Look at home buying as an auction, experts say

Buyers could benefit from adopting more of an “auction mindset” as they head into the housing market, experts say.

Those who believe they’ll be able to buy a home for less than the asking price these days will likely find that they end up with zilch. With home inventories so tight, it’s better to think of the list price as a starting point for their bid and bear in mind that many other interested parties will go above and beyond that price.

That advice is backed up by statistics. The National Association of Realtors says that every listing these days receives five offers on average, and that half of more homes end up being sold above their list price.

A recent article in Keeping Current Matters points out that due to the low supply of homes for sale, many sellers are inviting auction-style bids, and will sell to the highest bidder.

In a real auction, sellers generally set a reserve price that is the minimum amount they will accept for whatever it is they’re selling. Keeping Current Matters argues that with today’s frenzied housing market, a home’s list price can also be though of as a reserve price. So it’s really just a starting point, and in most cases the winning bidder will go beyond that price.

A recent survey from the National Association of Home Builders underscores that theory. It found that around 40% of people who have so far failed to buy a home despite trying keep getting outbid on the properties they like.

Most sellers know they have the upper hand in today’s market, and many have come to expect and welcome the prospect of a bidding war. Another survey, by realtor.com,found that 24% of homeowners expect to receive an offer above their asking price. Moreover, 29% are already planning to ask for more than what they believe their home is really worth.

The tough market conditions for buyers has forced some to go to real extremes to ensure theirs is the winning bid. Some real estate agents have reported individual listings that fetch upwards of 20 offers. One Dallas-based agent even reported a whopping 97 bids on a single home.

With so many bidders, buyers these days are quite happy to waive contingencies and stretch their budget to the absolute maximum. Debbie Barrera, a broker with Realty Austin in Austin, Texas, told the Wall Street Journal last month that one of her clients selling a luxury home with a pool received an offer that came in $500,000 above the asking price. Few would be able to compete with such a determined bidder as that.