Inside the wild world of rental bidding wars and what it takes to win
My 20 year old son was looking to rent an apartment in New York and recently showed me an ad unlike anything I had seen before.
“The rental market is very competitive right now. We regularly see bidding wars (usually reserved for apartments FOR SALE) over rental properties. Based on the response to date, this apartment will surely be up for tender, with the HIGHEST BID taking it.
While I knew bidding wars over home sales were common in today’s hot market, I had assumed that the price of rental listings was what tenants were paying, period. Apparently the rules have changed.
Are rental bidding wars the new norm?
While rental prices fell at the start of the COVID-19 pandemic, especially in major cities, things have now changed a lot. And the reason for this is the same as for home sales: demand outstrips supply, creating a pressure cooker situation that pushes prices up.
While landlords generally raise rent to what they think the market can bear, some are apparently shooting too low, setting the stage for a bidding war.
“Properties are definitely scarce and demand is high. Rentals at [both] good and less desirable locations get multiple offers,” says real estate agent and attorney Bruce Ailionof Atlanta City and Country Re/Max. “For example, we had a property that was 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 nearly 30 requests. This means we were undervalued for the current climate.
Sometimes the renewed interest results in bidding wars or bids on the listed price. Overwhelmed, owners could simply tell applicants to submit their “highest and best bid” to see who comes out on top rather than sifting through the pile of applications.
Some agents or landlords anticipate a bidding war and make it clear in their listings so renters like my son are prepared.
Where Rental Bidding Wars Happen
While stories of rental bidding wars abound in New York, real estate agents and brokers in many major cities are experiencing the same trend.
“The L.A. rental market has become a reflection of what we see on the sales side,” says Blake Stargel, real estate agent at Compass. “We are seeing bidding wars with 10+ bids leading to leases going significantly above demand. This is now the norm. According to local agents, while 10% overcharges are common, particularly hot properties can cost 1.5 times the listed monthly rent.
The same is true in Austin, TX, according to a local real estate expert Jasen Edwards.
“Inventory in the city and suburbs is still low, but demand continues to grow,” says Edwards. “In the first quarter of the year, rentals sold for 35% more than the listed asking price.”
In some cases, tenants take advantage of the situation to bring in some extra cash.
In January 2022, Kevin Nguyen was moving out of his Austin apartment and looking for someone to finish his lease at $1,673 a month. The intense response sparked a bidding war, and the “winner” ended up paying Nguyen $1,895, plus a $200 signing bonus.
When Nguyen moved to a new location in March, he had an extra room to rent.
“I listed it for $800 with all-inclusive utilities,” he says. “I had six interested parties which resulted in a surprising bidding war. I accepted an offer of $1,100 per month, a 37.5% increase over the original price, which I would have been satisfied.
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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. Unfortunately, this is the case.
“There is nothing illegal about what is happening in the market,” says Ailion.
Yes, it’s a tough market, but it won’t last forever.
“This tight market has led to growth in supply, including new construction,” says Ailion. This is happening from the center of cities to outlying suburbs and should help alleviate the housing crisis.
“There may be a reset when the pandemic is entirely in the rearview mirror,” adds Ailion.
Yet until that happens, you’ll have to fight harder than ever to land a rental today. So if you’re determined to find a great rental and are ready to bid for that chance, here are some tips to keep in mind.
Know that there is no magic number
Unfortunately, there are no rules on what percentage of the list price is the “right” number. Some agents say 10% should win the lease; but in Nguyen’s situation, he got nearly 40% more than the original asking price for his extra room.
Your best bet is to check how much comparable properties are renting, but also to make sure that whatever you are offering is within your means.
Whether a rental listing says offers are accepted or requests are accepted for the set price, you might want to be proactive. If an open house is full, or the agent mentions they’ve had a ton of applications, it’s okay to ask if you can improve your chances by offering to pay more per month or increase your security deposit.
If you are in an ultra-competitive area, you probably know the rental price range. If a home costs $200 below that range, there’s no harm and potentially a big plus in asking if you can bid $200 more than asking to win the rental.
Know your budget
Don’t get caught up in the bidding game and end up with a rental that’s way too high for your budget. Generally, the amount you spend on housing is considered part of your debt-to-income ratio. This ratio defines the share of your gross monthly income devoted to rent.
The general rule is that your rent should not exceed 30% of your gross salary (before taxes). There are people who pay more, but remember this: you will also pay for utilities, moving, insurance and other expenses. Besides, you have to eat!
Conclusion: understand your limits. Here’s more information on how much rent you can afford.
Put your papers in order
Complete your rental application quickly to show that you are serious and committed. Have your latest pay stubs, bank statements, tax returns, and other documents uploaded or scanned (for example, a copy of your driver’s license or utility bill).
It’s easier said than done, but having significant savings can make you look like a better prospect. Think about it: if you were an owner and two otherwise equal candidates offered the same amount, and one had $10,000 in the bank and the other had $50, which one would you choose?
Some potential tenants have also offered to pay their real estate agent or broker higher fees, and others have offered to pay three to six months’ rent up front.
Check your credit report
For the landlord, a high rental price is only good if the tenant can afford it. And in this case, the landlord’s best guarantee that you will pay your rent is your credit score. This score summarizes how reliably you have paid past debts such as credit cards and college loans. So, to have an edge over other applicants, make sure your credit score is in good shape, including paying your debts on time.