Real Estate Bidding Wars Reappear

The Real Estate section of The New York Times this week features a great feature on the reappearance of bidding wars in New York City. While one might wonder about the connection between reverse mortgages and bidding wars, the two really are not as far apart as they may seem. One of the largest concerns faced by reverse mortgage borrowers is what will happen to their heirs when they pass away. In a better market, one could have argued that the home would sell for more than was owed in the reverse mortgage, leaving a surplus for heirs. Now, with the market so low, many are making the reverse argument- that the FHA mortgage insurance premium (MIP) protects heirs if the reverse mortgage is worth more than the home sells for.

But as the article on bidding wars points out, a home must be priced properly to lead to a bidding war. Many homes are listed at above market value, leading to increased inventory but low demand. However, if a home is priced appropriately or even a little bit below market value, it is more likely that a bidding war over the home will result--especially if it is a good piece of property. In the examples mentioned, many sellers were able to significantly increase the price they received for their homes by starting a bidding war.

As a result, when pricing homes to sell, homeowners should research the market and make sure that their homes have been priced appropriately. A correctly priced home is likely to sell faster. Clearly some markets are more likely to see bidding wars erupt than others (New York City certainly being one of them), but it's still an important phenomena for sellers to keep in mind, meaning that heirs may be able to receive more when discharging a reverse mortgage debt than they otherwise thought.