Bidding Wars in this Sellers Market.....

2.) Good size ranch, updated and amazing interior design, staged, mid 300's, 62 showings and 17 offers in 2 days (that's a new record) no appraisal contingency

3.) Large bungalow, original style with period matching updates to kitchen and baths. 6 offers, highest with no appraisal contingency

So, what do all these have in common? They were all updated, staged and our photographer did an amazing job! They showed really well and looked like out of an episode of an HGTV show! This draws in buyers like crazy!

But that is NOT the whole story! There are a lot of houses that do not sell like this!

About 35% of all listings in Milwaukee do not sell in the first 2 weeks. They either have issues, are ugly, use bad cell phone pictures, are overpriced and sometimes a combination of all of them. We definitive direct our buyers to stay away from the shiny listings and pay close attention to the second and third tier listings. There are great deals to be had. We are under contract on a 600k home for just over 500 and we are getting a new roof, windows and some siding repair paid from the seller.

Are we in a bubble?

I don't think so and here is why. Prices are driven by buyer demand, which comes from millennials starting to buy houses. They are the largest demographic segment we have (about a quarter of the population) and they are new to the real estate market, but their are tired of paying rent (the oldest millennials are now 38) and make 40% of our buyers. And they just got started, so far it's only the oldest of them who are buying. On the supply side, old people live longer and are not vacating their houses. And new construction is not a factor in the city: Milwaukee is fully built out, no more land to develop, just a few infill lots) and in the suburbs you are looking at 500k and up (by the time you add driveway, topsoil, grass and landscaping). So we have a huge price gap between existing homes (185k median) and new construction, limited supply and a rapidly growing amount of buyers looking for homes under 300k.

It is difficult to imagine circumstances where these fundamentals would change over the next ten years. What would stop millenials from wanting a home? What would cause new construction to drop 30% in price? What would make baby boomers and the silent generation vacate their homes?

It does not matter if we have a pandemic, a new president or not, if we have 5% or 15% unemployment - that will all have some impact, but it will not change the supply and demand situation.

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Jaron WallingPro Member
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
6y
@David Krulac I've been investing for about 3 years and I'm starting to see the writing on the wall. I'm afraid novice buyers are acting like they did 2008.

I have a co-worker that's under contract to buy an expensive historic home that's about 120 years old. It has an asbestos tile roof that's 80 years old, an outdated boiler system, and other rehab issues. She's a FIRST time buyer with no experience.
1 Reply
Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
6y
Similar situation in Milwaukee, here are my recent listings:
1.) Cute cape cod SF, updated incl new kitchens and bathrooms, great lot with mature trees - asking upper 200's, 5 offers, all over asking
2.) Good size ranch, updated and amazing interior design, staged, mid 300's, 62 showings and 17 offers in 2 days (that's a new record) no appraisal contingency
3.) Large bungalow, original style with period matching updates to kitchen and baths. 6 offers, highest with no appraisal contingency
So, what do all these have in common? They were all updated, staged and our photographer did an amazing job! They showed really well and looked like out of an episode of an HGTV show! This draws in buyers like crazy!
But that is NOT the whole story! There are a lot of houses that do not sell like this!
About 35% of all listings in Milwaukee do not sell in the first 2 weeks. They either have issues, are ugly, use bad cell phone pictures, are overpriced and sometimes a combination of all of them. We definitive direct our buyers to stay away from the shiny listings and pay close attention to the second and third tier listings. There are great deals to be had. We are under contract on a 600k home for just over 500 and we are getting a new roof, windows and some siding repair paid from the seller.
Are we in a bubble?
I don't think so and here is why. Prices are driven by buyer demand, which comes from millennials starting to buy houses. They are the largest demographic segment we have (about a quarter of the population) and they are new to the real estate market, but their are tired of paying rent (the oldest millennials are now 38) and make 40% of our buyers. And they just got started, so far it's only the oldest of them who are buying. On the supply side, old people live longer and are not vacating their houses. And new construction is not a factor in the city: Milwaukee is fully built out, no more land to develop, just a few infill lots) and in the suburbs you are looking at 500k and up (by the time you add driveway, topsoil, grass and landscaping). So we have a huge price gap between existing homes (185k median) and new construction, limited supply and a rapidly growing amount of buyers looking for homes under 300k.
It is difficult to imagine circumstances where these fundamentals would change over the next ten years. What would stop millenials from wanting a home? What would cause new construction to drop 30% in price? What would make baby boomers and the silent generation vacate their homes?
It does not matter if we have a pandemic, a new president or not, if we have 5% or 15% unemployment - that will all have some impact, but it will not change the supply and demand situation.
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Gregory Chadwell
Real Estate Broker · Milwaukee, WI · Member since 2015 · 299 posts · 90 votes
6y
Ive discussed similar tactics with my colleagues. One is convincing their buyer not to include a "Home Inspection Contingency" amongst other things. I would never recommend it . August being back to school season should cool off alot of the competition. Also as the election gets nearer a-lot of buyers may wait because of the uncertainty which may create opportunities for yourself.
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Andrew SyriosPro Member
Moderator
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
6y
I've been hearing some things like that too, albeit not quite that crazy. It's incredible, especially since it was all doom and gloom when the pandemic started and we all thought real estate was going to crash. Good time to list. I doubt this lasts that much longer.
Podcast Guest on Show #121
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William Jenkins
Real Estate Broker · St. Louis, MO · Member since 2014 · 206 posts · 194 votes
6y
@David Krulac - You can extrapolate these stories to the St. Louis, MO market as well. I work mostly commercial/investment property, but I do invest in residential when a deal presents itself. I've not bought residential in 3 years as the risk/reward is just not there for me. This is a classic blow off top in my opinion.... Everyone is an "investor" now days!

What concerns me right now is the fall off in NYC, CA, and FL high end real estate. In 2008 it took about a year or so for the weakness to hit the heartland and I expect that rule to hold true this time.

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David Krulac
OP
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
6y
@William Jenkins I've been buying real estate for a long time, you can check out Josh Dorkin's comments during the Bigger Pockets Podcast #82, that I did to verify my longevity. I'm always a buyer. I was a buyer in 1981 when interest rates were 15% fixed for 30 years, and I bought a property and got 2.875% interest. today there are super low interest rates, lots of competition among buyers, some paying higher prices than I personally might pay, but I'm still a buyer even though itsa seller's market. And I'm a seller also. I have a house advertised for rent and somebody approached me with an unsolictied offer to buy. I didn't rule it out, and would consider selling though I'd really like to rent it. In today's market it is much harder to find a really good deal, but I've found a few, one of which we had a contract to purchase the property 2 hours after it was listed.
When it was a buyer's market in 2008 through, say 2014, we were buying more, getting smoking deals and there was little competition. I don't know what 2021 will bring, I expect higher interest rates and maybe some slwing in the market, but I'm just guessing. What I know for certain, is that I will be buying, and if its still a seller's market, I could be persuaded to sell some more properties also.
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William Jenkins
Real Estate Broker · St. Louis, MO · Member since 2014 · 206 posts · 194 votes
6y
@David Krulac - I always consider myself a buyer as well, and always have..... except for 1981 when I was a newborn. Haha.
Sure there are good residential deals out there right now but they are few and far between and everyone is fighting for them. At this point in the market, the time spent finding them far outweighs the reward in my opinion. I have a niche area of commercial that I would rather devote that time to and even that has gotten hyper competitive.
Everyone is an investor nowadays and we know how that story ends. Cycles ebb and flow for stocks, bonds, commodities and real estate. It is pretty obvious that we are in the late stages of this RE run. Having said that I am not saying I can predict when it ends, the reason, severity, etc.

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Henry Lazerow
Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
6y
In Chicago our markets hot but not that hot as above. No one is waiving contingencies unless its a gut rehab. Most deals arent multiple offers. Its still hotter then last year this time though especially the starter homes/condos in millennial areas.
3 Reply
John Warren
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
6y
@David Krulac I agree that the market has been insane. I list a lot of properties in the near western suburbs and also in the city of Chicago. My 2-4 units are typically getting multiple offers, and one 3 unit in Berwyn had 6 offers in the first week and sold 20k over asking price. On the flip side, I have several condo listings in the city and those have been tougher sales than they normally would be due to current events. Even within a market there are differences depending on the product!
2 Reply
Michael Brattelli
Real Estate Broker · Medford, NJ · Member since 2018 · 236 posts · 177 votes
6y
@David Krulac NJ has pretty much been the same exact thing since about May/June
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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
6y
We are seeing 15-30 offers in the city and 10-20 offers in the city. $50-70k over in the suburbs and $100-$140k over list in the city.
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Steve K.
Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
6y
@David Krulac We’re seeing multiple offers on anything reasonable here, typically 2-5% over ask which is $20-50k in this market although in some cases much higher than that. A colleague sold a condo recently that went for 45% above ask. Escalation clauses were all the rage here a few years back but listing agents are asking for highest and best now instead. It gets too confusing for the seller to differentiate between offers when there are 9 of them and they all have escalators. I just waived all contingencies on a property I’m buying which is a first for me. We had 7 competitive offers so I asked the seller what was most important to them and she said a quick close with minimal contingencies. No appraisal no inspection no problem with a 2 week close got us the deal even though some of the other offers were much higher. I know the property and location and did a basic inspection during my second showing (I have a background in the trades and have shadowed dozens of inspections so I felt comfortable committing to the deal after what I saw). It’s a good deal and the plan is to basically fully rehab everything anyway so not as risky as it sounds, but it is weird to not having any contingencies or anything to do before close besides title work and insurance. I like it, this might be my standard MO moving forward. Waiving inspection and appraisal definitely makes an offer stand out and provides leverage on price.
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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
6y
@David Krulac side effects of COVID on top of an already strong real estate market. There is less supply in many markets and more people looking to own their own place. Low interest rates are making it attractive to purchase for owner occupied and investors, so you have more people chasing less properties. On top of all of this, building material costs are escalating, so remodels or new builds cost more money. That alone makes existing construction worth more.
1 Reply
David Krulac
OP
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
6y
aGREE @Joe Splitrock Talked to builder yesterday, his window package has doubled in cost. I have new stainless steel appliances that I bought and paid for in June, after 4 revised delivery dates are maybe scheduled for October. A Lowe's we use in DE, did not have any lumber in stock when we went there. Talked with rehabber today about a project he's thinking about, it is a near gut job needing almost everything. If he can get the materials, and get the property and finish the rehab quickly, he could be on market in January the middle of winter and no idea what the materials market will be, the interest rates or the real estate market. As that great real estate investor Dirty Harry Callahan said, "Do you feel lucky? Do you?"
2 Reply
Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
6y
@Steve K., was that 45% over ask, asking a valid amount, or was it priced low to incite a bidding war? I hate that tactic.
[email protected]Podcast Guest on Show #261
1 Reply
Steve K.
Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
6y
Originally posted by @Mindy Jensen:
@Steve K., was that 45% over ask, asking a valid amount, or was it priced low to incite a bidding war? I hate that tactic.

It was an entry-level condo priced to sell fast but also based on comps, not priced way under expected sales price or anything. Bidding just drove it way up. Everybody was surprised. I agree it's annoying when you see properties on the MLS priced artificially low and you know they're just trying to attract multiple offers, but maybe not as annoying as when they're priced unrealistically high! Not sure if you're seeing the same thing but it seems to be a weird almost paradoxical time in the market here because buyers are aware of the economic uncertainty and are at least trying to be price-conscious (for example obviously overpriced listings are siting on the market), but at the same time anything priced reasonably and in decent condition is drawing multiple offers and selling above ask.

1 Reply
Ika Sargeant
Real Estate Agent · Reston, VA · Member since 2017 · 295 posts · 163 votes
6y
Been working with buyers and made offers. There are typically around 6-8 parties competing for the house every time. This past two months I have also noticed even the high end areas which normally required a longer days on the market, homes are flying off the shelves. An example is Great Falls VA. I just saw last week two homes on the same street; one priced at 1.6 M and another just over 2 M. get an offer within a week. The 2M home had been on and off the market in the last two years. Was put on the market a week ago and got an offer under a week. Been thinking about what is driving this? Low Inventory? Low interest rates? City Dwellers fleeing to the Burbs? Is it beneficiaries of the stock market who have cashed out and now moving their cash to real estate? Then I also think how human beings can be so irrational in making investment decisions. But what of the looming unemployment? Perhaps people can add their two cents.
1 Reply
Brady Gallagher
Financial Advisor · Baltimore, MD · Member since 2020 · 12 posts · 6 votes
6y
@Ika Sargeant
There's always opportunity in all markets if one knows what opportunity looks to be. What does diversification look to be? Maybe real estate can offer betters returns that the S&P 500? What about private equity? We live in fantastic times. :)
Cheers,
Brady
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Jaquetta T Ragland
Real Estate Agent · Winston Salem, NC · Member since 2014 · 486 posts · 303 votes
6y
@David Krulac whoa at the buyer agreeing to pay $10k over. That’s wild! I would want to know why they would agree to that. We’re they tired of shopping or was just that in love with the house?
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Jaquetta T Ragland
Real Estate Agent · Winston Salem, NC · Member since 2014 · 486 posts · 303 votes
6y
@Jaron Walling I hope she has a lot of saved money.
1 Reply
Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
6y
Originally posted by @Steve K.:
Originally posted by @Mindy Jensen:
@Steve K., was that 45% over ask, asking a valid amount, or was it priced low to incite a bidding war? I hate that tactic.

It was an entry-level condo priced to sell fast but also based on comps, not priced way under expected sales price or anything. Bidding just drove it way up. Everybody was surprised. I agree it's annoying when you see properties on the MLS priced artificially low and you know they're just trying to attract multiple offers, but maybe not as annoying as when they're priced unrealistically high! Not sure if you're seeing the same thing but it seems to be a weird almost paradoxical time in the market here because buyers are aware of the economic uncertainty and are at least trying to be price-conscious (for example obviously overpriced listings are siting on the market), but at the same time anything priced reasonably and in decent condition is drawing multiple offers and selling above ask.

Anything priced sub $550 is FLYING off the shelves. I've got a client that is losing properties left and right because I do NOT suggest waiving inspection, or covering appraisal gap. My one listing is $635 - just over the multiple offers price range.
[email protected]Podcast Guest on Show #261
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