A recent headline on the blog of the Redfin real estate firm warns of “early signs of a cooling off period.”
As if. Without any apparent irony, the recent experience of a Los Angeles real estate agent was presented as one data point in support of that "cooling off "headline. She is now encountering just eight to 15 other bidders when writing offers for buyer clients, compared with 30 to 40 competitors earlier in the year. So if you’re buying in L.A. your basic odds of emerging with the winning offer have improved from a dismal 3.3 percent to a whopping 12.5 percent. That likely doesn’t feel like much of a cooling off for L.A. house hunters.
With the inventory of homes on the market still sputtering near a 12-year low, the fact is anyone looking to buy right now should get ready to compete. That can mean opening your wallet even before you bid.
Because of intense buyer competition, agents in the most competitive markets now often recommend writing “clean” offers that don’t include a home inspection contingency. That doesn’t mean you shouldn’t give the house the once over. “I refuse to let clients buy without an inspection. You have to know what you’re buying,” says Washington D.C. area real estate agent Candy Miles-Crocker. “This is far too large an investment to just wing it.” (According to Redfin, 69 percent of D.C. offers written by its agents in April faced bidding competition.)
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The solution increasingly is for home buyers to pay for a home inspection prior to bidding. Essentially that means wannabe buyers are shelling out $350 to $500 entry fees just so they can waive the inspection contingency. Lose out on a few bids and you could easily spend $1,000 to $1,500 on home inspections before you land your home. Homes are cheaper. The home buying process, not so much.
The Redfin data run turned up some encouraging news for buyers. For all the noise about bidding wars, the average winning bid in the 21 metro markets Redfin tracks was just 1.2 percent higher than the seller’s asking price. In San Diego, where nearly 87 percent of offers faced competition the winning bid was 0.8 percent below the asking price. In Chicago, where half of the offers are multiple bids, the winning bid in April was 4.3 percent below the asking price.
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Even in the red-hot Boston market the winning bid was only 1.5 percent higher than the asking price, on average. In D.C. it was 0.3 percent over asking. San Francisco, the preferred home for many techsters sitting on boatloads of valuable stock options, was the outlier, with winning bids typically running about 8 percent higher than asking prices. Tech-land notwithstanding, buyers are -- so far -- doing a pretty impressive job of not letting the bidding frenzy affect their bidding sense. But how long can they resist?