Would-be buyers who venture forth over the next several months are likely to find the number of houses for sale so sparse that they’ll end up bidding against each other for the best properties.

Bidding wars are great for sellers, because they often drive prices far higher. But they’re tough on buyers, who must decide between offering more than they want to spend -- or can realistically afford -- or losing the place to someone else. Not only that, but they have to make up their minds fast.

Bidding wars occur when the inventory of houses is low and demand is high. And because of the pandemic, owners have been reluctant to put their homes on the market. According to realtor.com, the number of houses for sale in late June was down 30% from the same time a year ago.

But sales activity is starting to pick up. Buoyed by mortgage rates at their lowest levels in five decades, buyers are snapping up houses almost as fast as they are put on the market.

The result can especially be seen in places like Boston, Salt Lake City and San Diego, according to Redfin agents in those markets. In June, more than half of all Redfin listings nationwide drew more than one bid. But in Boston, nearly 3 out of 4 buyers faced competition; in Salt Lake City and San Diego, about 2 of 3 buyers are bidding against each other.

Consequently, sellers need to be prepared for the possibility of receiving multiple offers, and buyers need to put forth their best from the get-go. Now is not the time to start low and try to negotiate.

Here’s a look at some bidding war strategies, from both the seller’s and the buyer’s points of view.

-- Sellers. Don’t entertain offers piecemeal, one at a time. After a reasonable amount of showing time, your agent should set a deadline for accepting any and all bids. Then, you and your agent can go over them and decide which, if any, you will accept. The agent should also specify that he or she is expecting multiple offers, so buyers will put forth their best bids right out of the box.

State laws differ, but for the most part, you can consider as many offers as you like. You can accept, reject or counter any offer, or do nothing and wait for others.

You don’t have to accept the highest offer; you could take a lower offer based on other terms or conditions. You may allow one buyer the chance to submit another bid, or you can tell a few -- or even all -- to try again. Bear in mind, though, that if you disclose the fact that you have received multiple offers to one potential buyer, you have to disclose it to all of them.

“It’s either all or none,” says Austin, Texas, agent Donna Harris.

In New York (and most other states), there is no obligation on the seller’s part until there is a fully executed contract, says Mitchell Hall of Compass in Manhattan. And sellers should not entertain anything other than a written offer. One anonymous agent told me that a verbal offer “is not worth the paper it’s not written on.”

-- Buyers. If you can make an all-cash offer, you are ahead of the game. All-cash bids are golden because they come with no financing strings attached. Even though the sellers will get all their money at closing whether you pay cash or take out a mortgage, there’s always the possibility that the buyer’s financing will fall through. So green is, indeed, gold.

If you have to rob your retirement plan to make a cash offer, realize there are loan programs that allow you to refinance the property within about six months of purchasing it, so you can get the lion’s share of your cash back to replenish your old-age account. But make sure you qualify and understand the rules first before you go this route.

If you must finance the purchase, secure a lender’s approval in advance. It’s free and shouldn’t take long -- certainly not more than 24 hours, if you have at hand all the documentation you’ll need, says Rob Spinosa of Guaranteed Rate in Marin County, California. Among other things, you’ll need proof of income, employment and assets.

The process could take longer if your situation is complex, so start early. In addition to the above, a lender will want to see proof of self-employment, perhaps a profit and loss statement, two years’ worth of tax returns and current leases on all rental properties you own.

These days, you can do most of the legwork online at no cost. But depending on your situation, it might be better to seek a no-cost consultation with a loan officer or mortgage broker.

No matter what price range you are searching in, it’s best to max-out your preapproval to the largest amount you qualify for, suggests Dixie Sanders with Homebridge Financial Services in Sugar Land, Texas. That way, she says, “you won’t need to circle back later” if you find a place that exceeds your original search criteria. You may not need to actually borrow that much, but you’ll be ready if the need arises.

NEXT WEEK: More bidding war tactics for buyers.

Investors in private mortgages are licking their chops over what some see as a pending tidal wave of note sales in the coming months.

They believe many sellers will be forced to finance their own sales -- or, in the parlance of the trade, “hold the paper” -- because their buyers won’t be able to qualify for a mortgage from traditional lenders.

“More than half of the loans made in 2019 would not meet today’s criteria,” says Sarah Strochak, a research analyst in the Urban Institute’s Housing Finance Policy Center.

Some sellers will be content to collect their money bit-by-bit over the months, as though they were landlords. But note-buyers think those who want their proceeds sooner, and in one lump sum, will want to sell their paper, even if it means putting less cash in their pockets.

“A seller-held tsunami is on the horizon,” says William Mencarow, publisher of The Paper Source newsletter.

Scott Arpan of Advanced Seller Data Services, a supplier of leads for seller “carry-back” notes, believes a slew of paper will hit the market in the coming months.

“History shows we will see a flood of new notes,” Arpan says. “Unless the economy can quickly return to full employment, many (buyers) will suffer damaged credit even when they are responsible borrowers.”

The question for sellers, then, is how to create a financing vehicle that investors will want to take over if and when the time comes to sell it.

For starters, spend the money to have a local real estate attorney create the necessary, state-specific documents. Absent that, find a paralegal to handle the task, or search the legal websites. Your house is too valuable to rely on standard forms sold at office supply stores.

Realize, too, that you’ll have to sell at a discount, otherwise there’s no reason for an investor to take the mortgage off your hands. And the price they pay depends on any number of variables. The closer the paper is to bank quality, though, the smaller the discount.

Says Mencarow, most legit note-buyers are looking for seasoned notes -- those that are at least six months old, and that have been paid on time. Even more important, however, is what you collect each month. The monthly payment is “the single most powerful financial aspect determining the value of a note,” according to Mencarow.

An amortized note is more valuable than one with a balloon payment at the end of the loan’s term, he adds. In other words, all else being equal, a 10-year note with a large monthly payment and no balloon is worth more than a 10-year note with a smaller monthly and a balloon payment at the end.

According to Mencarow, a single-family house in a stable neighborhood and occupied by a borrower with an excellent credit record and an unblemished payment record is “the best collateral possible.”

Some note-buyers might use a different hierarchy. Either way, you’ll want your mortgage to be in the first lien position, because if you have to foreclose on your borrower, you’ll want to be the first creditor to be paid from the proceeds of the property’s sale. That’s why a first lien is more valuable than a second -- and a second, though not as valuable, is more so than a third.

In taking back paper, the seller becomes the lender. Consequently, you should check out your buyer in the same way a conventional lender would. That means asking for a full-blown credit report, which the buyer pays for.

Also check his or her employment history, looking for at least two years at the same company (or at least in the same field). Ask for their tax returns, a list of all assets and debts, rental history and perhaps even a criminal background check.

Why go to all this trouble? For one thing, you will be protecting yourself from dealing with someone who doesn’t pay as promised. But for another, someone who buys your note will want to know the same.

Mark Donoghue of the Americus Financial Group says he pays “careful attention to our due diligence and underwriting.” Nathan Turner, also known as “the Canadian Note Guy,” says his pencil “is a little sharper” these days. And Kevin Clancy of the American Funding Group requires a borrower interview before closing the deal.

“We’re very concerned about a borrower’s ability to pay,” Clancy told The Paper Source recently. “Last week, we were buying a nice residential note in Florida. Our final step was a payor interview. When we talked to the borrower, he asked if we could defer payments as he has lost his job. We can’t buy a note when the borrower doesn’t have income.”

You should always seek as large a down payment as you can obtain. Just like a conventional lender, you’ll want your borrower to have as much skin in the game as possible. After all, the more money your buyer has in the deal, the more difficult it will be for him or her to walk away.

“Equity, equity, equity,” says Donoghue. “This remains our No. 1 risk characteristic.”

Your location also may determine your ability to sell your loan to an investor, at least for a better price. For example, Donoghue is not buying in California, New York, Connecticut and a few others states. And Gene Powers of Nationwide Secured Capital is shying away from places related to large airline and tourism employment.

Paige Panzarell, aka “the Cashflow Chick,” says she has always been careful about buying paper in states where it is difficult or takes too long to foreclose. And she may even eliminate even more states over the coming months.

Fuquan Bilal of NNG Capital, which buys mostly second liens, is also retooling in anticipation of a strong market starting in the third quarter, as sellers begin a search for liquidity. “It will be a buyer’s market again real soon,” he told The Paper Source.

There’s lots of good information on real estate websites, but ratings of individual agents probably aren’t worth much.

According to the latest report from the Consumer Federation of America, you should approach such ratings with a healthy sense of skepticism. “Consumers will learn far more about agents if they read all the customer reviews,” said the study’s author, Stephen Brobeck -- the key word being “all.” Many, or even most, of the reviews on a given site might be positive. You’ll have to read every last one of them to find out if a previous client had problems or issues you should be concerned about.

“There has to be a critical comment in there somewhere,” says Brobeck, who headed the CFA before relinquishing that post to become a senior fellow. “So read all the reviews carefully and look for details.”

Even at that, though, you may not get the full picture of an agent’s prowess.

Most reviews are accurate, at least on Zillow’s website, Brobeck’s study found. The site vets all legitimate reviews that are submitted, and agents are not permitted to remove the negative ones.

However, on the other sites studied -- realtor.com, HomeLight, Yelp and Facebook -- the agent has the option of including only favorable reviews, according to the report. And as this column pointed out in early January, sites operated by agents often include fake reviews from friends, colleagues or the agents themselves.

Customer ratings can be even more bogus, according to the study. Ratings are usually on a scale of 1 to 5, but nearly all of the hundreds of agents studied by the CFA were rated at 4.0 or better, with “a large majority” of the sample receiving a 5.0.

It’s strange, indeed, that there’s not an average agent in the bunch.

The study found numerous cases in which agents with “very few and sometimes only one customer comment” were anointed with a 5.0 rating. A “significant minority” with a 5.0 rating had three or fewer customers.

“The ratings are not that helpful,” Brobeck told me. “They are inflated and do not provide a reliable basis for comparing agents.”

The new report is the fourth in a series on real estate from the CFA. Two of the previous studies dealt with issues concerning agent representation, and the third covered the commissions agents and their brokers charge.

Nine in 10 buyers and sellers use an agent, yet most of them undertake limited searches before hiring one, if they search at all. According to research from the National Association of Realtors, 75% of buyers and sellers interview just one agent.

But, as the CFA report points out, “there can be a huge gulf between the quality of services offered by different agents.” And they usually charge the same, whether they’re experienced or not. That alone is reason enough for buyers and sellers to do their homework.

Unfortunately, most people go with the first agent they speak to, without looking into past sales, when those sales were completed and whom the agent represented -- the buyer or seller. Without that information, Brobeck says, it is difficult to determine whether the agent has had recent clients.

Here, Zillow earns high marks. Based on a sample of active agents in 30 cities, the study found that the popular site is most likely to include date and party represented for past sales. NAR’s website, realtor.com, came in second, but it only listed past sales in little more than half the agent profiles, and only 1 in 5 profiles included customer reviews.

The others were far behind, even worse than the agents’ website themselves, which tended to list past sales and more customer reviews than Yelp, Facebook or HomeLight.

Even at that, Brobeck warned that Zillow’s customer reviews “are not unbiased” because almost all of them are from customers who have been asked by their agents to post their thoughts. Obviously, agents don’t ask their unhappy customers to report how they feel.

The report also notes that some of the sites trade high ratings for advertising dollars. “An agent receiving a rating below 5.0 isn’t likely to cooperate with the site, let alone pay for advertising,” it says.

In studying agent profiles, consumers would be better served by paying particular attention to their recent activity. They should also look at the price history of properties listed by the agents to learn how long it took them to sell and whether the selling price was marked down, and by how much.

Recent sales mean the agent is active in the market, while substantial price reductions could indicate that the agent inflated the original asking price and had to lower it to net the sale. Days on the market can also indicate whether the place was priced right or not.

When you’ve picked a few agents who seem to stand out, interview each one in person. Ask if they are part of a team in which the work is delegated, and ask for an explanation of why the property is worth what the agent believes it to be. Determine how long the agent has been in the business, and whether they have worked in the specific community or neighborhood where you are buying and selling.

As Brobeck points out, it’s far easier for a realty agent to secure a license than it is for hairstylists. In some states, an agent can obtain a permit after only a month or two of training.