You’ve been scouring real estate websites for months, touring homes as if it’s your part-time job. Then, you see it: a modest but charming house that’s tantalizingly within your price range given its size and location. You allow yourself a brief shriek of excitement before seeing that dreaded bit of listing lingo: “No showings until open house. All offers due Monday at 5 p.m.”
Uh-oh, you think, as you realize what’s going on. This is going to be a circus.
If you’ve been shopping for a home in Boston or its suburbs in the past few years, you probably know how this story ends: cars lining the block and a hundred people at the open house. A dozen offers rushed to the listing agent, many of them above asking price or in cash. And an emotionally taxing, white-knuckle bidding war.
When your reasonable offer is rejected, it’s enough to make you cry — and you’re not alone. More than two-thirds of Boston-area homes sold through the real estate brokerage Redfin in the second quarter of this year received multiple offers, leaving behind a trail of disheartened buyers.
“It’s really almost a national phenomenon,” Lawrence Yun, chief economist at the National Association of Realtors, said of the Boston-area market. Steady job growth and low mortgage rates continue to drive demand, Yun said, but there’s not enough people selling homes — or building them — to keep up. “The supply, that’s where the bottleneck is,” Yun said. “Everyone’s fighting for the existing inventory.”
In Greater Boston — where available inventory is so scant that in June about half of new listings flew off the market in two weeks or less, according to Redfin — many sellers feel comfortable pricing their home below market value in an attempt to create a feeding frenzy among desperate buyers. Other times, it’s not even intentional: A fixer-upper in the right location can create its own commotion, warts and all.
Such was the case with a multifamily in Medford that realtor Judy Alexander showed last spring. It received 43 offers during its open-house weekend, and, to her astonishment, 10 of them were at least $100,000 over the asking price. “And there were some serious physical flaws to the house — roof, eaves, rot, and so forth,” said Alexander, from The Higgins Group in Lexington. The winning bid was $150,000 above the list price and had no contingencies, meaning the buyer couldn’t back out if a home inspection turned up trouble or if his financing fell through.
While that’s an extreme example, it wasn’t an uncommon one this season. “Almost every transaction I’ve been involved with this year has been a multiple-offer situation,” Alexander said. “Not forty-three offers, but enough to make it nail-biting.”
The market leaves many first-time home buyers feeling frustrated and helpless. Anna Button Biller and her husband, Mike Biller, rode this emotional roller coaster in the spring. After losing out on a home in Hopkinton — despite offering $15,000 over the asking price — they made a bid on another property in Framingham. Seeing that the sellers also had young children, Button Biller composed a letter to accompany the offer. “I really threw my heart and soul into the letter, but we didn’t get it,” she said. (The sellers chose a bid with a larger down payment.) “That was pretty painful.”
The Billers expanded their search to Milford, where they found a large home that met nearly all their wants. Other buyers felt the same way, however. “They weren’t doing any showings until the open house, and that was a . . . zoo,” Button Biller said. They offered $20,000 above the asking price of $350,000, but finished second among nine offers. “I cried at that one,” she said.
And yet the drama wasn’t over. Later, their agent texted to say the sale had fallen through. After coming to grips with the loss, they now had a second chance, if they wanted it. “We asked ourselves, Do we really love the house, or do we just want to win?” Button Biller said. They wanted the house. They closed in May.
The Billers were smart to do that gut check. Buying a home is an emotionally fraught experience even without the stress of a bidding war, because it’s so different from other investments, said Michael J. Seiler, a professor of real estate and finance at the College of William and Mary. “A home is not only an investment, but also a place where you’ll live, raise and educate your children, build memories, and make friends,” Seiler said. That leaves us more prone to making psychological mistakes, he said, and multiple-offer scenarios can worsen the problem. Studies have shown that simply bidding on an item creates a sense of ownership and that we’ll go to unreasonable lengths to “keep” an item we don’t even own yet.
“You can’t get too attached,” Button Biller said, “because the reality is you’re probably not going to get it on the first try.”
Craig Fletcher and his wife, Laurie, who had been renting in Somerville, had a similar experience. After losing out on a house in Lynn that went for $27,000 over the asking price, they fell in love with a condo in a Salem Victorian and lost that one, too, when the winning buyer paid cash and waived all contingencies. “You’re not supposed to get emotionally involved, but we did. We saw ourselves moving in there,” Fletcher recalled. “That was really disappointing. It took us a couple of weeks to recover.”
Like the Billers, the Fletchers found luck on the third-and-a-half try. They saw another condo they liked in Salem, but it went under agreement before they could even get in an offer. “Three weeks later it was back on the market, and we jumped on it immediately,” offering more than the asking price, Fletcher said. They closed earlier this month.
Because offers sometimes fall through, it pays to stay in contact with your agent and be ready to move quickly. “You can’t be out in the Berkshires where the cell coverage is lousy,” Alexander said. It’s also imperative to have your paperwork in order: Have a current letter of preapproval from your lender so buyers know you’re serious. And if a bidding war looks likely — you’ll know by the low list price, limited showings, and offer deadline — make your very best offer first. There’s no guarantee you’ll have a chance to up the ante.
One way some buyers spruce up their offers is to waive common escape clauses, such as mortgage or home-inspection contingencies — which can be risky. “We don’t recommend anyone waive contingencies unless they have enough money to pay for whatever comes up,” said Jorge Colón, program manager at Homebuying Mentors, a program of the nonprofit Allston Brighton Community Development Corporation.
“I think you have to be a real cowboy to do that,” Alexander said of waiving the inspection clause. “But on the other hand, if you want to be in the running, homeowners usually don’t want to accept an offer with an inspection contingency if there are multiple offers involved.”
A way to drop that contingency without losing sleep, Alexander said, is to arrange an inspection (with the seller’s approval) between the open house and when the offers are due. You’ll have to pay the inspector even if you don’t make an offer, but you’ll know what you’re getting into.
Waiving the inspection contingency on a condo is usually less risky than on a single-family, Redfin agent James Gulden said, “because there’s much less individual exposure as far as maintenance costs.” Generally, each owner is responsible only for a portion of any major repairs. Plus, Gulden added, reviewing the condo documents can be even more illuminating than an inspection.
While this all sounds daunting, there may be relief in sight for buyers. The Massachusetts Association of Realtors predicts that a cool-down could be in the cards by winter, and some economists agree. “The good news is that the Boston housing heat wave is likely to break in the near future,” said Nela Richardson, chief economist at Redfin. “Boston has two markets: one that kicks off in the spring and then another in the fall that begins after Labor Day.” Buyers who wait out the summer drought will be rewarded by a pickup in new listings this fall, she said.
Until then, some sellers will probably continue to underprice their homes for as long as the risky strategy pays off. “Sellers should be sure there’s a large pool of buyers in the market for their home, or underpricing can easily backfire,” Seilers said. For now, it appears to be working to many sellers’ advantage.
“I guess the one person who really does come out ahead in all this is the seller,” Alexander said. “But at some point . . . that seller, if they stay in this area, will be a buyer.