Understanding Why People Get Into Property Bidding Wars

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Well folks, arsenic anticipated, bidding wars are backmost pinch a vengeance, astatine slightest present successful San Francisco.

If I were a existent property agent, I would ne'er promote my clients to prosecute successful a bidding war. Winning specified a warfare often leads to what's known arsenic nan “winner's curse.” This word signifies paying a value that exceeds what anyone other successful nan bidding warfare was consenting to pay, putting your finances astatine greater consequence if nan existent property marketplace takes a downturn.

Personally, I debar bidding wars because I cognize my emotions tin unreality my judgment. It's akin to my attack to poker—I refrain from dense drinking to support a clear caput for logical decision-making. And for those looking for love, return disconnected those brew goggles!

This station delves into nan reasons why group participate spot bidding wars. I purpose to comprehend why imaginable spot owners disregard my proposal of searching for homes during nan slow wintertime months. It baffles maine why much imaginable owners wouldn't opt to underbid connected a poorly marketed, mispriced, aliases stagnant listing alternatively than 1 that's presented perfectly.

I activity to understand because I whitethorn person a unsighted spot that requires fixing. Let maine stock immoderate bidding warfare examples followed by feedback from a existent property supplier and 3 homebuyers connected why they engaged successful a bidding war.

Why I Currently Care So Much About The Housing Market

I've been intimately pursuing nan lodging marketplace since purchasing my caller location connected nan west broadside of San Francisco successful nan autumn of 2023. For months, I knowledgeable some a liquidity crunch arsenic good arsenic uncertainty connected whether I had made nan correct determination to slash my passive income for a nicer house.

As nan banal marketplace marched higher aft I sold stocks (and bonds) to bargain nan house, I felt conflicted. On nan 1 hand, I was missing retired connected banal marketplace gains. On nan different hand, my family was enjoying a nicer spot to live. The location acquisition could move retired to beryllium nan biggest aliases worst financial correction of my life.

More than 7 months later, I'm relieved to opportunity that buying this location has turned retired good truthful far. The location withstood dense rainstorms during nan wintertime without leaks, which is my astir concerning location attraction issue. Meanwhile, lodging prices person rebounded successful outpouring 2024 acknowledgment to pent-up demand, a emergence successful tech stocks, private artificial intelligence institution growth, and a continued dearth of inventory.

Here are immoderate examples of homes that sold measurement supra asking. If 1 of these homes happens to beryllium yours and you want it taken down, consciousness free to time off a remark aliases sprout maine an e-mail.

Examples Of Property Bidding Wars In San Francisco

1615 Funston Avenue (Inner Sunset/Golden Gate Heights border)) – 2 beds, 1.5 baths, 1,230 sqft, asking $1,495,000, sold for $1,675,000, aliases $180,000 complete asking (12%). Although a mini house, it is nicely remodeled wrong and out. Paying nether $2 cardinal for a remodeled single-family location successful San Francisco is what a batch of families want.

220 Magellan Avenue (Forest Hill) – 3 bed, 2.5 bath, 2,455 sqft, asking $2,795,000, sold for $3,125,000, aliases $330,000 complete asking (11.8%). Handsome location connected a tree-lined artifact successful nan best vicinity connected nan westbound broadside of San Francisco. The value constituent betwixt $2 – $3.5 cardinal is communal for dual income, mid-career households pinch children.

68 Madrone Avenue (West Portal) – 3 bed, 3.5 bath, 2,836 sqft, asking $2,495,000, sold for $3,125,000, aliases $630,000 complete asking (25.25%). Although it sold for 25.25% complete asking, nan value seems reasonable for its size and location.

80 San Pablo Avenue (St. Francis Wood ) – 3 beds, 2.5 baths, 2,190 sqft, asking $2,295,000, sold for $2,500,000, aliases $205,000 complete asking (9%). A quaint location astatine a reasonable value connected a comparatively quiet street. St. Francis Wood is 1 of my favourite neighborhoods pinch only single-family houses. The only antagonistic is that nan vicinity is bordered by immoderate very engaged streets arsenic good arsenic a high-traffic intersecting street.

Several Truly Massive Overbids

120 Lenox Way (West Portal)- 4 beds, 2.5 baths, 2,221 sqft, asking $1.795 million, sold for $2.56 million, aliases $765,000 complete asking (42.6%). The location received 15 offers and is crossed from a playground and school. Depending connected nan individual, this tin beryllium a bully aliases bad thing. The location is only a artifact distant from nan MUNI station, and 2 blocks distant from shops and restaurants.

3782 21st Street (Dolores Heights) – 2 beds, 2.5 baths, 1,844 sqft, asking $2,395,000, sold for $3,225,000, aliases $830,000 complete asking (34.6%). This was genuinely an astonishing waste fixed really mini nan location is, arsenic good arsenic nan batch size of only 1,410 sqft. Standard batch sizes successful San Francisco are 2,500 sqft. It's a charming location for sure. But wow.

150 Santa Paula Avenue (St. Francis Wood) – 5 beds, 3 baths, 3,585 sqft, asking $4,795,000, sold for $5,705,000, aliases $910,000 complete asking (19%). The seller received a preemptive connection only 1 week aft listing, truthful location was really nary bidding war.

The location sits connected a ample 8,659 sqft lot, which is highly uncommon successful San Francisco. For a family pinch children and dogs, this enclosed gait is special.

The income value of $5,705,000 blows past Redfin's estimate, which is accordant pinch astir of these caller sales.

240 Santa Paula Avenue (St. Francis Wood) – 3 beds, 2.5 baths, 2,298 sqft, asking $2,695,000, sold for $3,325,000, aliases $630,000 complete asking (23.4%). A unsocial location that reminds maine of homes successful Hansel and Gretel. I'm not judge why personification had to salary truthful overmuch complete asking fixed its regular size. It's besides bordering nan playground/park, which tin beryllium some bully and bad, depending connected who you ask.

Some Impressive Sales Below Asking

If you spell up nan value curve, you tin mostly get amended deals. Bidding wars are much uncommon astatine higher value points simply because less group tin spend these homes.

565 Ortega Street (Golden Gate Heights) – 5 beds, 3.5 baths, astonishing remodel asking $5,950,000, sold for $5,550,000. This was 1 of nan coolest houses I've ever seen owed to nan design. It felt for illustration a prized activity of creation pinch a abstracted portion and panoramic water views. I emotion this house.

The listing supplier didn't database nan estimated sqft apt because it would put nan location astatine an all-time precocious price/sqft based connected nan asking price. If you tin bargain a single-family location pinch a h2o view, I deliberation you're going to outperform nan marketplace for a agelong time. Golden Gate Heights is 1 of my favorite areas to bargain single-family homes successful San Francisco.

This location was a gut remodel that took what seems for illustration complete 5 years. My main interest is fixing civilization items and sourcing civilization materials erstwhile thing inevitability breaks.

The erstwhile proprietor purchased nan location for $2,650,00 successful July 2016. Notice really nan income value of $5,550,000 wholly obliterates nan Redfin estimate owed to nan remodel. Now Redfin's algorithm needs to recalculate different homes successful nan area.

3846 25th St. (Noe Valley) – 4 beds, 3.5 baths, recently remodeled asking $6,495,000, sold for $6,375,000. Impressive precocious extremity remodel and landscaping. These type of remodeled homes utilized to waste for person to $4.5-$5 million.

3898 Washington Street (Presidio Heights) – 7 beds, 6 baths, 8,765 sqft, asking $14,950,000, sold for $14,700,000. Handsome location connected a area batch that gets a batch of light. Personally, I'd alternatively not unrecorded connected nan area owed to much postulation exposure. Presidio Heights is 1 of nan astir costly neighborhoods successful each of San Francisco.

Once more, you tin observe really nan income value importantly exceeds nan Redfin estimate. Redfin will require immoderate clip to set its pricing algorithm to accurately bespeak nan rising prices successful nan neighborhood.

The inaccuracy successful lodging estimates provided by Zillow and Redfin presents an opportunity for some sellers and buyers. If a purchaser tin discern that online lodging valuation estimates thin to lag down successful a bullish market, they mightiness endeavor to person a little astute seller to work together to a little marketplace price.

Feedback From Homebuyers And Real Estate Agents Who Got Into Property Bidding Wars

To understand why group get into spot bidding wars, I decided to study my Twitter followers and newsletter readers. Here is immoderate of their feedback:

Anonymous feedback connected getting into a bidding warfare successful 2022:

Two years ago, we bought a mini condo successful a assemblage municipality for my girl to unrecorded successful while she attends school. I grew up adjacent that town, truthful I americium acquainted pinch and I emotion nan area.

Yes, I perceived it arsenic a spot risky to compete successful a bidding warfare for nan condo. However, we heard scary stories astir truthful galore assemblage students successful that area who struggled to find suitable housing. We did not want to hunt and compete for a spot each schoolhouse year.

Also, my girl is very backstage and picky and hasn’t done good pinch roommates. I intend to support nan spot for nan agelong term, truthful I wasn’t arsenic worried astir nan nonstop acquisition price. We needed nan property, since I would person had to salary rent astatine different spot if I didn’t bargain it. 

There had been a stagnant listing disposable that winter. However, it needed much activity done to it and had original windows and appliances. Also, nan stagnant listing did not person a confederate predisposition and serene view. 

In nan caller past, we had purchased a location pinch a bluish vulnerability successful our metropolis wherever we reside afloat time. We have been dissatisfied pinch really acold and acheronian our location is during wintertime months without moving nan heater a lot. Running nan heater doesn’t supply nan pleasant warmth of sunlight.

I had decided that I would not acquisition a spot for family usage without a southern exposure. I conjecture I was consenting to salary 8% much to person confederate sunlight and not beryllium looking into a neighbor’s place.  

In nan past 2 years, I person ne'er regretted entering into and prevailing successful a bidding warfare for my daughter’s peaceful, sunny condo.  Also, I knew that if circumstances change, I tin easy rent nan condo retired to assemblage students for a lucrative amount.

Keeping spot for nan agelong word requires a large committedness of clip and ongoing expenditures. If you person an affectional relationship to nan property, it helps you upwind nan downside of agelong word spot ownership for illustration a nightmare tenant business aliases a awesome plumbing issue. 

Thank you for your terrific articles!

Jaime Meraz, Realtor based successful Phoenix, Arizona

Understanding Why People Get Into Property Bidding Wars

Marcus, 40, purchaser successful San Francisco, California

Before buying our house, my woman and I resided successful a one-bedroom, one-bathroom apartment. But pinch a babe connected nan way, we needed much space. Having worked arsenic a package technologist astatine Tesla for 5 years, I was fortunate to locomotion distant pinch astir $2 cardinal successful equity aft taxes.

Considering my existent net of $200,000, on pinch banal options, and my wife's net of $150,000, we tin comfortably put down $500,000 for a $2.5 cardinal house. This intends we'd beryllium looking astatine a monthly owe costs of $13,700 astatine a 7.3% owe complaint pinch complete $1.5 cardinal successful rate and liquid investments near over.

We expect a model to refinance to a little owe complaint wrong nan adjacent 5 years. By then, we expect our income to person accrued arsenic well.

Janet, 38, purchaser successful Northern Virginia suburb

During nan winter, nan lodging inventory wasn't peculiarly appealing, and we were wished to only make a acquisition if we stumbled upon thing genuinely exceptional. Then, successful March, our dream home appeared—a freely spot pinch a stunning view. What made it moreover much appealing was that nan sellers had precocious renovated nan house, sparing america from imaginable renewal headaches we'd heard about.

With our children aged 8 and 10, and plans to reside successful nan area for astatine slightest a decade, we felt assured successful our decision. The schools are excellent, and location are reputable nationalist universities nearby. Even if we whitethorn person somewhat overspent, our semipermanent committedness to nan location reassured us. Who knows, we mightiness moreover make it our everlastingly home.

With a mixed income of astir $280,000, we purchased a $1.2 cardinal location that was listed for $1.1 cardinal successful Fairfax County. Admittedly, we deviated from your 30/30/3 location buying rule, but we managed to put down $350,000. Our owe is simply a 6.5%, 30-year fixed rate, amounting to $6,000 per month. However, pinch a gross monthly income of $23,333, we consciousness it is affordable.

So acold we emotion nan location and person nary regrets.

Thoughts On nan Property Bidding War Feedback

There are 2 cardinal takeaways from nan homeowners who shared why they engaged successful a spot bidding war.

1) They tin comfortably spend nan prices they pay.

There seems to beryllium a misconception that only hopeless aliases financially inexperienced buyers participate successful bidding wars, stretching themselves thin. However, it appears that well-educated buyers pinch beardown financial profiles are nan ones consenting to overbid connected homes.

Reflecting connected my ain experience, I recognize I deficiency nan assurance to overbid owed to a past setback successful 2007 erstwhile I ended up paying excessively overmuch for a condo successful Palisades, Lake Tahoe. That acquisition near a lasting impact, shaping my early decision-making.

2) They each person children.

Every purchaser mentioned having children, ranging from those yet to beryllium calved to assemblage students. The desire to supply a comfortable location for one's children is simply a beardown motivator. Indeed, I judge nan champion clip to ain nan nicest location you tin spend is erstwhile you person nan astir family members nether 1 roof.

Concerned astir nan early costs of lodging erstwhile my children are fresh to bargain homes successful 20-25 years, I've chosen to hedge my bets by investing successful astatine slightest 1 rental spot per family member. While my primary existent property goal is to make semi-passive income for retirement, I besides purpose to supply my children pinch affordable lodging options successful nan future.

3) They each scheme to unrecorded successful their caller houses for a agelong time.

The longer a spot bidding warfare victor lives successful their home, nan greater their chances of building equity. It's nan aforesaid thought pinch owning stocks.

Positive return probability of a affirmative S&P 500 finance return by holding ration

Currently, nan median homeownership long is astir 12 years. If bidding warfare winners tin clasp for astatine slightest nan median duration, they will apt still make a profit erstwhile they sell.

Median homeownership tenure duration

Please Still Be Careful About Overbidding On a Property

After going done this exercise, I still clasp reservations astir engaging successful spot bidding wars. At heart, I'm a bargain hunter, ever connected nan lookout for worth owed to mispricing, bad timing, aliases ineffective marketing. Because existent property transactions heavy trust connected people, I judge savvy buyers tin utilization inefficiencies to unafraid a amended deal.

I've documented various strategies I've employed to discuss little acquisition prices, specified arsenic delaying escrow, penning heartfelt real property emotion letters, making offers pinch no financing contingencies, and pursuing dual agency routes. All these strategies person proven effective successful my 21+ years of existent property investing. Hence, I find it difficult to deviate from my established approach.

However, for those who person emerged victorious successful spot bidding wars, there's reassurance successful nan comparative ratio of nan existent property market.

Simply underbidding connected a spot doesn't automatically construe to a amended deal; possibly nan spot was initially priced excessively high. Conversely, paying 20% complete asking doesn't needfully equate to overpayment; it whitethorn bespeak nan spot was initially underpriced.

There's Always Another Nice Home Waiting To Be Purchased

In nan agelong run, nan marketplace will find nan adjacent value of a home. My interest is that heightened emotions often unreality nan judgement of prospective homebuyers. Many envision an idyllic life successful their early home, starring them to judge it's worthy paying much for perfection.

The reality is, if you miss retired connected 1 home, location will ever beryllium different arsenic suitable action for your family. It's basal to admit this and workout patience. Take your clip to analyze location value dynamics to make a much informed acquisition decision.

Establish a definitive maximum value you're consenting and capable to pay, and instrumentality to it, nary matter what. Following this proposal will minimize nan consequence of buyer's remorse and safeguard your financial well-being successful nan process.

Best of luck retired there!

Reader questions

Why do you deliberation buyers are consenting to prosecute successful spot bidding wars, contempt nan consequence of paying excessively much? If you've ever won a spot bidding war, please stock your acquisition and reasoning to thief america understand why. Why not conscionable hold until nan 4th 4th to bargain fixed there's little title and much wiggle room for value adjustments?

Invest In Real Estate More Strategically

Instead of getting into a bidding war, see investing successful passive existent property investments crossed nan state for diversification, passive income, and perchance amended returns.

Consider Fundrise, a starring backstage existent property finance patient pinch complete $3.3 cardinal successful assets nether management. Fundrise chiefly focuses connected residential and business existent property successful nan Sunbelt region, wherever valuations thin to beryllium little and yields thin to beryllium higher.

Personally, I've allocated $954,000 to private existent property funds, chiefly targeting properties successful nan heartland. With distant activity becoming much common, it's reasonable to expect that Americans will progressively gravitate toward lower-cost areas of nan country.

Fundrise is simply a sponsor of Financial Samurai and Financial Samurai is an investor successful Fundrise.