A rise in the number of people looking to buy homes and a historically low inventory has led to an all-out bidding war in Kirkland.

In March, a fourth of single-family homes sold in Kirkland (21.6 percent) were purchased with cash, according to real estate company Redfin. At the same time, Redfin reported that the number of homes on the market in the greater Seattle metro area are at record lows.

The lopsided situation is now heavily slanted in favor of home sellers, while decreasing purchasing power is pushing out many potential home buyers into other communities, according to Kirkland-based Redfin broker KC Brants, who said this trend has been going on since the middle of 2013.

“What we are seeing is a fierce competitive market,” she said.

This competition has led to a 11.7 percent jump in single family home prices in Kirkland from last year, according to Redfin, with the median price at $620,000. There was also a 33.8 percent jump in single family home sales, with 95 homes sold in March. In the same time frame, inventory of single family homes dropped 20.6 percent. In February, Redfin also reportedly found that the city’s luxury market outpaced the rest of the market by 28 percent during the first quarter of this year.

Those who make up the cash buyers in Kirkland tend to come from several backgrounds, according to Brants. Although some are foreign investors, others withdraw from their other financial investments and use the liquid assets to purchase a home outright, then refinance the home and put their money back into investments. Other cash buyers are looking to invest more heavily in real estate rather than the stock market because they believe it will perform better in the long run, according to Brants.

Though the homes purchased by cash buyers are spread throughout the city, they tend to be located near tech hubs such as Google’s Kirkland campus, according to Brants, as the buyers focus on properties with the intention of renting. Cash buyers also have had an effect on the terms of the sale not just by decreasing the amount of time needed to close a sale – the median time a single family home spent on the market was seven days – but by removing the presence of a lender. While lenders require an appraisal of the home’s value in order to finance the buyer’s mortgage, with cash buyers, no appraisal is necessary, which gives them an edge when competing for home purchases with other bidders. A buyer using a lender can still compete, however, by agreeing to financially cover any difference between the appraisal and the asking price, according to RE/MAX Northwest realtor/broker Debbie Walter. But in order to match, buyers with lenders may have to waive all contingencies, which concern the conditions under which a prospective home buyer can withdraw a deposit made at the beginning of the transaction.

“You have to go in a bit naked in regard to your protection,” Brants said. “It becomes a battleground of sorts, where you’re competing in a multiple offer situation against cash buyers where the only way to beat them is to waive all contingencies. It becomes who wants it the most, essentially.”

Even with such stipulations by the seller, the sheer number of bidders with money to spare can push the final offer well above the price at which it would normally sell. Walter, who also works in Kirkland, said some buyers use escalation clauses when putting in an offer. With this clause, a potential buyer puts in their bid, but also states they will pay a certain amount above the highest offer if it is higher than theirs, up to a certain amount. If two bidders contain escalation clauses in their offers, then the winner is determined by the maximum amount they are willing to pay outright for the home.

The competition has also made it very difficult to anticipate how much a house might sell for, something which was fairly predictable in the past.  One example Brants gave was a Kirkland home that, in spite of needing renovations, sold approximately $100,000 above the initial asking price, $560,000, after they received 15 offers, with the buyer waiving all contingencies.

Though the market currently favors sellers, at some point buyer fatigue may curb their expectations, Brants said.

“Sellers are definitely in the driver’s seat,” she said. “They can make the rules if they have enough interest in the home, and interest will be determined by pricing it appropriately.”

However, she said, sellers run the risk of getting too greedy, such as asking too high a price and not getting enough offers to compete against one another, ultimately resulting in a lower price than if they had priced it appropriately.

“When I’m talking to sellers about selling their home, I compare it to a race,” she said. “You have to set your finish line, the final purchase price. Where you set the price determines how many participants.”

Walter pointed out that the highest price doesn’t necessarily determine which bid the seller accepts. The terms of the sale, such as closing date, financing, and whether inspections are waived or not, can cause a seller to go with a bidder with a lower price if the terms are more agreeable.

Both Brants and Walter believe the rise in home prices isn’t going to end anytime soon. One of the reasons is that while prices may be high compared to years before and other cities in the state, they are still lower when compared to major tech hub cities such as San Francisco. Many of those homes in Kirkland, Brants said, are purchased by tech employees looking to get more bang for their buck.

“Their (Kirkland) prices have just skyrocketed,” she said. “But when you compare (with other cities), we’re still a bargain, and that’s how the tech industries are selling it…You can afford so much more home for your money here… There’s still room for us.”

Another reason for the spike in home prices is the low inventory, partly caused by a lack of property to build single family homes. Developers are also looking to build denser buildings such as condos and apartments, according to Brants. Ironically, the continual rise in prices may also be a factor in the lack of for sale signs outside of single family homes, as the owners may hold off on selling in hopes the prices continue to go up, according to Brants.

On top of that, the shortage of homes may make some current owners reluctant or unwilling to sell because they are unable to find another home to purchase, Walter said.

“They don’t want to sell their home and then have nothing to go move to,” she said.

The shortage of homes on the market is not unique to Kirkland. The Seattle metro area – made up of King and Snohomish County – has recently experienced historic lows in its inventory, according to Redfin. Much like the presence of tech companies in Kirkland has helped attract buyers working in the industry, the high demand throughout the metropolitan area is due to what Walter described as a high number of major employers – including Amazon, Boeing, UW Hospital, Costco, Starbucks and Boeing – compared to other similarly sized cities, as well as a high quality of life and affordability. In 2014, the median household income in King County was roughly $71,000, according to the State Office of Financial Management, compared to $53,891 for the entire country.

“People just move here because of quality of life,” Walter said. “Housing is still considered very affordable.”

Though the high prices may seem to be a repeat of the housing boom that eventually came to a crash in 2007, both Brants and Walter see significant differences, one of which is the inventory shortage not present before. A decade ago people were often buying homes with a zero downpayment, whereas currently the average down payment for a home is 22 percent.

“These are well qualified buyers,” Brants said.

The result is a much lower rate of defaults, less than three percent, since 2011, according to Walter.

“We are not having consumers default on their mortgages because they got equity,” she said. “They got cash and they got good jobs.”

Raising historically low interest rates might have slowed things down, she said, but now that the possibility is off the table, for the time being at least, the prices just keep going up.

“This is just a level of ramping up of prices I have never seen before, and it doesn’t feel that the end is near,” Brants said.

With such intense competition for the few homes available, buyers who ordinarily would have been able to find one in Kirkland have either remained renters until they can find a place or look elsewhere in the region where home prices have historically remained consistent, such as Duvall, Carnation, Kent and Everett. In these cities, both Brants and Walter said they are already beginning to see signs of bidding wars as well. Walter said one home in North Bend recently received 13 offers.

“I don’t see anything on the horizon that’s going to slow this down anytime soon,” Brants said.