write-up (coming soon), but one short term impact is low supply coupled with high-demand. Buyers are on the prowl, and sellers are now catching on that if you are planning to sell any time in the next few years, now is the time. Why? Because now more than ever, buyers are leaning into the value of a yard you can enjoy, interior space you can use, and a home you can love for a long time. So, they are offering the highest prices in decades, waiving standard contingencies like appraisal and inspection, and providing extra perks like use-and-occupancy agreements allowing the seller to stay in the home after closing (quick note that this trend is mostly specific to single-family homes).
"Best and Final"
From the seller's perspective, a bidding war is the strongest negotiation position posisble. Instead of negotiating terms with one buyer, you can sit back and watch the buyers bid against each other to present one "Best and Final" offer for your consideration. But when that is the situation with every sale, the entire game changes.
Buyer exhaustion is real. The emotional crush of losing a home you love in a bidding war is discouraging and wears you down, especially when it happens over and over again. At some point, buyers will throw their hands up with fatigue and frustration, and in this market, a whole new set of fresh buyers will jump in to take their place.
In this environment, buyer commitment is an intangible but important thing to consider when deciding to move forward an offer. Will this end up being a case of "buyer's remorse" that will end up cancelling? Is this buyer making offers on other homes at the same time? Are they going to use the inspection contingency to recoup the price they paid above asking? Do they have a sale contingency, but don't want to include it because it would weaken their offer?
These are almost impossible questions to answer, but frustrated buyers are learning that doing everything right does not always translate into an accepted offer, and for many of them, time is running out. So remember: be diligent and look at all the terms of each contract when reviewing several offers, because the highest offer is not always the "best" offer.
Bidding wars are emotionally exhausting for all involved, but they are here to stay until inventory has a chance to catch up to demand. Until then, proper expectations must be set for buyers and sellers deciding to jump into the fray. Resilience (buyers) and diligence (sellers) will be the keys to success in today's market.