Everything about overbidding in real estate - Key informations
In 2021, many are convinced that the real estate market can be summed up by the terms: multiple offers, rising prices, and overbidding, a cocktail that could surely please sellers, but that could be discouraging for many whose dream is to acquire a property.
In a current market dominated by sellers, many have come to wonder about the causes of this overbidding phenomenon. Is it caused by the pandemic? How can we explain such a rapid increase in real estate prices? Would making offers to purchase known to the public be a legitimate solution to counter this phenomenon? This is what our team of real estate brokers would like to explain to you.
What is overbidding?
First of all, let’s shed some light on this term that many people are talking about: overbidding. This is a real estate phenomenon that has always been known, but which has been growing for about a few years now. This overbidding takes place when multiple promises to purchase are made for the same property in the space of a few days. It is in fact out of fear of being refused the property because of a more competitive offer than their own and in order to stand out from other prospects, that buyers are ready to bid on the initial asking price for the property. This bidding can sometimes go up to several thousand dollars above the asking price and often exceeds by far the value previously assessed by the bank.
What explains this?
Although complex, the overbidding can be explained in a rather simple way, by the economic phenomenon of supply and demand. While the real estate market slowed down significantly in the early days of the pandemic in 2020, it picked up again shortly thereafter, as buyers were more ready than ever to find a home. However, the inventory of properties was very low during the first phase of the pandemic as it is now. We are therefore witnessing a very high demand on the part of buyers, for a very limited supply on the part of sellers, hence the real estate overbid. Is the pandemic the cause of this? Perhaps in part, yes, but it is not the reason for this phenomenon.
Making bids public: a solution to calm the phenomenon of real estate overbidding?
Many think that the solution to counter overbidding is to make the bids public. In our opinion, if the offers to purchase were public, the phenomenon of real estate overbidding would only worsen. This can be explained by the fact that it would almost inevitably be the last buyer, aware of all the offers that have been made beforehand, who would be able to offer the best price to the seller. By keeping offers confidential, buyers can offer less than the asking price and still be at the top of the list compared to other prospects.
How to buy a property despite the overbidding phenomenon?
The overheating of the market is therefore caused by the absence of real estate inventory for a very high demand from buyers, who are sometimes ready to use big means to get their hands on a property they love. In the heat of the moment, it may seem instinctive to want to offer much more than the posted price, but your broker is the seasoned professional who will remind you to act rationally and not emotionally. He or she will also make sure to do a thorough evaluation of the market so that your offer is representative of the value of the properties. He or she can also guide you in your efforts by presenting you with effective and distinguished ways to stand out in a situation of multiple offers, for example by helping you write a presentation letter. In any case, the real estate broker remains your best ally in buying a property.