My 20-something son has been looking to rent an apartment in New York City, and recently showed me a listing unlike anything I’d seen before.
“The rental market is very competitive right now. We are routinely seeing bidding wars (usually reserved for apartments for SALE) on rental units. Based on the response to date, this apartment will surely be headed for competitive bidding, with the VERY HIGHEST OFFER taking it.”
While I knew that bidding wars on home sales were common in today’s hot market, I’d assumed that the price on rental listings was what tenants pay, period. Apparently, the rules have changed.
Are rental bidding wars the new norm?
While rental prices plummeted during the early days of the COVID-19 pandemic, particularly in big cities, the tables have turned today in a big way. And the reason for this is the same as for home sales: Demand is higher than supply, creating a pressure cooker situation that drives prices up.
While landlords typically raise the rent to what they think the market can bear, some are apparently shooting too low, which sets the stage for a bidding war.
“Properties are definitely in short supply, and demand is high. Rentals in [both] good and less desirable locations are getting multiple offers,” says real estate agent and attorney Bruce Ailion, of Atlanta’s Re/Max Town and Country. “For example, we had a property that had been renting for $1,260 a month. When the tenant left, we put the property on the market at $1,595 and had over 600 inquiries and close to 30 applications. That means we were underpriced for the current climate.”
Sometimes the surge of interest results in bidding wars or offers over the listed price. Overwhelmed, landlords might simply tell the applicants to submit their “highest and best offer” to see who comes out on top rather than sifting through the pile of applications.
Some agents or landlords anticipate a bidding war—and clearly state that in their ads so tenants like my son are prepared.
Where rental bidding wars are happening
While stories of rental bidding wars abound in New York, real estate agents and brokers in many big cities are experiencing the same trend.
“The L.A. rental market has become reflective of what we are seeing on the sales side,” says Blake Stargel, a real estate agent with Compass. “We’re seeing bidding wars with 10-plus offers leading to leases going for substantially over ask. This is now the norm. According to local agents, while 10% over asking is common, particularly hot properties can go for 1.5 times the listed monthly rent.”
The same is true in Austin, TX, according to local real estate expert Jasen Edwards.
“The inventory in the city and the suburbs is still low, yet the demand is constantly increasing,” says Edwards. “In the first quarter of the year, rentals sold out for 35% higher than the listed asking price.”
In some cases, renters are leveraging the situation to bring in a little extra cash.
In January 2022, Kevin Nguyen was moving out of his Austin apartment and looking for someone to finish out his lease at $1,673 a month. The intense response sparked a bidding war, and the “winner” wound up paying Nguyen $1,895, plus a $200 signing bonus.
When Nguyen moved into a new place in March, he had an extra bedroom to rent out.
“I listed it for $800 with utilities all included,” he says. “I got six interested parties that have resulted in a surprising bidding war. I accepted an offer of $1,100 per month, which is a 37.5% increase over the original price, which I would’ve been satisfied with.”
How to win a rental bidding war
If you’re caught in a bidding war for an affordable rental, you might be wondering if it’s even legal. Sadly, it is.
“There is nothing illegal about what’s going on in the market,” says Ailion.
Yes, it’s a tough market, but it won’t last forever.
“This tight market has prompted growth in supply, including new construction,” says Ailion. This is happening from the center of cities out to distant suburbs and should help ease the housing crunch.
“There may be a reset when the pandemic is fully in the rear-view mirror,” Ailion adds.
Still, until that happens, you will have to fight harder than ever to snag a rental today. So if you’re determined to find a great rental and are willing to bid for that chance, here are some tips to keep in mind.
Know that there is no magic number
Unfortunately, there aren’t any rules on what percentage over the list price is the “right” number. Some agents say 10% ought to win the lease; but in Nguyen’s situation, he got almost 40% over his original asking price for his extra bedroom.
Your best bet is to check what comparable properties are renting for, but also to make sure that whatever you offer is within your means.
Whether a rental ad states that bids are being accepted or that applications are being accepted for the set price, you might want to be proactive. If an open house is packed or the agent mentions that they’ve received oodles of applications, there is no harm in asking if you can improve your odds by offering to pay more per month or to increase your security deposit.
If you are in an area that is ultracompetitive, you are probably aware of the price range for rentals. If a place is priced $200 below that range, there is no harm and potentially a big plus to asking if you can bid $200 over asking to win the rental.
Know your budget
Don’t get caught up in the pulse-racing bidding game and wind up with a rental that’s way too high for your budget. Typically, the amount you spend on housing is looked at as part of your debt-to-income ratio. This ratio defines how much of your gross monthly earnings go toward rent.
The general rule is that your rent shouldn’t be more than 30% of your gross pay (before taxes are taken out). There are people who pay more, but remember this: You are also going to be paying for utilities, moving, insurance, and other expenses. Plus, you’ve got to eat!
Bottom line: Understand your limits. Here’s more information on knowing how much rent you can afford.
Get your paperwork in order
Complete your rental application quickly to show that you are serious and committed. Have your recent pay stubs, bank statements, tax returns, and other documentation (e.g., a copy of your driver’s license or a utility bill) downloaded or scanned.
Have extra money in the bank
It’s easier said than done, but having significant savings can make you look like a better prospect. Think about it: If you were a landlord and had two otherwise equal applicants bidding the same amount, and one had $10,000 in the bank and the other had $50, which one would you pick?
Some prospective renters have offered to pay their real estate agent or broker a higher fee as well, and others have offered to pay three to six months’ rent upfront.
Check your credit report
To the landlord, a high rental price is no good unless the tenant can pay it. And in this case, the landlord’s best guarantee that you’ll pay your rent is your credit score. This score sums up how reliably you’ve paid past debts such as credit cards and college loans. So, to get an edge over other applicants, make sure your credit score is in good shape—namely, by paying debts on time.
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