The difference is that when you hire me to sell your house – you get me, a long-time veteran of bidding wars and how to handle them with specific strategies so you sell for top dollar.
Anybody can shuffle multiple offers – my skill is getting them to compete against each other and drive the price higher.
Could prices keep going higher? Yes, due to the lack of inventory. It is a game-changer that we haven’t experienced before – usually as prices rise to new levels, sellers tend to flood the market to get out at the top.
Not this time.
Our local NSDCC inventory has been steady – no big rush by sellers to cash in, mostly because they have nowhere to go that is any better.
NSDCC Total Detached-Home Listings, Jan 1 to Aug 15
2004: 3,671
2005: 3,706
2006: 4,369
2007: 3,823
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2012: 3,151
2013: 3,471
2014: 3,403
2015: 3,474
Could it continue? Yes, it could. We all know about how the San Francisco market has been fetching extraordinary prices. Yet, their inventory is not exploding – instead, it’s going down.
From the WSJ:
A scarcity of listings is sending prices to new highs. In June, the number of new listings in San Francisco was down 23.1% from a year prior, according to the San Francisco Association of Realtors. The average listing spent 26 days on the market, compared with 31 days in June 2014. Median sales prices were up to $1.177 million—a 12.1% jump from a year ago. Real-estate agents say bidding wars are most common on properties priced below $2.5 million, and that buyers often make offers on numerous properties—anywhere from two to 20—before finally winning one.
Read the full story here, with many bidding-war examples:
Bravo’s reality show “Million Dollar Listing San Francisco” debuts July 8, but I already have an idea for a spinoff — “Million Dollar Over Listing.” It would feature homes in the Bay Area that sold for at least $1 million more than the list price.
There were at least 10 such sales in San Francisco over the past year, 14 in Santa Clara County and five in San Mateo County, according to Multiple Listing Service data. They ranged from teardowns to mansions.
A home at 178 Sea Cliff Ave. in San Francisco, for example, sold in April for $11 million, which was $4.7 million or 75 percent over the $6,298,000 list price.
Patrick Carlisle, chief market analyst with Paragon Real Estate Group, chalks it up to the “general insanity of the overheated market,” which stems mainly from demand outstripping a long period of below-average inventory. In addition, “many agents have adopted a strategy of egregious underpricing,” he said.
In San Francisco especially, underpricing is so prevalent that most buyers search for homes well below their target price, knowing the sale price will be much higher.
“If you price (a home) where it should be, it will sit,” said Realtor Alan Canas.
Canas represented the sellers of a home at 44 Everson St. in San Francisco’s Glen Park neighborhood. The four-bedroom, four-bathroom home was somewhat dated but had magnificent views, which were hard to value.
Canas priced it at $1.8 million in October, expecting it would sell for $2.3 million to $2.4 million.
“The offers we received, it was shocking,” he said. He made counter offers to the two highest — $2.65 million and $2.725 million — asking them to come up to $2.8 million. “One jumped, the other jumped too late,” he said.
What if he had listed it closer to his expected price? “If we had priced it at $2.2 million, I honestly don’t think it would have seen the play (it got) at $1.8 million,” Canas said. “It’s psychological, almost a game.”
The top two offers were both all cash, which is good because if the buyer had needed a loan, “I don’t think it would ever appraise at $2.8 million,” he said.
The local market has been very competitive lately, with multiple offers on every quality offering. Here are other things for home buyers to expect from sellers once you start making offers.
These aren’t thought out clearly by listing agents; instead, they are things done to them on previous deals so they will want to impose them on you whether they make sense or not:
1. They will want you to shorten your contingency periods.
The common belief is that shorter periods will make you move faster, and then blow you out quicker if you aren’t a player. But in reality, buyers get irritated and want to pay less or cancel as the manipulations start mounting.
2. No appraisal contingency.
Buyers are prone to think, “But this is your price, and you want me to risk the appraisal coming in low?”
3. Seller rentback.
Sellers want you to fund their retirement account, and have you let them live in your house for free for weeks or months. Make sure the rent is retail-plus with heavy penalties if they don’t leave on time to ensure they move as agreed. Consider that the seller could declare bankruptcy the day after closing and make your life miserable for six months.
4. Ernest-money deposit.
Even though it is refundable until you sign off all contingencies, the sellers will want you to increase it, just to make sure you know who the boss is.
5. Buying ‘as-is’.
It already says in the contract boilerplate that the property is sold “as-is”, but the listing agents will mention it again just so you don’t get any ideas about asking for seller repairs. Once you complete your inspection, the sellers and agent will expect you to live with any defects – regardless of how much you paid.
6. Seller disclosures.
The confidence is already running high, so if there are any borderline disclosure issues, they might get left out by the sellers. Make sure you thoroughly inspect the property, neighborhood, and HOA!
7. Escrow and title companies.
Don’t even think about selecting your escrow and title companies, and expect that the seller choices on both will include some ‘co-ownership’ fine print later (i.e. kickbacks).
8. Removing attached items.
Items attached to the home are part of the real estate, and are included in the sale by definition. But don’t be surprised if the sellers strip out all the good stuff (TVs, lights, window coverings, etc.), and leave you with holes.
9. Termite clearance.
Ha ha, very funny. The sellers will expect you to live happily ever after with their termites, just like they have.
10. Listing agent dominates the home inspection.
Buyers deserve to have a good look around during the home inspection, and get comfortable with what they are buying – chances are they have only seen it for a few minutes before then. Yet the listing agent wants to be there to “answer any questions”, and use that as a guise for snooping on the inspector to see if the problems and defects are really that bad. Kudos for being concerned, but uncomfortable buyers are less likely to close escrow.
Because a bidding war feels like hitting the lottery, sellers and their agents get giddy and don’t consider how their demands can turn off buyers, and make them want to pay less, not more.
If you want to sell for top dollar, hire a listing agent who can tactfully include safeguards that don’t cause buyers to go backwards.
This is another installment in my quest to change how homes are sold.
In Australia, 98% of the homes are sold by auction. The guy who was the main auctioneer for Harcourts sold over 6,000 homes there by auction, and has since come to America. They are offering an auction option as one of the ways they will sell your home.
They don’t insist on an auction, they will sell your home the traditional way too – it’s just one of the choices for sellers.
They do include an undisclosed reserve price to make sellers feel comfortable that they won’t have to ‘give it away’ at the auction. They then input the listing onto the MLS at the below-reserve opening bid, and do several open houses leading up to the auction about a month later.
I had a long talk with one of their agents yesterday about their results.
Since they started about a year ago, the local office has sold 49 properties with the auction format. Here are the results:
62% of the homes sold before the auction.
12% sold at the auction.
23% sold after the auction.
While I’m a big believer in the auction format, it appears that our local society has yet to embrace it as the most effective way to sell for top dollar. While we were talking, I told Kayla she should get her auctioneer’s license and just hope it happens in her lifetime.
The big takeaway is how well the “attractive-pricing” format works.
Because the properties are listed on the MLS at the opening-bid amount, they look like deals. But sellers have no intention of selling for that price – they have already designated a higher reserve price.
Yet nearly two-thirds of the time they are able to make an acceptable deal with a buyer at some price point above the opening bid.
Buyers don’t mind paying a little more if they see the value. They know that if they really want the house, they might as well step up now and make the deal while certainty is available.
Our MLS already allows the goofy ‘value-range pricing’, where two prices are listed and buyers are supposed to guess what to do. We probably don’t need to replace that format, but the MLS should offer a new option:
List your home at the opening-bid price.
Every seller should consider adopting this format as the best way to instill excitement and urgency in buyers, and give them reason to bid early and often to win the property. Making it a contest where buyers compete for the home is the best way to drive the price up – and in most cases, more effective than pricing above comps and hope you get lucky.
You don’t even need the actual auction – it isn’t working that well anyway. All you need is an agent who can conduct a proper bidding war once the interested buyers emerge.
The traditional method of pricing above the comps works great when prices are rising rapidly, because eventually the market will catch up with you. But the frenzy is over now, and buyers are being much more cautious. If you don’t sell early, the buyers are watching the days-on-market closely, and will hold them against you, price-wise.
If we never get to the actual auctions, or we just work our way towards them over time, then fine. But what sellers need is attractive pricing to stand out from the crowd, and get the buyers’ attention. Conduct some open houses so they can see other potential bidders eye-to-eye, and then offer the chance of buying now when they have an open shot.
I will take your listing using either format, and give you everything I got. I’m suggesting that as the market ‘matures’, and prices flatten out, buyers are going to be increasingly reluctant to consider homes listed at 5% to 10% above the comps.
Using the ‘attractive-pricing’ format will set you apart from the crowd, give you maximum exposure and an obvious format to cause a buyer to pay a price that is acceptable to you.
Not mentioned here – a bidding war is the fairest way to select the buyer. Home sellers should read this carefully – this is not an April’s Fools joke!
I offer this service at a discounted rate, and have a long track record of selling homes for retail-plus prices using this technique. Contact me for more info:
Three hundred people came through the open house, 25 made offers, and the bidding war lasted eight rounds and four days. By the time it was over, in early March, the owners of the 2½-bedroom, one-bath condo in Brookline — on a busy street, but tastefully decorated and near the Longwood Medical Area — accepted an offer that was tens of thousands of dollars above the $570,000 asking price.
Eric Glassoff, the listing broker, a man with 13 years of experience, said he could have listed the property at a higher price, “but then we wouldn’t have made as much money.”
It’s a scenario being repeated around Greater Boston, as some real estate agents employ a tactic that seems counterintuitive in a sellers’ market. Rather than setting prices high to take advantage of a market where buyers have few options because of low inventory, some agents in communities with hot markets are going in the other direction — listing properties for less than they expect to get in order to trigger even more interest.
The goal is to attract a mob to the open house and set off a frenzy where emotion trumps the cold math of price-per-square foot.
“You can get a ‘Hunger Games’- style fight,” said Cambridge real estate agent Lauren Holleran.
Boston agent David Bates , the author of “Context 2015,” a forthcoming e-book that analyzes the culture of “over asking price,” said that once multiple offers come in, “people are not bidding to buy the property for value, they are bidding to win. Those are two totally separate things. If you are buying for value, you are negotiating. If you are bidding to win, you do whatever it takes to get that property.”
Stop me if this sounds familiar: You scour MLS for the semi that will rescue you from a life in a high-rise. Mortgage pre-approval in place, you bid well above asking, because you live in Toronto and that’s how it works. The selling agent comes back and says there’s another stronger bid, and couldn’t you do a bit more? You swallow hard and cough up another $10,000, sealing the deal, and only later wondering if there really was a competing offer in the first place.
It’s tough to know how often this happens, but with interest rates still rock-bottom and bidding wars turning post-war bungalows into million-dollar properties, the Ontario government is bringing in new rules to crack down on unethical real estate agents that try to pump up housing prices with “phantom” offers.
Here I describe some of the details of how the sale went down on Glenmont in Solana Beach, which listed for $1,499,000 on January 8th. Not every agent operates this way – many will just grab a cash offer and go for the easy close. But I prefer to go all out:
We are shambling our way towards using an auction format to sell houses, but then again I was the idiot who thought we’d have video tours of every listing by now!
They find, in research published in the journal Real Estate Economics, that only around 3 to 4 percent of homes on the market across the country were selling in bidding wars for years prior to the bubble. Then at the bubble’s peak, nearly 30 percent of homes in metropolitan D.C. were selling this way, the highest share of any metro Han and Strange studied. The same was true of about 22 percent of home sales in Baltimore and Norfolk, 23 percent in Las Vegas and 26 percent in Los Angeles.
Since the housing collapse, these crazy numbers have declined, but not back to their earlier levels. As prices have fallen and the number of home sales has, too, bidding wars haven’t disappeared apace. That means that we’re probably seeing not just a lingering effect of the housing bubble, or even a pure product of high housing demand, but a new strategy for selling homes that was embraced during the bubble.
“The persistence of this suggests that people have decided that this is a good way to think about selling these kinds of goods,” Strange says, “selling housing in a more auction-like way.”
If a list price once meant the seller’s ceiling, for many homes it’s now the buyer’s floor — the number with which the auction can begin. Part of what’s going on here, Strange says, isn’t just that the small supply of homes for sale continues to push up their price in certain markets like D.C. (bidding wars still made up about 12 percent of sales here as of 2010). Real estate agents are also strategically listing homes below their value to create bidding wars.
“One way to see all of this is that housing is this incredibly important good, it’s easily the most important asset in a typical household’s portfolio. As a share of total wealth, housing is huge,” Strange says. “And yet, the way houses are getting marketed, very broadly speaking nowadays, is an awful lot like it was 50 years ago.”
If you’re a buyer or a seller, you sign a contract with a real-estate agent who understands what’s going on a lot better than you do. They negotiate on your behalf and split a commission, typically about 6 percent. The way information is traded — through home visits, negotiations and market comparisons — is more or less how it’s been done for decades. For most of this time, buyers would set an aspirational price, then negotiate down from there.
“With the rise of bidding wars, we shouldn’t think that the housing market — like other markets — is just going to keep doing things in the old traditional ways forever and ever,” Strange says. “There are going to be changes.”
“People are making these million-dollar trades,” Strange says of homebuyers. “But we really don’t know that much about the housing market, where it’s going, what demand and supply are. It’s an amateur market where people are making these huge, huge decisions.”
