It’s a great time to sell a house but a really frustrating time to buy.
In hot neighborhoods around Philadelphia and nationally, single-family houses are selling quickly — often with multiple bids driving up the price. In an extreme case, a four-bedroom house in a Washington, D.C., suburb received 129 offers and sold for nearly double its $275,000 list price, Redfin reported. A four-bedroom rancher in Boston recently drew 71 offers.
“If the house is even relatively decent, it’ll sell in two days,” said Andrew Black, a Redfin agent in Philadelphia.
Nationally in March, 59% of homes that went under contract had accepted an offer within the first two weeks on the market, according to an analysis of Redfin sales in more than 400 metro areas, including Philadelphia.
“It’s definitely a seller’s market,” said Holly Garber, a BHHS Fox & Roach agent in South Jersey. “If you’ve got the space, if it’s the neighborhood people want, you’re going to have bidding wars, multiple offers. … It’s definitely a crazy time.”
Garber, who focuses on Cherry Hill, Haddonfield, Moorestown and the Jersey Shore, has been working with about 10 eager buyers who are struggling to find a home.
A “seller’s market” means that demand is exceeding supply. The region’s housing inventory was low even before the pandemic, so COVID-induced reluctance to sell, combined with a slowdown in new construction since the Great Recession, has left lots of interested buyers competing for very few houses.
Philadelphia has roughly three times the number of buyers for each home than in a balanced market, said Bill Lublin, CEO of Century 21 Advantage Gold in Philadelphia. The Pennsylvania and South Jersey suburbs have about six times the buyers for each home.
“When supply is low and listed homes are going under contract quickly, this incentivizes would-be buyers to not only bid quickly, but also to bid higher than what they would otherwise before another buyer beats them to it,” Drexel University economist Kevin Gillen wrote in 2020 Q4 market report released in February.
Cramped in tight quarters this last year, many buyers are looking for more and different space, including back yards, pools, offices, gyms, and in-law suites. And “people who were satisfied with rentals are no longer,” Black said.
For buyers, “mentally, it’s a roller coaster,” he said. They can’t just like a house; they have to be willing to fight for it.
“You can make an incredible offer and lose,” Black said. “And then you have to do it all over again the next weekend. It can get very dejecting.”
Buyers who can make a cash offer have a distinct advantage in this market, but most people need the proceeds from one house to buy another. Agents are helping buyers craft flexible offers to maximize their chances of winning a bidding war. Here are strategies recommended by agents in the region.
What buyers can do
Get preapproved for your mortgage. “We actually don’t show properties now until people have applied and been approved,” Lublin said. You can’t make an offer until you’re preapproved, Garber said.
Work with a professional. Realtors have access to deeper data than buyers can find on the internet regarding recent and comparable sales, houses coming on the market, outcomes of recent bidding wars, and more, said Lublin, who is also a board member for Bright MLS, which has 95,000 subscribers. In today’s market, buyers need to know sales prices from six days ago, not six months or a year ago.
“Consumers are better served by picking somebody they’re really comfortable with who’s knowledgeable, who will work for them,” he said.
Adjust your budget. If homes are selling 2% or 3% over the asking price in a neighborhood you like, consider shopping for a house slightly below your maximum price, so you can compete in a bidding war.
See the house in person ASAP. “You need to get in to see the property as soon as possible,” Black said. “You only have a couple of days.” Monitor “coming soon” listings and be ready to jump.
While virtual tours substituted for a visit during the pandemic, agents now agree that buyers should tour in person. Sellers would be less likely to choose a bidder who had viewed the house only online, Black said, fearing the buyer might back out later.
Consider an escalation clause. For competitive situations, agents can structure an “escalation bid” that automatically increases a buyer’s offer in set increments over the highest offer — by $5,000, for instance — to a maximum price. That keeps a buyer in the game while minimizing exposure, Black said.
Modify the home inspection. The agents interviewed said they would never recommend waiving a home inspection. It’s too risky, they said. Buyers could, however, say that they won’t ask for repairs below a certain cost, say $20,000, or they could limit the inspection to structural issues such as the foundation or roof. Some buyers agree to accept the house as is or walk away if the inspection reveals anything major.
“We do tell our buyers not to be so nitpicky these days,” Garber said.
Waive the appraisal contingency. Buyers financing their purchase must have an appraisal before closing on the sale. If the offer is above the listing price and the appraisal comes at the listing price or lower, the buyer can agree to make up some or all of the difference in cash at settlement.
“If you’re planning to live in the house for 20 years and you love this house, then it really doesn’t matter” if you pay a little more, said Maria Quattrone, CEO of Maria Quattrone & Associates at RE/MAX in Philadelphia. Especially with mortgage interest rates so low, you will recover your investment over time.
Increase your deposit. Earnest money is a deposit that buyers put down to demonstrate that they are serious about a house. Generally, it’s put in an escrow account and applied to the purchase price at closing. Some buyers are releasing these funds early as a nonrefundable deposit within days of going under contract. Others are increasing the amount. The risk for buyers is that if their financing falls through, they’ll lose the money.
Be flexible with closing. Agree to a settlement date convenient to the seller, agents advise. Offer extensions or a rent-back option, if the seller needs time to find housing.
Time to walk away?
Buyers often become more flexible after going through a bidding war or two, Garber said.
“Once they’ve lost a few homes, they’d be more willing to say, ‘You know what? We’re going to go above asking price’ or ‘I’m going to put more down,’” she said.
But Garber said she also tells clients when she thinks the price has gone too high. “If you need to sell it in five years,” she said, “you may be in a totally different position where you’re not going to get this money out.”
Some buyers will stop looking, at least for now.
“The typical family that is still searching for an affordable house may have missed the boat,” Redfin chief economist Daryl Fairweather said. “First-time homebuyers who were already stretching their budgets will have to make bigger compromises on size and location or resign to renting for another year.”
If you’re buying right now, Lublin said, “don’t take risks that you can’t absorb. Just make the best offer you can make.”
“There will always be another house, you know?”