My Real Estate Blog

Real estate sales are booming in the Metro DC area as buyers get into the market before mortgage interest rates go up and the tax credits expire. With rates still hovering at near historic lows, it's a great time to buy. However, it is also creating bidding wars driving prices up and leaving would-be buyers angry and frustrated after they are unable to get the home they want.

Some bidding wars happen because a particular house strikes the fancy of a number of buyers who love a specific neighborhood or feature of the home. But encouraging multiple offers on a home is also a marketing tactic used by some real estate agents, who under-price the home and state they will not accept any offers until a specified time. The goal is to get a number of offers simultaneously and take the best one.

In many cases, unsuspecting buyers get excited about buying a home that seems to be in their price range, when it's likely to sell for much more than they can afford. Once buyers discover they have competition for the house, they may already have an emotional investment and it prompts them to push up their bids.

Some agents say that multiple offers don't necessarily net a higher price than if the home had been put on the market at its fair market value in the first place. Often many of the bidders can't afford the home and are only involved because the house was priced so low in the first place.

Others argue that the under-pricing strategy is sleazy and unethical, because the seller has no intention of accepting an offer at the listed price. But real estate agents defend the practice as a way to get the best price for their client, which is their contracted duty. Sellers have the right to list their property for whatever price they wish.

So if you're shopping for a home and have fallen in love with that impossibly cheap home in a great neighborhood, how do you know if you should place an offer?

First of all, remember the old adage that if it sounds too good to be true, it probably is. Educate yourself about value of homes in the community by looking at the sale price of comparable homes or finding out from your real estate agent what other homes sold for recently. If it's clear that the house is being under priced to create multiple offers, you have a choice to make. You can play the game or walk away.

There's a lot to be said for refusing to participate in bidding wars. Normally when you are thinking about buying a home, there's time to look at the place carefully, come back a few times to make sure it's what you're after, compare it to other homes that are on the market, and have a home inspection done on the property. In a bidding war, you may not have time to do any of this. If you are bidding against others, you likely will have to come in with a "clean" offer – meaning no contingencies.

It's also good to remember that bidding wars are not happening everywhere. They are generally confined to the most popular neighborhoods or condo buildings. There are lots of other great properties available for sale, and although listings were in short supply early in 2010, they are now increasing every month. Look around and you might find something you like even better than this one. 

Remember, everything happens for a reason.  If you get outbid on a house or houses, it just means there's a better one out there!