When Erin Wheelock recently listed a two-bedroom, three-bath condominium in New York City’s Flatiron District, she knew it would be snapped up quickly. What she didn’t expect, however, was that she’d receive six bids the first weekend after the unit hit the market—and that it would end up renting for $13,300, nearly 11 percent over the asking rent of $12,000 per month. The winning bidder also agreed to pay her brokerage commission.
That’s right—Wheelock was involved in a bidding war on a condominium listed for rent, not for sale. And she’s not the only one.
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According to Jonathan Miller, president & CEO of New York real estate appraisal and consulting firm Miller Samuel, the market share of bidding wars surged to 19.8 percent of all Manhattan rentals in March 2022, up from 18.5 percent a year earlier. That means that nearly 20 percent of rental properties in March were leased for more than the landlord was originally asking.
“It’s a challenging market,” said Wheelock, a licensed associate real estate broker with Keller Williams New York City. “There’s high demand and low supply.”
Wheelock said that people migrating to New York are competing with existing renters looking to move to lower-priced units because their so-called “COVID deals,” which she describes as “insane rent cuts and free rent during COVID,” are expiring. She said that bidding wars for available properties are common, no matter what the asking rent.
According to Green Street, a real estate analytics firm, occupancy rates on institutional-quality apartments reached 96.7 percent nationwide in 2021, while single-family rental occupancies surged to 96.9 percent. With so few rental properties on the market, many prospective renters have no choice but to compete for available units.
But this is unknown territory for many landlords and managers, who are facing bidding wars for the first time —particularly private owners of condominiums, cooperative apartments and single-family rentals, who are more likely to face multiple offers than institutional apartment companies, which typically lease to the first qualified renter to apply.
Here are some strategies for owners and managers facing a bidding war.
Use objective criteria
Large and institutional landlords have established procedures based on objective criteria to rent vacant units. Michael H. Zaransky, managing principal of MZ Capital Partners, said his five apartment communities are 100 percent occupied. “We do frequently get multiple applications for an available apartment at the stated available monthly rent, but we have not seen bidding wars,” he said. Instead, the first application that meets the firm’s credit, income and screening criteria gets the unit.
Similarly, Mark S. Wolf, founder & CEO of AHV Communities, which has 17 single-family rental communities in operation and development, said that when prospects visit a community, they tour the property and see available homes for rent. “They either take a unit or get on a wait list,” he said. “When they get their unit, we set the market rate.” Renters have to complete an application process, just like at an apartment community, that consists of objective criteria. They go through credit and background checks; if someone doesn’t qualify, the home goes to the next person on the waiting list.
Even mom-and-pop investors understand the importance of relying on objective criteria. When David Dweck, a real estate agent in Boca Raton, Fla., who invests in single-family rental properties in Florida and North Carolina, recently listed a home in western North Carolina for $1,200 a month, he didn’t expect to receive hundreds of inquiries within a single day. He showed the unit to multiple prospects and received multiple bids.
“If I can get over asking, great, but the resident also has to be qualified,” Dweck said. “I rent to the most-qualified (resident)—it doesn’t have to be the highest price.” He ultimately rented the house to an army veteran, who was the most-qualified resident and had good references. “Deal honestly, know the protected classes and remember that money is green,” he said. “The most qualified person gets the property.”
Decide ahead of time which criteria are most important
If you’re expecting to receive multiple offers, decide upfront which factors are key to your decision. Wheelock said her owners look at the price offered, the start date and whether the prospect will cover the brokerage commission.
But make sure those factors fall within the law. “Choose non-discriminatory factors when making your determination,” said Ira Rheingold, executive director of the National Association of Consumer Advocates. “Either you’re going to accept the highest bidder, which is the easiest way, or if not, there have to be other factors.”
Rheingold said that lawful criteria to consider include a prospect’s rental history and income. “Have a system in place,” he said. “It’s not a ‘feeling’ type of thing. If someone comes along and offers $1,000 more and their rental history is pristine, and the landlord still takes someone over them, that raises a red flag.”
Consider a longer lease
Sometimes a bidder will offer to sign a two-year lease, rather than the 12-month lease standard in New York City. Depending on your market, it might be wise to lock that renter in, particularly if they are offering above-market rent. While the market is surging now, no one knows what it will be like in 12 months.
Use a real estate agent
A bidding war can be challenging to handle, particularly if you haven’t faced one before. With multiple offers to wade through under intense time pressure, it could be helpful to have a professional on your side, particularly because prospective renters in a bidding situation may offer to pay that agent’s commission. Leverage the skill and experience of a qualified agent.