Scott Van Voorhis
This may turn out to be the most competitive spring market the Bay State has ever seen.
No longer just a downtown Boston and Cambridge phenomenon, bidding wars are spreading to middle-class suburbs and working-class urban neighborhoods alike, brokers say.
But that’s not all. Buyers are not just bidding up, they are also increasingly resorting to desperate measures to land a home, waiving traditional contingencies meant to protect them from financial disaster in an all-out bid to push their offers to the top of the pile.
Even so, there are signs that the competitive frenzy that has driven prices to ever more unsustainable levels can’t go on forever, with buyers, especially those of middling means, running out of reasonable options to juice up their offers.
“The competitiveness has swept into markets that weren’t so competitive, like East Boston and Waltham,” local broker and market tracker and blogger David Bates said.
Humble Homes, High Bids
Stories about crazy bidding wars typically revolve around some hot condo in hipster neighborhoods like Davis Square. But battles between frenzied buyers looking to snag something before prices head up again have now made the jump deep into the suburbs.
Just take the 22 offers that the seller of a nice but hardly spectacular suburban colonial recently received.
The number certainly was impressive, but the location even more so, for the home wasn’t in perpetually red-hot Wellesley, but rather Wakefield, where the median price last year was $455,500, noted Sam Schneiderman, principal broker of the Greater Boston Home Team and president of the Massachusetts Association of Buyer Agents.
Meanwhile, in Waltham, a condo in the Bishop’s Forest development, where prices run in the $500,000s and $600,000s, recently fetched 17 offers, Bates said.
Faced with that much competition, a buyer he was working with decided to take a pass.
“The ripple effect is really starting to push it out to I-495,” Schneiderman said.
Nor is it just middle class communities that are starting to see bidding wars – it’s working class ones as well.
Schneiderman was surprised when one of the buyers represented by his real estate shop faced a competitive bidding situation in Brockton, of all places.
The client, a first-time buyer, eventually prevailed, but only after beating out two other first-timers.
And bidding wars are now increasingly common in once over-looked Boston neighborhoods like Dorchester, East Boston, Roslindale and student-jammed Brighton, Bates said.
One Dorchester condo fetched $55,000 over its asking price, while another in Roslindale sold for $62,100 over, Bates noted in a recent report.
Incredibly, Brighton saw 16 condos and homes sell over more than $50,000 above their sticker price.
“Today, the Hub’s extreme over ask offers aren’t limited to select upscale markets such as Brookline or Cambridge,” Bates wrote. “Offers that go $50,000 over ask literally DOT the Hub’s more modestly priced condominium landscape as well.”
Risky Offers
Buyers aren’t just bidding more this spring; they are also taking all sorts of chances as well. They are increasingly dropping mortgage and insurance contingencies in order to bolster their bids, brokers observe.
In fact, an growing number of buyers are dropping their mortgage contingency even when it’s clear they don’t have the money to follow through and pay in cash, said Neda Vander Stoep of Coldwell Banker Residential Brokerage’s Back Bay office.
One condo in the Back Bay recently fielded five offers, four of which dropped the mortgage contingency. But only two were real cash offers, in the sense that they could go ahead and buy the unit without a mortgage, she said.
Sellers may like it because it alleviates any concern about the deal going south because a mortgage falls through, but for buyers, the situation is far from ideal.
At the very least, they will wind up losing their deposit, an expensive price to pay for a failed bid, she noted.
“The waiver of a mortgage contingency … can prove to be quite risky for a buyer who is financing as they are essentially putting their P&S deposit amount at risk should they (or the condo) not get approved for the loan or if they run into a timing issue where they cannot close on time,” Vander Stoep wrote.
Buyers are also waiving inspection contingencies meant to prevent them from getting stuck later with lots of unforeseen repairs or even undisclosed structural issues.
“The real challenge in this market is that some of these buyers are either encouraged or decided to just throw all caution to the wind and they make crazy offers,” Schneiderman said.
Driving Factors
Of course, none of this frenetic bidding and risk taking is happening in a vacuum.
The number of listings has fallen off a cliff over the past few years, with another 20 percent decline just since last year.
There are too many buyers for the anemic number of homes and condos for sale out there, with new single-family construction having lagged for decades in the Boston area.
But one wonders also all the corner-cutting and contingencies thrown to the wind may also signal that a market peak is near, with buyers running out of options to keep pace with rising prices and cut-throat competition.
There are already signs that prices, at least over the winter and during the initial few weeks of the spring market, may have started to slow or even flatten out in Boston’s suburbs.
Still, calling a peak is risky business and something I’m not ready to do quite just yet.
The next few months could be very telling when it comes to figuring out where home and condo prices are headed, especially in the ’burbs.
Stay tuned!
