As The Real Deal and other publications have reported, bidding wars — once thought to be bygone relics of the real estate boom — started reappearing in New York late last year.
At that time, the battles were limited to rare or exceptionally well-priced properties. But now that much of the city’s residential inventory has been snapped up, bidding wars are becoming the rule rather than the exception for market-priced property.
“You don’t have to be provocatively low [-priced] to solicit a bidding war today,” said Barak Dunayer, president of Barak Realty, estimating that his company now receives multiple offers on nearly three-quarters of its properties that are priced appropriately for the market. “It’s almost every listing that we have.”
The ubiquity of these battles is having a positive impact on the market, brokers say, driving up sale prices in some areas and tempting sellers to increase their asking prices. If this trend continues, experts say, market-wide price increases will eventually follow, though rising interest rates and more sellers putting their homes on the market could limit that growth.
Certainly, brokers are cautioning sellers not to raise their prices prematurely.
“That’s the biggest danger now for sellers,” Dunayer said. “If they start reading happy newspaper stories and think they can price for 2007, it would be very destructive to our market recovery.”
Late last year, brokers reported an uptick in sales activity following months of doldrums. As the surge gained momentum, bidding wars soon started popping up.
At first, these battles were limited to properties priced eye-catchingly low (in some cases, as much as 40 percent off their original asking prices), as value-obsessed buyers fought for bargain-basement deals.
These days, however, a property doesn’t need that sort of drastic discount to prompt a bidding war. While some sellers pulled their listings off the market to wait for higher prices, many of the market’s desirable apartments were purchased, increasing the competition for those that remain.
“After sales volume rose in mid-2009, inventory came down,” said Noah Rosenblatt, a broker and publisher of the Web site UrbanDigs.com. “A lot of people bought a lot of property. As a result, a lot of the good stuff sold.”
Rosenblatt, who primarily works with buyers, said his clients now encounter bidding wars nearly every time they make an offer. “My clients have a tough time finding things,” he said. “We’d see 10 places, they would consider one perfect and make a bid, and find that there were three other offers.”
Because of the ubiquity of multiple bids, buyers’ attitudes toward them are shifting. Until recently, said Brown Harris Stevens managing director Elaine Clayman, many shied away from bidding wars, fearing that competition would drive up the cost.
“Before, you were afraid that you would tell them about another offer, and it would scare them away,” she said.
That has now changed. Bidding wars still aren’t buyers’ first choice, but they’re now unavoidable.
“Buyers have had to get more aggressive lately to cancel out the competition,” Rosenblatt said.
One caveat is that overpriced apartments — those in which the seller hasn’t taken the downturn into consideration — simply don’t sell. In order to generate multiple bids, or to sell at all, apartments “have to be well-priced,” Dunayer said.
However, that doesn’t mean they have to be way below market.
For example, Dunayer’s company recently had a listing for a studio at the Princeton House condo at 215 West 95th Street. The apartment was priced at $479,000, which Dunayer said was “a little high.”
After the unit sat on the market for four months, the seller dropped the price to $449,000 and two bidders surfaced almost immediately. “As soon as we reduced the price, we got two buyers and possibly a third,” said Dunayer.
This flurry of activity is beginning to have a positive impact on some segments of the market.
For some categories of apartments on the Upper West Side, “prices are starting to go up,” said Frederick Wohlfarth, the president of brokerage Wohlfarth & Associates.
Two months ago, he said, he put a classic seven on the market for just under $1.9 million. In the first 10 days, there were 10 offers, and the apartment went for $2.25 million. In another instance, a classic six on West End Avenue, listed for $1.1 million, received 15 offers and sold for $1.325 million.
This kind of competition “does drive the price up,” he said. But the progress is gradual: Several Upper West Side classic sixes asking for $1.7 million have been sitting on the market for months, he said.
One factor that could limit price increases is that more sellers have been putting their units back on the market in recent weeks. “Last year at this time, a lot of people pulled their listings, saying, ‘I’m going to wait till the market gets better,'” said Jonathan Miller, the president of appraisal firm Miller Samuel, adding that inventory rose about 15 percent from the end of December 2009 to the end of February. “Those people are joining the market now.”
The inventory increase, in combination with the overpriced units already sitting on the market, could cause prices to dip in the second half of 2010, he said.
But it’s not entirely clear how the rising inventory will impact the market, because more buyers will likely jump into the fray to take advantage of the new listings.
The question, he said, is whether these new sellers will be willing to price their apartments to sell. “You’ll have plenty that won’t, but you could have some that will,” Miller said. “We’ll see.”