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Bidding Wars Are Back in Some Markets


In another sign of a housing-market recovery, bidding wars are back.

Not everywhere. But in some upper-middle-class suburbs around San Francisco and New York, and other areas where prices have hit bottom, first-time buyers eager to take advantage of relatively low prices and low mortgage rates are actually driving up prices, says Tara-Nicholle Nelson, an analyst at Trulia.com. Buyers are competing at the low end of the market, too, for homes under $200,000 and foreclosures, as buyers with smaller budgets take a stab at ownership.


But experts say bidding wars play on buyers’ worst fears. When an offer is rejected, it fosters a sense of urgency, so they’ll place more aggressive offers on the next homes they bid on, says Ms. Nelson. In the worst-case scenario, buyer psychology could boost home prices beyond what they’re really worth.

That’s the kind of whirlwind that led to the last bubble, “with the potential for financial disaster for buyers who overspend,” says Jack McCabe, an independent housing analyst.

To avoid a bidding war, here are three things a buyer can do:

Research a neighborhood’s inventory. In a real buyer’s market, houses sit on the market for more than six months before selling. To find out how long is typical in a given neighborhood, compare the number of active listings to those under contract — if there’s a glut of houses on the market, there will be far more of the former than the latter.

Watch the jobs numbers. Areas with strong employment numbers are more likely to see bidding wars, because that’s where more people have the credentials — a down payment, work documentation — to buy a home, says John Mulville, a vice president at Real Estate Economics, which tracks real-estate data.

Don’t go to war over a foreclosure. Bank-owned foreclosures sell for about 36% less than regular listings, according to RealtyTrac, and they account for about 16% of all sales.

But buyers often lose track of their goal with a foreclosure — to buy a home at a big discount — when competing offers kick in, says Mynor Herrera, a Weichert Realtor who specializes in Washington, D.C., and Montgomery County, Md. In general, buying a foreclosed property at 30% above the asking price wipes out any savings from a foreclosure.

—AnnaMaria Andriotis

  1. December 20, 2010 at 7:44 AM

    Since the start of the year a frustrated Cam Warnock has bid on three Toronto homes each time losing the property to other buyers in multiple-offer competitions. Listing properties below the market value has become a common practice in the Toronto area over the past five years creating a bidding-war mentality for buyers.

  2. December 25, 2010 at 10:58 PM

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    Thank you

  3. December 26, 2010 at 9:01 AM

    I usually get bored easily and close the tab but i think that your blog can be an exception. Grats !

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