Multiple bids have taken over as the top challenge buyers face in the increasingly competitive housing market, according to a new study by Redfin.
Steady home price appreciation has made for a more competitive market heading into summer. Earlier this week, CoreLogic reported an increase of nearly 6 percent year-over-year in May for the median home price.
CoreLogic chief economist Frank Nothaft said of the recent home price appreciation, which is expected to continue into next spring, “The consistently solid growth in home prices has been driven by the highest resale activity in nine years and a still-tight housing inventory.”
Increased competition in the housing market has frustrated some buyers, some of whom, according to the Redfin study, are increasingly placing multiple bids to up odds of winning a bidding war and increase the probability of getting an offer accepted. Half the agents polled (about 400) said that multiple offers were the greatest challenge buyers faced in the second quarter, whereas in the previous two quarters, low inventory was buyers' primary challenge.
The trouble is, according to Redfin, the multiple-bid strategy, born of buyer frustration, is not a sound one.
"I recommend that [homebuyers] in this situation take a step back and consider what's most important to them in their next home and how far they're willing to go to get it," said James Gulden, a Redfin agent based in Boston. "That way, they can be in the right mindset to make an offer they feel good about on a home they truly love when it hits the market."
Likewise, home sellers need to beware that the highest offer is not necessarily the best offer. Their agent should help them vet the offer closely and consider many factors other than price, including how committed the buyer is to this particular home and how willing and able they are to close.
According to the study, 39 percent of agents said negative or surprising inspection results were the main reason purchase contracts fell through this spring, while 25 percent said the buyers simply changed their mind about purchasing the home.
"It's not necessarily true that the inspection reveals major issues or that the buyers just got cold feet," said San Diego-based agent Jeremy Paul. "It's more that the buyers who are making multiple offers at prices they may not be able to afford just to get an offer accepted often use the inspection as a chance to negotiate significant credits in order to reduce costs. When the seller won't budge, the buyers move on."
Redfin’s study, perhaps surprisingly, embraces the notion of buyers bidding on fixer-uppers because they are less in demand and less money.
"I've been advising a lot of my buyers to consider homes that may need a little TLC in desirable neighborhoods within the inner core of the city," said Austin-based agent Andrew Vallejo. "Competition is high in the hot neighborhoods, but if buyers are willing to reconsider their priorities it's possible to find a great home without the worry of a bidding war and without breaking the bank."