This is a question that every home buyer wants to know if they are involved in a multiple-bid situation, a.k.a. a bidding war. How much should they bid up the price to successfully purchase the home that they have finally decided to pursue while still not completely overpaying for it. My experience tells me that most people don’t go crazy when it comes to bidding wars. Ultimately buyers don’t want to overpay for a house and face an appraisal problem – and thus potential trouble with the mortgage contingency – or perhaps more importantly, a re-sale issue.
As I pondered this, I realized that I had never tracked the numbers, and so I decided to do a brief analysis to see what the facts and figures told me. My study consisted of selling properties priced from $600,000 to $2,000,000 in the Wellesley and Weston markets in the last six months (August 8, 2014 – February 8, 2015), and I learned some interesting things. But before I get into all that, a few disclosures. First, it should be noted that this time frame represents the solds from the summer into the fall and early winter markets – not nearly as active as the Spring market is. Therefore the number of bidding wars was less than if I had used the Spring market time frame. Second, I focused on this particular price range because this is where most of the bidding wars take place. Below $600,000, there’s not much of a market in either town. And bidding wars aren’t nearly as prevalent above $2M as they are below it. Third, some of these bids could have been higher during the offer stage but were ultimately reduced after the inspection issues were negotiated. And finally, we are assuming that these properties that sold at or higher than the list price were the result of bid wars, but it could have been a case in which a buyer saw strong competitive interest in the property and decided to “take the home off the market” by making an offer at list price or higher.
And now onto the numbers and what I found:
Wellesley
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40 out of 106 properties (38%) sold at list price or above.
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Of those 40 properties, 7 sold at list price (17.5%), and 33 sold above list price (82.5%).
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Of those 33 properties that sold above list price, the average sale price was 4.7% above list price.
Weston
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5 out of 46 properties (11%) sold at list price or above.
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Of those 5 properties, 2 sold at list price (40%) and 3 sold above list price (60%).
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Of those 3 properties that sold above the list price, the average sale price was 1.4% above list price.
Some intriguing conclusions for sure. First, there were significantly more bidding wars – or more accurately, cases in which the ultimate sale price was bid up from the list price – in Wellesley than in Weston. Though that’s not a surprise given the larger size of the market. What’s most to me was the average percentage that the prices were bid up – 4.7% in Wellesley and 1.4% in Weston – not much above the list price in either town. This is something to remember when you find yourself in a bidding war, competing against several other buyer parties for the home that you want to be yours.
I’m hoping this study and the findings serve as a guide for you when you find yourself in a bidding war. One last caveat, however. Keep in mind that this report detailed the average percentage increase in price. There were some sale prices that were 10% – even 28% – higher than the list price. In those cases, the term “multiple offers” was an understatement. For example, there were more than 15 competing offers on the property that sold for 28% more than its list price. This is not the norm, but if you ever do find yourself in a multiple-bid situation with more than 10 other offers, then it’s time to shoot for the stars if you want to have the winning bid and successfully purchase the property.
What are your thoughts on this subject? Have you ever found yourself in a bidding war situation during a home purchase process? If so, did you bid at or higher than the list price? And were you ultimately the winning buyer? I can’t wait to hear.
The majority of multiple bid situations actually take place below $1M. In fact, 28 of the 40 Wellesley properties (70%) that sold at or higher than the list price were below $1M. And in Weston, 3 of the 5 properties (60%) that sold at or higher than the list price were below $1M.
