High-season pressure hit homebuyers especially hard this spring, forcing them to make significant compromises in order to get under contract on the right home. According to our latest survey of nearly 800 Redfin agents last month, it remains a seller’s market to be sure. Eighty-eight percent of agents reported now is a good time to sell, down just one percentage point from the previous quarter.
More than half of agents who responded to last month’s survey said buyers’ biggest challenge this spring was competition from other bidders. That was an 11-point increase from three months ago and a 22-point increase over the last quarter of 2015. Low inventory, which agents cited as the top challenge three months ago, fell to a distant second place.
“The average sale-to-list price ratio hit a record high during the second quarter of 2016, indicating that buyers are as aggressive as we have ever seen when it comes to winning offers,” Redfin chief economist Nela Richardson said.
Indeed, this season’s competitive market dynamic has given rise to an increasing challenge for buyers and sellers alike—buyers strategically making offers on more than one house at a time to increase the probability of getting an offer accepted.
“Bidding wars have obviously increased because buyer demand remains high and inventory has yet to improve,” Redfin real estate agent Jeremy Paul said. “However, there is the added effect of buyers placing offers on more than one home at a time hoping that at least one will be accepted. We’ve seen this in previous years, but some buyers are becoming more impulsive as the market continues to tighten.”
In some cases, fair offers from committed buyers are being outbid by other buyers who end up backing out of the contract when their bid gets accepted on another home they like better.
While not putting all your eggs in one basket can be a viable strategy in other pursuits, this tactic ought to be avoided by homebuyers, our agents said. Often, when a buyer is considering this approach, it is an emotional response to having lost out on another home.
“I recommend that clients 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 Redfin real estate agent James Gulden 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 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.
When we asked agents why purchase contracts fall through, 64 percent cited negative inspection results or buyers having changed their minds. Both are linked to the phenomenon of frantic buyers feeling the pressure of high-season competition, especially in the fastest and most inventory-strapped markets.
“It’s not necessarily true that the inspection reveals major issues or that the buyers just got cold feet,” Paul said. “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 renegotiate the price. When the seller won’t budge, the buyers move on.”
Unfortunately for the seller in these situations, they’ve lost time and may have missed out on a serious offer from the right buyer for their home.
The lost art of compromise
Given this spring’s competitive market, buyers are being forced to make hard choices. Three out of four agents surveyed ranked outdated kitchens and bathrooms as the top deterrent for buyers. This indicates that many people are stretching their budgets to get the perfect home instead of settling for something smaller or in need of work.
“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,” Austin-based Redfin real estate agent Andrew Vallejo said. “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.”
About the Survey
Redfin’s survey was conducted between Jun. 16 and Jun. 19, and includes responses from 785 Redfin real estate agents in 38 states and Washington, D.C.