Competition returns to slumping markets
By Inman News, Monday, August 17, 2009.
Up-market homes consistently sell above asking in a New Jersey suburb. Bidding wars break out in hot neighborhoods in Cape Cod, Chicago and Seattle. Short sales in some Florida and California markets draw as many as 40 bids.
It’s a far cry from 2006, but brokers and agents across the country say multiple offers are once again the norm in specific corners of the market.
“The banks are purposely putting them on the market under value and creating a frenzy,” says Kristi Townsend of Altera Real Estate in Mission Viejo, Calif., where dozens of cars recently lined up in front of one bank-owned house the day it listed.
In many areas with heavy short-sale and foreclosure activity, prices in the last few months have reached a point where investors and first-time buyers are clamoring for the best deals. Even in more subdued markets where prices haven’t fallen as far, buyers face a competitive market for houses in hot neighborhoods at the right price.
Seattle broker and Realtor Sam DeBord says a couple recently made an offer on a house that was on the market for three days, only to be trumped by one of nine other offers. On their next try, they offered full price on a property that was on the market for two days and beat out two other bids to get the house.
“We’ve really seen pockets like that” in the last few months, DeBord says. Not all parts of town fare so well, but in his clients’ Ballard neighborhood the median time on the market is only 12 days.
“When something comes on that’s $300,000, everybody comes to see it the first weekend,” DeBord says.
Property values in the Seattle area are down about 20 percent from their 2007 peak, according to the Zillow Home Value Index, and a National Association of Realtors report this month stated that the median price of single-family resale homes in the Seattle-Tacoma-Bellevue metro area fell 13.7 percent from second-quarter 2008 to second-quarter 2009.
And as prices fall, sales are ramping up. Inventories have shrunk in recent months and pending sales in the four-county Puget Sound region were up 21 percent in July compared to the same month last year, according to the Northwest Multiple Listing Service, a regional MLS.
Multiple offers seem to be making a comeback in a range of markets that lost value but remain highly desirable.
“Everybody and their dog is looking for a deal” among foreclosures and at prices under $200,000, says Heath Coker, broker-owner of the Cape Group in Cape Cod, Mass. For bank-owned, foreclosed properties (also known as real estate-owned properties or REOs), he traces part of bidding activity to banks’ slow response to offers and price changes.
Even at the higher price points, Coker says he’s seen bidding wars break out in certain locations, despite home values on the Cape at the beginning of the year falling 24 percent compared to 2008.
A similar pattern has emerged over the last few months in Chicago. Sudler Sotheby’s top agent, Paul Gorney, regularly sees multiple offers on homes under $400,000, which he attributes in part to a pent-up demand for starter homes. Recently as many as 10 offers at a time will come in to his office for short sales as buyers see them as a good deal.
In the south Denver suburbs where Bill Donovan sells homes, values have held steady. While many buyers approach him expecting significant discounts, houses in certain neighborhoods draw multiple offers in short order.
“There’s so much crap out there that’s overpriced, when they finally see one that’s priced right, they jump all over it,” says Donovan, who in recent weeks sold a townhouse after three buyers approached him as soon as it hit the market.
Few real estate professionals are willing to speculate that renewed buying activity means their markets have hit bottom, let alone that values may begin increasing again. But sellers in some areas seem to have found the price needed to attract buyers, and many list homes below that in order to generate high-quality bids quickly.
“Certain agencies tend to price under market value,” says Judy Pisani, a broker with Coldwell Banker in Allendale, N.J., In Montclair, where her niece recently bought a house, sellers routinely list low and count on multiple offers to drive up the price.
“We kind of thought that, because of the real estate market being what it was, we would kind of be able to take our time,” says Kelly Tweed. Instead, she and her husband found themselves in a bidding war for a house they purchased for $665,000 less than a week after it listed.
“No one really offers below the asking price,” she says of the desirable town within commuting distance of New York.
The most dramatic markets for multiple offers, though, are in places where prices were hit the worst and banks are working through extensive inventories of foreclosures and short sales.
In Fort Myers, Fla., where the median value is less than a third of what it was at its peak, Denny Grimes’ agency regularly sees as many as 35 offers — some up to 150 percent above asking — for bank-owned homes.
“The buyers have always been here; the sellers are coming back into the market” and offering houses at a price that will sell, Grimes says. In February, there were 4,200 homes on the market priced below $100,000. Now that number is closer to 2,000 because of sellers attracted to prices that Grimes describes as irrationally low — set by banks that want out of the real estate business.
“We (Fort Myers Realtors) will sell more homes this year than in any other year in our history,” Grimes says. A sizable portion of buyers are professional investors who see bargain properties as an opportunity for rental income. They often make all-cash offers, which gives them an edge in bank-owned sales, even over retirees and first-time buyers with higher bids.
The most bidding activity happens in the price range below $150,000, with the market for “move-up” homes around $300,000 stagnant and high-end houses sitting on the market as sellers try to hold out for higher prices.
The same seems to be true in the greater Phoenix area where Realtor Kenny Klaus is a member of Fidelity National Title’s Top Producer Mastermind Group.
“You assume after day one on the market that there’s going to be two, three, eight offers or more” for property under $150,000 or owned by the bank, Klaus says. He estimates that since March, 80 percent of distressed-property sales received multiple bids and more involve all-cash offers than he has ever seen.
Most sell to investors and first-time buyers, though the later frequently find themselves at a disadvantage to cash buyers free of the uncertainty surrounding mortgage financing and increasingly strict appraisals.
As inventories decline, Klaus says he regularly prepares buyers to face a tight negotiation time frame, possible competition from investors and a final price close to, or even above, asking. The exception would be in the condo and luxury property market, where multiple bids are still rare.
Parts of the Southern California market have seen a similar influx of buyers for looking for deals among distressed properties.
Throughout the summer, broker Maggie Ureno has seen bidding wars with up to 20 offers crop up for Orange County properties in the lowest price ranges, with multiple bids becoming more frequent among mid-range homes in the last month.
“I think there’s just a lot more people starting to get back into the entry levels,” Ureno says.
Even a recent listing priced at $580,000 received eight offers almost immediately, she says.
But with prices in the Los Angeles metro area down 35 percent from their 2006 peak, according to Zillow, it’s anyone’s guess whether renewed interest among buyers means the bottom has been reached.
The National Association of Realtors reported that the median price of homes in the Los Angeles-Long Beach-Santa Ana metro area plummeted from an all-time high of $593,600 in 2007 to $303,500 in first-quarter 2009 — a drop of 48.9 percent — rising slightly to $311,100 in the second quarter.
Ureno joined Realtors and brokers in several markets in saying that new rules for appraisals have affected their clients’ ability to get mortgage approval, and that appraisals often come in lower than the highest bid.
“Nobody wants to be the first one to appraise something higher than the last sale,” Ureno says. “Everybody’s afraid to be that guy.”