Bidding Wars

The U.S. housing market isn’t roaring back into action yet, but healthy rebounds in some regions have elicited bidding wars and evoked memories of the glory days of 2007.

“Some of the bidding wars are on ‘move-in ready’ homes on the market,” says Kathy Conley, a housing specialist with GreenPath Debt Solutions, nonprofit debt counseling company. “Most consumers want a ready-to-move-in home or at least one that only needs cosmetic changes.”

The phenomenon has touched both coasts and some markets in between. “Bidding wars break out because there simply aren’t enough homes for sale,” says Rachel Musiker, spokeswoman for Redfin, online real estate brokerage. These hot zones include parts of California; Seattle; Washington, D.C.; Denver; Phoenix; and Austin, Texas, Musiker says.

According to Redfin data, more than one in four homes that were listed during the first 3.5 weeks in June 2012 sold within 14 days of their debut.

“In areas where supply is low, like south California, the Bay Area, Seattle and [Washington] D.C., homes that are priced well and in good condition are going under contract within a few days, often having received several offers,” Musiker says.

Most sellers in these areas prefer cash buyers, because they fear appraisals coming in low and want to avoid any stress with the lender, she says.

With rents skyrocketing and mortgage rates hitting record lows, buyers are once again lining up to make that purchase of a lifetime.

In the week ending July 13, 30-year fixed mortgage rates plummeted to a record low of 3.39 percent. That’s the lowest since real estate listing website Zillow began tracking the data in 2008. And the rates aren’t expected to climb any time soon, experts say.

The low rates are enticing buyers who realize that their monthly mortgage payments could be more affordable than rent, Musiker says. According to a May 2012 Redfin survey, 63 percent of homebuyers said that low interest rates were a reason they wanted to buy.

But, while rates are enticing, prices in these hot markets are rising.

For instance, in April, home prices climbed in nearly all major cities, according to the Standard & Poor’s Case-Shiller Home Price Index. The biggest increases were in San Francisco, Phoenix and Washington, D.C. Prices in the San Francisco metro area, which includes the San Francisco, San Mateo, Alameda, Contra Costa and Marin counties, were up 3.4 percent.

In a tight market where bidding is again becoming the name of the game, here’s what buyers should do for an edge over competitors.

• Hire an expert: “Working with a seasoned Realtor who can provide the consumer with comparables in the area can help. [They know] the activity on the home, such as viewings and possible feedback from those viewings,” Conley of GreenPath Debt Solutions says. Make sure your agent is tech savvy. You should get to know of new listings and price reductions through electronic alerts that can be set up on cell phones and computers.

• Prepare a budget: As a buyer, you should always know what you can afford. Work up a budget and look up financing options. Know market value and average sales-to-list-price ratios for the neighborhood, Musiker says. This protects from over-paying in a competitive situation and will let the buyer know when it is OK to offer above the list price.

• Strike up a rapport with the seller: If you meet the owners of your future home, try getting to know them. Most homeowners have personal memories attached to their homes. Sometimes assuring them that you would retain some of original fixtures or style could clinch the deal for you. “Work with the seller,” Musiker says. Letting the seller retain possession for two days after closing could make the difference on whether you win the contract or not.

• Make a no-condition offer: Nobody likes to spend money. This would definitely put you ahead of the pack. Sellers like it if they don’t have to incur repair costs prior to handing over the house.

• Get pre-qualified: You will be a strong contender if you can show you have the money. Conley says to approach the seller after you have talked with a mortgage lender, authorized credit report checks and you have been tentatively approved for a mortgage amount. Having a 20 percent or higher down payment is a bonus.

• Last but most important, walk away if the bidding war blows your budget: Before even looking for a home to purchase, consumers should know their limits, Conley says. If you can, complete a free pre-purchase counseling with a HUD-approved housing counseling agency. Always stick to your budget.