BLOG VIEW: Bidding wars on homes for sale are heating up in certain parts of the country. Homes are selling especially quickly in the San Francisco Bay area, as well as in Southern California, Seattle and Salt Lake City, reports Trulia.
Our firm is also seeing homes in the New York City area sell rapidly, with bidding wars sometimes pushing the selling price above the asking price.
That can present an issue for all involved in the transaction when appraisals don't come in at the full contract price, something that's happening more and more in this market. That's because appraisers have to work with available comparable sales. There are at least a couple of weeks after a closing before a sale gets recorded. In a hot market, a Realtor may have five bids above the asking price, but there aren't yet the comparable sales recorded to support those prices.
Loan officers and Realtors should advise home sellers to price realistically. They should also make sure home buyers realize that a house might not appraise at the selling price – particularly in a bidding war situation when the final selling price is well above the original asking price and may not reflect the true market value. In some cases, that could cause the deal to fall apart. Home buyers should understand that they may need to come up with additional cash for a larger down payment or they may not be able to complete the purchase.
Lenders must bear in mind that when a home seller has multiple bids – perhaps at the same price or close to the same price – he will look at a number of things when deciding who will ultimately buy his home. For example, an all-cash buyer would be more appealing than one with a minimal down payment. One of the things sellers and their real estate agents will take into consideration is the buyer's lender. Real estate agents are more likely to recommend the buyer pre-approved by a lender with a good reputation who is accessible to answer questions and is known for a reasonable turnaround time, as opposed to a lender with a reputation for not being accessible or being slow to close loans.Â
So, are bidding wars back?
Housing inventory remains tight in many areas of the country. To find out how long homes are staying on the market, Trulia calculated the share of homes for sale on its website over a two-month period, from Feb. 5 to April 5. As would be expected, faster-moving markets had a lower percentage of homes still on the market after two months, while slower-moving markets had a higher percentage.
California led the list of fast-moving housing markets, with eight of the 10 fastest-moving housing markets in the Golden State, according to Trulia's report. Homes are selling much more quickly than in the Northeast, South and Midwest. San Francisco was the fastest-moving market, with fewer than 30% of homes for sale in the three San Francisco Bay Area metros remaining on the market after two months. That compares to about 70% of homes in Long Island and Albany, N.Y., still on the market after two months. In addition, the only metros outside California that made the 10 fastest-moving list were Seattle and Salt Lake City, Trulia notes.
Yet, there are certainly indications that the Boston metro area is heating up. A recent Boston Globe article reported on bidding wars in the city with some real estate agents employing a tactic in communities with hot markets where they list properties for less than they expect to get in order to trigger even more interest. In many cases, the tactic is working with frenzied bidding on homes and condos. In February, there were 14,068 single-family houses for sale and 3,780 condos statewide, according to the Massachusetts Association of Realtors. Those numbers are lower than any going back to 2004, when the group began compiling figures this way.
By comparison, the all-time highs came in 2006 – when there were 38,617 single-family homes for sale in September and when there were 18,908 condos for sale in June.
New York City is also heating up with prices increasing rapidly in certain neighborhoods and bidding wars breaking out. Anecdotally, we've seen some markets go up by 50% in the last year. Manhattan is a hot market, as are some neighborhoods in Brooklyn, including Bushwick, Bedford Stuyvesant and Business Park.
Ultimately, we believe the recovering real estate market is positive for the industry and the economy. We are committed to helping lenders and appraisers both, as it's in everyone's best interest for these deals to close.
Sam Heskel is president of Nadlan Valuations, a national AMC geared for small to midsize banks and credit unions.
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