The Inventory Inquiry is a week-long Inman series analyzing the ongoing housing shortage. We’re digging into the state of the construction industry, the listing void that startups are vying to fill and the own-to-rent boom causing inventory schisms nationwide, among other big issues. Check back for more on the inventory imbroglio, all week long.
For nearly two years now, Jennifer White has been working with a couple who sold their home in Ponta Vedra Beach, Florida, and moved into a rental while looking for a new home.
The couple has consistently made offers over the past two years, but despite being well qualified, they continue to be outbid. The intense competition has worn them down.
“They’re losing over and over again because now they’re like I don’t want to pay X price,” said White, an agent with RE/MAX Specialists Ponta Vedra. “And, well, guys it is never going to be X price again. We have to get over that hurdle.”
Meanwhile, the couples’ rent has increased to more than they were paying for their mortgage, and the unwelcome feeling of having missed the boat is settling in.
In markets across the nation, competition has hit a fever pitch, with more bidding wars recorded during January 2022 than any other month during the pandemic, according to the online brokerage Redfin.
With historically low inventory and skyrocketing prices, houses at all price points, from the sub $300,000 range to multi-million-dollar properties are drawing several offers, leaving buyers without the means to make cash offers in the lurch and exhausting their agents.
“You really feel bad for those buyers,” said White, who works as both a buyer and listing agent. “You see their names over and over again, you see them changing up their strategies, and in the end, it’s just not even working.”
With no end in sight to the current market conditions, agents told Inman about their strategies for avoiding bidding wars when possible, and what they think needs to happen for the conditions to change.
A way around the inevitable?
In some ultra-hot markets, like Florida, where White represented one house that garnered 27 offers, agents said there’s no real way to avoid ending up in a multiple-offer situation. There is simply too much competition.
In slightly less frenzied markets, agents say bidding wars are common — but savvy agents have ways of avoiding them.
For Douglas Elliman agent Jennifer Leahy, the most important method for closing without competition is knowing your market well enough to have a working relationship with the listing agent of the house your client is interested in. Human connection is your best friend, the Connecticut-based agent said.
“First and foremost know the inventory. If you don’t know the agent find someone in your office who knows the agent and establish a rapport with them agent-to-agent,” Leahy said. “Agents that don’t treat other agents well are very confusing to me because they are the most important people that we’ll work with for the rest of our lives.”
Tim O’Hare, a broker with Berkshire Hathaway HomeServices McLemore & Co. in Memphis, Tennessee, echoed this strategy.
“More than anything I think it’s having good relationships with all the agents,” he said. “If I can call and make that other agent feel like they’re the most important person in the world and this is going to be the easiest transaction they’ve ever done if they work with me, I do know that they’re going to present that in a different light. It definitely has helped win some deals.”
Buyers should attempt to set up communications with sellers early on, and it doesn’t hurt to be a little sappy.
“Pull on peoples’ heartstrings,” Leahy said. “I tell my clients to write a letter about the property and why you want to own it and how you’re going to be a good steward of it.”
Chicago RE/MAX agent Mike Opyd said he encourages his clients to be flexible. While houses in some neighborhoods in the windy city are all but guaranteed to attract multiple offers, there are still less-hot areas with less competition.
“I’m always suggesting ‘Hey, look at this area next to it,’” he said. “It’s up and coming, you live there for a little bit you’re going to get the returns on all the new development that’s going on that’s going to drive prices. It might not be exactly what you’re looking for, but it’s pretty damn close and you’re not going to overpay.”
In line with expectation adjustment, he also advises clients to look at things slightly below their price point that may not be as glamorous — and therefore less likely to draw attention.
“Naturally buyers are going to be attracted to the sexy stuff right away,” he said. “Anything you see that looks great, you know is where all the eyes are going to be at. So the strategy I’ve been telling people is to have a conversation with your clients to say ‘Why don’t you drop it down in price point, and look at the stuff that’s not brand new, modern, and sexy? What about the stuff that was maybe remodeled in the early 2000s where you get the brown cabinets, the granite countertops … stuff that’s not quite up to date right now but doesn’t need a gut rehab.’”
Though reducing their buyers’ price point might not be the first thing most agents think of, finding a house with less competition will make it more likely they finalize a deal in the long run, Opyd said.
“Dropping down is not what most agents want to hear because, obviously, it’s a reduction in pay,” he said. “But I look at it as I’d much rather get paid than not get paid.”
With Redfin data showing buyers who waive financing contingencies and conduct pre-inspections to have 31 and 25 percent better chances, respectively, of coming out on top in a multiple-offer situation, agents confirmed the strategy can be effective, but cautioned against going so far as to waive an inspection.
“I want people to do inspections,” Leahy said. “Houses are quirky.”
Is there a path forward?
Experts recently polled by Zillow were torn between 2023, 2024 and 2025 as the year inventory levels may return to their pre-pandemic numbers
But one factor that will remain once inventory levels return to normal is property investors, who are buying nearly one in seven homes in America’s biggest metropolitan areas.
O’Hare sees the unsettled state of the bonds market as a factor driving more and more investors into the homebuying market for the return on investment it promises.
“We have a lot of hedge funds coming in because of the bond market and the way it is,” O’Hare said. “You got a hedge fund that’s looking at less than 2 percent in the bonds than they’re normally used to and they’re like ‘Wait a second I’ll just go over and do real estate, and I’ll pay a ton of money to get a house and get a small return on investment and it’ll still be better than the bonds are.’”
O’Hare hopes for the eventual stabilization of the bonds market and further increases in interest rates to lessen the investor frenzy in markets like Memphis.
“Interest rates and investments in those bonds, I think, really need to get better to decrease some of the big money investors and level out the playing field to where you still have the mom and pops who can invest, but those are mom and pops who live locally and care about the community,” he said.
“When we can normalize that again I think your first-time homebuyers and owner-occupants are going to have a better chance,” he added.
But the best balm for bidding wars is more inventory, which O’Hare hopes can be achieved eventually through reductions in local regulations.
“It really all goes back to inventory,” he said. “Twenty to 25 percent of the cost of building a new home goes towards government regulation. If we can reduce some of those — there is land there.”