The first half of 2012 brought a rise of bidding wars over many properties throughout New York City. These bidding wars are different than what we saw during the housing boom (2007). The new wave is due to a multitude of factors. A main factor is the shortage of properties to purchase in the New York City market. According to a report from The Real Deal: only 5,084 new listings were added [in the most recent quarter], 15 percent fewer than in the previous quarter and in the prior year quarter, according to the Corcoran Group’s report, which noted that available listings were off 35 percent from the peak in the first quarter of 2009. These estimates show there continues to be a decline in inventory, specifically a 12 percent decline from last year and 4 percent from last quarter.
In addition, with the downward trend in inventory, there is a white hot rental market in New York City. Such a flourishing market leads to low vacancy rates giving landlords the opportunity to drive up rental prices. As a buyer sees the staggering increase of rentals prices, many look to purchase rather than rent at these new higher prices. Along with the higher rental prices making these potential buyers even more eager to purchase, are the shockingly low interest rates currently in effect for 30 year fixed mortgages. All of these factors create a “perfect storm” for bidding wars. With a declining inventory, high rental prices, low vacancy rates, and extremely low interest rates many buyers are trying to seize this opportunity and are faced with a rather savvy buyer pool all bidding on the same listing. With an influx of increasing competition, and a record number of offers with a low number of closings, it is proving to be frustrating for both buyers and brokers. Pamela Liebman, the chief executive of the Corcoran Group gave her advice to buyers when discussing the rise of bidding wars in a recent New York Times Article:I think buyers have gotten the message that if you’re ready to buy, be prepared to bid aggressively and to sign quickly. Pam’s simple yet sound advice for the potential homebuyer, who could potentially face a bidding war, reflects greatly in the current markets and is the best advice one can give when looking to buy in the markets during this perfect storm.
If you find yourself in a bidding war for a listing, there are a number of things you can do as the buyer to increase your chances of closing the deal. For one, a New York Times article suggests writing a letter to the seller can develop a personal connection between you and the seller. There are many things you can do to write a good letter such as: finding things in common between you and the seller, mentioning your kids and their names (if you have any), and even sharing personal compliments about specific interior design choices in the property. Aside from writing letters to the seller there are strategic things you can do to increase your chances of winning. Such things include: be flexible with the seller, increase your deposit, eliminate conditions, increase your price and be willing to close sooner. With the increase of bidding wars in the current real estate market, there is no guarantee your offer will be taken, so be prepared for disappointment, learn from your lessons and take your experience to the next property where there should be renewed hope for victory.
More tips on writing letters to the seller...
http://www.nytimes.com/2012/03/27/nyregion/securing-an-apartment-with-help-from-a-love-letter.html
A business insider's perspective on how to win a bidding war:
http://articles.businessinsider.com/2012-05-10/tech/31650766_1_bidding-wars-housing-market-dream-home
