'It's a perfect storm': NY homebuyers take drastic measures in competitive real estate market
Mary O’Grady pulled off the side of the road and wept with relief after she heard she landed her dream home.
She’d searched for months for a house in her price range in Rochester, putting in offers that waived inspections and far exceeded the asking price. But it was 2020, and the housing market in New York was a crushingly competitive environment for most buyers.
Finally, it was her turn to win. Her offer didn’t include an inspection, and she had confidence that she checked for major structural issues in the home during her walkthrough.
But on move-in day, O'Grady, 67, noticed a leak in her bathroom that quickly turned into a full-scale plumbing job, requiring workers to rip out and retile the walls around her bathtub. The initial estimate for the job was $20,000.
She found herself crying again, this time out of fear and hopelessness.
“I thought, ‘I can’t pay $20K. I just closed on this house. I’m going to have to live with this drip forever,” O’Grady said.
In the end, O’Grady’s unexpected bathroom repair cost her $5,000. Her story is indicative of the drastic measures many homebuyers feel forced to take just to get their hands on a single-family home in the current market.
'This is what it takes'
The market was already trending in the seller’s direction before the worst of the COVID-19 pandemic, which all but shut down the real estate market for several months last spring.
But when summer came in 2020, the market took off, said Rachel Wexler, a licensed real estate salesperson with Keller Williams in the Rochester area.
Low interest rates on mortgages, a lack of new builds and pent-up demand among buyers contributed to the steep difference between the number of houses out there and the amount of buyers looking to score one, Wexler said.
“It’s a perfect storm that made all these people want the houses, and there are not enough houses,” she said.
Usually realtors price homes based on comparisons to the sizes and prices of other homes in the area. Now, with dozens of offers coming in on some homes, that’s just a starting point, Wexler said. Many sellers are simply picking the highest bidder, or the offer with few to no contingencies.
That’s how buyers end up offering to waive inspections entirely — something that was unusual a few year ago, Wexler said — and offering tens of thousands or, in extreme cases, more than $100,000 over the asking price in their first offers.
“If people want to know what it takes to win when you’re competing against others, this is what it takes,” she said, adding that out of all the accepted offers she helped facilitate for buyers in the past year, not one included an inspection.
On one hand, waiving an inspection is a financial and logistical risk buyers could avoid by delaying the search for a house. But sometimes a new job or another pressing matter means a family or couple doesn’t have the choice to wait, Wexler said.
“This is not for the faint of heart,” she said, adding that she doesn't think the market will change any time soon. “I try to give (my buyers) a realistic idea of what the market is like, so they know what they’re getting themselves into.”
The sizzling market has been particularly difficult for first-time homebuyers.
For Karly Schuhart, 23, of Penfield, the housing market's harsh realities hit hard after she'd been saving for several years to realize her dream of buying a home shortly after her college graduation.
She’s been searching for nearly a year now, looking at more than two dozen houses and putting in four offers, all of which were turned down even though she offered at least $10,000 over the asking price.
Schuhart’s realtor explained that offers that waive inspections are much more likely to be successful, Schuhart said.
“But I don’t really have a lot of people who do handiwork in my life,” Schuhart said. “So that’s really scary to do no inspection at all, because if there’s something wrong with the foundation or the roof and I don’t know, that could put me in debt. Like totally wipe me out.”
Her offers have included what’s called an “informational inspection,” in which an inspection is allowed but the buyer can’t ask the seller to fix anything related to the house or property prior to move-in.
“I see a house, but I don’t even get excited anymore,” Schuhart said. “I text (my realtor) first and say, ‘What are my chances?’”
Schuhart is currently living in Penfield with her parents, who are looking to move south in the coming year.
She has shifted her search to townhouses because they’re often part of homeowners associations, which will take care of more significant structural issues with the home — meaning she’s less concerned about waiving an inspection, she said.
A seller in a seller's market
Arnie Hoch of Rensselaer County in the Albany area says its a seller's market, but only if sellers don't need to reenter the market after securing a buyer.
After living in a three-bedroom home in East Greenbush for four years, Hoch listed his home for sale this year and sold the property in less than three months.
Hoch, a sales rep for truck refrigeration equipment, said he began receiving multiple offers, letters and even cash offers immediately after listing the home for sale.
However, after three months of viewings and letters from prospective buyers, Hoch sold his home in the first week of April for $30,000 above asking price. The buyer decided to forego an inspection.
"If I would have held out I probably could have gotten more money, but … it is a tedious process," Hoch said. "You have multiple buyers asking $30,000 or $40,000 over the asking price and then you have people writing you letters wanting to get together with you and all that stuff."
The sales rep said prices on existing homes do not justify going back into the real estate market for the time being. Building a new home from the ground up may end up being more economical in the long run.
"There's too many people [buying] and not enough homes," he said. "Everybody is paying more than what [sellers] are asking for and more than it's really worth as far as an appraisal remains concerned."
Hoch said he is in search of land for new construction and that he estimates that it will cost at least $300,000 to start his venture. Realistically, however, he says he expects the increasing costs on lumber and consumer product to raise total costs on new construction to $400,000.
By the numbers
Jerry Gerke, a broker at RE/MAX Platinum in Rensselaer, says more home buyers and sellers in the Albany metro are resorting to escalation clauses than ever before as a result of the pace of the real estate market.
Before the pandemic, buyers could begin negotiating below the asking price listed, Gerke said; Now, all buyers begin bidding above the asking price if they want a real chance to close on a home this year.
"I have buyers that I had to call this morning and tell them, on their fifth time around putting an offer in that was $20,000 to $25,000 over asking, that they still did not get the property," Gerke said.
According to Greater Capital Association of Realtors, the median sale price in Rensselaer County increased by 10% in April to $225,900, while closed sales for the month increased by 13.5% over April 2020.
The New York State Association of Realtors, or NYSAR reported an increased in closed sales across the state approaching 30% in the first three months of 2020.
"With strong buyer demand and low inventory across most market segments both locally and nationally, multiple offers were a common occurrence during the quarter as the weather warmed and COVID-19 restrictions began to ease, creating even more urgency in an already frenzied market," NYSAR said in its first quarter report.
The trade group reported the following results for the first quarter of 2021:
- The median sale price of homes in New York increased by 23% to $357,000.
- There were 35,855 pending home sales at the end of Q1 2021, an increase of 32% over Q1 2020.
- The average number of days from when a property is listed to when an offer is accepted decreased from 81 days at the end of Q1 2020 to 67 days at the end of Q1 2021.
The existing shortage of available homes in the state and across the Northeast, according to the National Association of Realtors, led to a decline in existing home sales nationwide for the third consecutive month in April — except in the Midwest — despite double-digit growth on a year-over-year basis.
The National Association of Realtors said existing home sales fell by nearly 4% in the Northeast in March when compared to March 2020. However, the number of homes sold on a year-to-date basis represents a 30% leap from one year ago.
"Home sales were down again in April from the prior month, as housing supply continues to fall short of demand," Lawrence Yun of NAR said.
"We'll see more inventory come to the market later this year as further COVID-19 vaccinations are administered and potential home sellers become more comfortable listing and showing their homes.
"The falling number of homeowners in mortgage forbearance will also bring about more inventory."
‘I don’t care that I’m overpaying’:Houses are selling over asking price. Here’s how to win a real estate bidding war.
Mario Marroquin covers real estate and economic development. Click here to see his latest stories. He can be reached at email@example.com or @mars3vega
Sarah Taddeo is an enterprise reporter for USA Today Network's New York State Team. Got a story tip or comment? Contact Sarah at STADDEO@Gannett.com or (585) 258-2774. Follow her on Twitter @Sjtaddeo. This coverage is only possible with support from our readers. Please consider becoming a digital subscriber.