Are Buyers Going Too Far to Win Bidding Wars? In today’s market, especially in recent months, buyers and sellers are constantly running into huge amounts of competition. This is resulting in homes selling for prices well over their initial asking price. Even homes that have been on the market for 30+ days run the chance of encountering a multiple bid situation causing the home to enter a bidding war.  While some are within reason and fairly appraise, there have been some extreme situations that leave buyers and their agents  scratching their heads saying, “That home sold for how much?!”

If you’re a buyer in our current market, you may be wondering how to navigate a bidding war situation and how to tell if you’re going too far, exceeding the home’s actual value. If so, you’ve come to the right place. Read more below to find out from a real estate agent the best ways to deal with this situation and protect yourself when buying a home under competitive circumstances.   

What Is A Bidding War? 

The real estate market in the state of New Jersey has changed drastically in the last year (as I’m sure it has in many states across the nation). Currently, there are more buyers in the market than there are homes available. In the real estate industry, we call this Low Housing Inventory. With fewer properties for sale and more buyers looking to buy, there is more competition- supply vs demand. 

A bidding war is a circumstance that occurs when two or more buyers place offers on a property and compete by placing increasing bids on a home until the sellers agree on an offer. Seller’s agents will normally declare a “highest and best” situation to all prospective buyers. This means that all interested parties need to submit their highest offer by a specific date and time and the seller will make their decision based on the price and terms they receive. 

Pro-Tip: When putting in an offer on a property, sellers don’t ONLY look at the price you’re offering. They also look at the terms of your offer! 

What Causes A Bidding War? 

There are a number of things that can cause a bidding war on a property: 

• Low Inventory: 

Just like any product, Supply Vs. Demand plays a huge role in the real estate market. Low housing inventory means that buyers have fewer properties to choose from. 

• • How does this cause a bidding war?

Buyers are placed in a more competitive situation because there are fewer properties to choose from. More desirable properties are even more appealing.

• High Demand: 

When a property is in high demand, it doesn’t matter if there is low inventory. Some properties have characteristics that appeal to a large number of buyers making them in higher demand. Things like location, school systems, neighborhoods, updated kitchens & bathrooms, move-in ready, large room sizes, finished basements, etc… help homes appeal to more buyers.  [Check out this post “How to Make Buyers Fall In Love With Your Home” for simple tricks to make your home more appealing to buyers!] 

• • How does this cause a bidding war?

When a high demand home hits the market, buyers are naturally drawn to it. Why? Because the home is priced well, offers flexibility in terms of personal style, and checks off most (or in some cases all) of their major boxes. The more buyers are attracted to your home, the more competition and more offers you’ll receive. 

• Competitive Price Range: 

In New Jersey, the average home price is roughly $350,000. Depending on what area you’re looking in, the average home sale price can vary by a couple hundred thousand dollars. For example, I do a lot of business in Essex County where the most competitive price range is $450,000 to $550,000. Not only are the most sought after homes listed in that price range but most buyers looking to purchase in Essex County are looking in that range.

• • How does this cause a bidding war?

Simply put, it means there’s more competition among buyers. More competition means more offers which means a higher chance for a bidding war. 

• Priced for Bids: 

Some sellers purposefully list their home below market value to encourage multiple bids.

• • How does this cause a bidding war?

 When a home is listed below market value, it can make a home look more attractive to potential buyers, therefore, giving them a push to put in an offer. When multiple buyers see themselves getting a home for a “steal” it causes more to place offers and pushes the home above the original, below market value list price. 

As of today’s market, bidding wars are being caused by low inventory and an influx of buyers (coming from NYC wanting more space due to the Covid-19 pandemic AND being drawn out by record-low mortgage rates). The pros of this are that sellers are receiving record-breaking prices for their homes. The cons are that homes may have trouble appraising and buyers are facing more than their normal competition. 

Are Buyers Going Too Far to Win Bidding Wars? 

This is a tricky question and really depends on the particular situation. In the recent months, there have definitely been some situations where I feel as though buyers have gone too far- further than I, as a real estate professional, would recommend my clients go in order to purchase their home for fair market value. I never suggest that my clients waive the items that are in place to protect them and their purchase. For example- the buyers who completely waive their home inspection and/ or home appraisal are just being reckless. Those items are in place for a reason and it’s to protect your investment. I would never recommend a buyer do that but I have seen many buyers (none of my own) offer this and more when participating in a multiple bid situation. 

One thing I think is fair in a competitive bid situation is limiting your home inspection to the items that fall under these categories if they arise: 

• Structural: A big-ticket category that can impact your safety in the home.  
• Mechanical: Another big-ticket category that can impact your lifestyle in the home.
• Environmental: Things that can impact your health or the health of the environment. 

When you limit your inspection items, you are still getting a full inspection report on the home. You’re limiting the seller’s obligations to the three biggest categories. By doing this, a seller is more likely to look favorably on your offer because it means the price you’re offering for the home is more likely the price they’ll end up with after inspection issues are settled. 

 What Qualifies as “Too Far”? 

So, are buyers going too far to win bidding wars in our current real estate market? Here are some things that I believe are against a buyer’s best interest when bidding on a home.

• Waiving a tank sweep 
• Waiving an appraisal 
• Going well above market value on the sale price (a price the home will not see again in the future) 

A good agent will protect your investment throughout the entire process of purchasing a home. I have a very transparent relationship with almost all of my clients. They trust that I will look out for them and their purchase. (As a licensed real estate professional I feel as though this is my ethical responsibility.) My clients will often ask me what I think about a competitive situation. Upon doing my due diligence, I’ll let them know what would be the best option for them and what is the furthest point they should go in order to protect their investment. I would never recommend my clients pay a price for a home that they will never see again when they go to sell. 

However, it’s ultimately my client’s decision and there are some who will pay any price for a certain home even though I give them all of the information to support the home’s value. That’s okay too! 

How To Protect Yourself 

Buying a home is a serious financial obligation. Knowing how to protect yourself in a highly competitive market will ensure that you don’t make any impulsive decisions or decisions based on emotion or the pride of “winning” a bid against other buyers. 

Listen to Your Agent 

If you’re working with a good agent, you should trust that they will look out for you and your best financial interests. If you’re not sure what is a fair offer for a home, ask their opinion. Using their knowledge of the market, they’ll be able to inform you of a fair price for the home and what not to exceed in order to protect your investment. 

Do Your Own Research 

If you’re wondering about comparable properties, take a look at some homes that have sold in the area recently. By looking at the prices similar homes have sold for, you should be able to get an idea of what the home is worth.  

Sleep on It 

My clients know, this is my famous line. Buying a home is probably one of the largest purchases you will ever make. If you’re not sure or weighing your options, sleep on it. Take a night and think it over. Your agent shouldn’t pressure you to make an impulsive decision and as long as there’s no “highest and best” deadline to meet, I always recommend my clients give it some time to think about what they would like to offer. [Wondering if a home is right for you? Check out these “Top Questions to Ask When Buying A Home”!]

Take Emotion Out of the Equation

If you’ve found what you believe is your dream home, it can be tempting to want to do whatever it takes to get the home. While some buyers insist on pursuing their offer in this way, it’s not for everyone. In my experience, when buyers let emotions drive their offers, they tend to make more rash decisions that they sometimes regret in the form of “buyer’s remorse”. Having an emotional connection with a home is very important. It’s also important to not let emotion control your financial actions. 

Don’t Get Caught Up in the Competition 

When I think “are buyers going too far to win bidding wars?” one of the biggest things that sticks out to me is competition. Bidding wars get competitive. Trust me, I’ve seen my fair share of buyers who just “want to win” for the sake of winning. Try not to get swept up in the competition of a bidding war. Keep your bottom line in mind always and don’t make a decision that you will regret halfway through the contract or when you’re trying to sell your home in the future. 

The Dos & Don’ts of Bidding Wars 

Check out the Dos and Don’ts of Bidding Wars below to help you fairly and successfully navigate a bidding war situation! 

The Takeaway

In the end, make sure you don’t get caught up in the moment and stretch yourself too far.  Talk to your agent to determine what you feel comfortable with offering on the property. Set your limits before you put in your offer. That way, you know if it goes above your limit, it’s not a good fit. As I always say, there are plenty of houses out there. Sometimes you win and sometimes you lose. If you lose a bidding war, don’t get discouraged! It doesn’t mean it’s the end. After all, would you really want a home that you paid an unreasonable price for just to say you won? I want my clients to find the home of their dreams but not at the expense of making a good financial decision. You can have the best of both worlds. 

What are your thoughts? Are buyers going too far to win bidding wars? Got any tips of your own? Share them in the comments below! 

Want some expert advice on how to navigate this market as a buyer? Contact Me or reach out via Email!