Why are there so many BIDDING WARS?

4.3 offers received by a home seller on average.

4.3 offers!!! That’s 4.3 offers submitted by 4.3 different families or persons on average for the entire country. That is absolutely staggering. We are seeing bidding wars across the board.

What is a bidding war exactly you might be wondering?

So it’s pretty simple. Let’s say you have a house to sell. Your house goes onto the market. Buyer one is interested, she and her family make an offer. Buyer B is also interested, he decides the home is perfect for himself and his future family. Then comes along buyer C. Buyer see is an investor and thinks this will make an excellent rental investment to add to her portfolio. They all send you offers. Once you let them know about each other, things really heat up. Buyer A ups the offer price, Buyer C ups her offer price, Buyer B decides to offer more deposit money and so on. Eventually you get to a pretty sweet offer from one of those buyers, most likely for a dollar amount more than you were asking… A lot more. One buyers wins the war, the other 2 buyers move on to the next bidding war. It’s brutal to be a buyer right now, excellent to be a seller.

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Why are homes getting so many offers?

Are there too many buyers? Two parts:

Low interest rates and not enough homes for sale.

Mortgage interest rates are insanely low. Like the lowest we have every seen. There has been a slight uptick in 2021 versus 2020 but just a small one. Buyers are taking advantage of these low rates because we may never see them this low again. At least in our lifetime.

There is a massive home shortage right now.

Several reasons for this: Not as many sellers are willing to put their house on market and have a bunch of buyers touring through during a world wide pandemic… Understandable.

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There is a major lack in new home construction. New home construction hit the skids during the great real estate crash of 2008. Builders are still playing catch up.

Home owners are worried about selling their home because once they sell they will become the buyer. Think lack of inventory and ferocious bidding wars to contend with.

Let’s check out the general make up of the buyers waging war with each other. Cash buyers (usually investors) make up about 22% of the current buyer pool. This is actually good. I can remember back a couple years ago when this figure was around 31% or so. It was even more brutal to be a buyer with financing… Like a normal buyer. Normal would be something near 10% but I’ll take 22% over 31% all day. When you are in a bidding war and a cash buyer shows up… It’s basically over in most cases.

Another aspect of the average buyer right now is living status. The overwhelming majority are renting and living with family. Over 56%. Not everyone but that’s mostly first time home buyers. First time home buyers are having probably the hardest time right now and are in the most competitive price points but do not get discouraged if this is you and you have lost a bidding war or two (or more). The stats don’t lie. First time home buyers are participating and winning bidding wars. You just need to expect this part of the process and persevere.

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Also, the vast majority of home buyers are putting down less than 20% cash. That’s a huge myth in real estate. Lots of the loans are 10%, 5%, or even 0%. By the way, these are not the shady loans from the early 2000’s. These buyers are usually rock solid, fully qualified, with low default risk. That’s another whole video I’m working on so be on the lookout for that.

What it all means

All in, if you are in the market to buy home do not be discouraged by bidding wars. It might take you a few shots but you will ultimately be successful if you keep at it. If you are thinking about hopping into the real estate market, don’t let the term bidding war scare you. They are pretty easy to navigate and win if you have the right real estate agent and want to win.