Rather than risk losing the Capitol Hill two-bedroom, first-time homebuyer Wade Kirshy made a generous offer, $7,000 above the asking price. But less than 24 hours later, the 28-year-old Washington, D.C., attorney received surprising news: His offer was only one of 11 and the sellers chose another bid.

In another sign of a housing market recovery, bidding wars are back. Not everywhere, but in some upper-middle class suburbs around San Francisco and New York, and other areas where prices have hit bottom, first-time buyers eager to take advantage of relatively low prices and low mortgage rates are actually driving up prices, says Tara-Nicholle Nelson, an analyst at Trulia.com. Buyers are competing at the low end of the market, too, for homes under $200,000 and foreclosures, as buyers with smaller budgets take a stab at ownership. And for sellers, that might mean their long-awaited day has finally come.

In fact, in many areas, homes are selling at pre-crash prices. During the bust, in Chicago s Loop and Berkeley, Calif., houses were selling for as little as 4% below the asking price now they re back to 5% above, according to ZipRealty. Similarly, in distressed cities like North Las Vegas, Fort Lauderdale, Oakland, Calif., and Chicago s Greater Grand Crossing, homes are selling at up to 9% above their asking price, as buyers clamor over foreclosures and short sales, says a ZipRealty spokesman. Of course, even after a bidding war, many of these houses are still bargains 9% over an asking price that's 50% off its peak value is still a deal.

But experts say bidding wars play on buyers' worst fears. When an offer is rejected, it fosters a sense of urgency, so they ll place more aggressive offers on the next homes they bid on, says Nelson. Kirshy, whose bid for a home was rejected, says he ll act faster with his highest offer the next time he finds a house he likes as much. In the worst-case scenario, buyer psychology could boost home prices beyond what they re really worth. That's the kind of whirlwind that led to the last bubble, with the potential for financial disaster for buyers who overspend, says Jack McCabe, an independent housing analyst.

To avoid a bidding war, here are three things a buyer can do:

Research a neighborhood's inventory

In a real buyer s market, houses sit on the market for more than six months before selling. To find out how long is typical in a given neighborhood, compare the number of active listings to those that are under contract if there s a glut of houses on the market, there will be far more of the former than the latter. If that s the case, and home prices have dropped because there are too many homes for sale, getting into a bidding war might not be so bad. Buyers could bid up the price, and the house could still sell for less than what it s worth.

Watch the jobs numbers

Areas with strong employment numbers are more likely to see bidding wars, because that s where more people have the credentials a down payment, work documentation to buy a home, says John Mulville, a vice president at Real Estate Economics, which tracks real estate data. For example, the average unemployment rate in the Arlington, Va., metropolitan area is 5.9% significantly lower than the national average of 9.6%. Homes are flying off the market there; recently sold homes outnumber the current active listings by 56%, according to Trulia.com, and the median sales price is up 2% from last year.

Don't go to war over a foreclosure

Bank-owned foreclosures sell for about 36% less than regular listings, according to RealtyTrac, and they account for about 16% of all sales. But buyers often lose track of their goal with a foreclosure to buy a home at a big discount when competing offers kick in, says Mynor Herrera, a Weichert realtor who specializes in Washington D.C. and Montgomery County, Md. In general, buying a foreclosed property at 30% above the asking price wipes out any savings from a foreclosure. Then there are the renovation costs, which could include installing a new kitchen and bathrooms, or even replacing a roof. Buyers should consider these costs when bidding. At a certain point, that house may no longer be such a bargain.

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