One week into the selling season….how’s it going? With our spectacular weather and both Tiger and Phil out of the golf tournament, the streets were flooded with home lookers this weekend.
A few experiences so far:
1. An agent selling his own house gets seven offers within the first three days on the market. He counters all with a set price that is $8,000 below his list price, and gives the full three days to respond. Less than 24 hours later, he emails the losers that he has accepted an offer. No curiosity what the others might bring?
2. A listing agent – who has no sales on the MLS – lists a house for 5% over the last model-match sale. She hopes that buyers will ignore that the comparable sale was fully upgraded and had no road noise when hers doesn’t.
We offer just under the comp’s sold price, but she won’t counter – you see, she’s had ‘lots of activity’.
3. Another agent on her first sale says she will respond to our offer last night after the weekend open house. At 9:32pm last night, she responds to my inquiry by saying that she too had lots of activity, and multiple offers – and ‘we will not be accepting your offer’.
Don’t you at least counter everyone to see what they might have left in the tank? Our offer was 5.9% under list, and at comp value.
4. Remember a week ago when we sent in our best offer and the listing agent countered it $5,000 higher? The agent, who sells a solid two homes per year, called back yesterday, wondering if I might kick in the $5,000, or if we could split it.
It’s too late now – your bone-headed grab for less-than-1%-more-on-price repulsed the buyers, and they forgot all about you by now. She also divulged that the multiple-offer bidding war consisted of an offer contingent on selling another property, and an offer lower than ours. Meanwhile, this week her sellers will be entering Month Six of sitting on their vacant house, and approximately $2,500 per month payment.
5. With no serious nibbles on my Del Mar Heights listing – and not many desirable replacements to consider – my seller withdrew the listing this week after 35 days. Another example of why the inventory is low – the best alternative for many is to stay put, rather than pay outrageous rents, take out a new 30-year loan, or leave town.
You’ve heard me say that I think it is my job to conduct a proper bidding war between all buyers and push for top dollar – and I will give them ample opportunity to pay it! In this case, it was 10% over list price.
But the houses that need work are more prone to falling out of escrow once the scope of the project starts to sink in. It is part of the business, and you have to be able to bounce back quickly to maintain momentum.
Here’s the audio update on our progress in Solana Beach.
While I think listing-for-an-attractive-price-to-induce-a-bidding-war is the best strategy to sell houses, it only works if you can run an effective bidding war:
“You regularly mention pricing to engineer a bidding war. Do you have a post you could link to that describes your strategy, including how you manage same?”
There are no rules or regulations on how to handle a bidding war – each realtor is on their own to devise a strategy. As a result, most don’t do more than spreading out the offers on the seller’s table and picking one.
Back in the REO days, the banks would insist on countering each bidder for their highest-and-best offer, and that is the most common solution. But agents are reluctant to tell bidders how many offers there are, or at what price point – they just want you to bid blindly. In those cases, at least every bidder has a chance to win, but without some guidance they are likely to be conservative.
When my sellers get multiple offers, I’m working the phones myself. I am asking questions to qualify each buyer, and giving their agent some coaching on what it will take to win.
It’s the pitting of each buyer against each other that results in top dollar sales. They are much more likely to pay a higher price if they have a number to shoot at – AND they feel like they have been treated fairly.
Why doesn’t every agent handle multiple offers this way? Because they don’t have to – sellers still think they did well, price-wise, and they can tell their friends and family that their house was sold in a bidding war.
We’re in agreement that the local market has seen all its biggest price gains.
You’ve patiently waited until there were a couple of good comps nearby, and you’ve agreed to list for an attractive price – within 5% of the last sale. You’ve spruced up the home, and are ready to hit the open market.
You understand the logic about taking advantage of the urgency early on, but you don’t have to sell – and you’re not going to give it away!
How will you know?
Here is my Giveaway Meter:
1. Multiple offers the first couple of days: You hit the jackpot, and it was probably more due to your home’s higher quality and lack of good inventory nearby, rather than you under-pricing your home. Don’t panic, and don’t raise your price. Thankfully, you have hired an agent who has legitimate bidding-war strategies – let him do his thing! P.S. Spreading the offers out on the table is not a bidding-war strategy – though it is the standard answer when you talk to realtors.
2. One offer the first couple of days: Drag your feet to see if anything else comes in – and threats of offers don’t count, unless they come from a great agent who might deliver. Wait until the offer is about to expire, and counter-offer to buy three more days.
3. Offer comes in on Day Four: The fourth day is peak urgency – if the offer is full-price or better and the other terms are acceptable, sign it. Sellers and agents are highly resistant to not countering – but if you get your price, don’t rock the boat. Three thoughts:
a. You have a second negotiation coming over repair requests, and buyers who get worked over in the beginning are more likely to exact their revenge after the home inspection.
b. Buyer’s remorse starts setting in the minute a buyer signs a full-price offer, and they get indignant if you don’t agree. They might walk out over the smallest counter-offer, so don’t risk it if the price is right.
c. Happy buyers are more likely to close escrow.
4. Offers After Day Four: Tread carefully, because your urgency is completely drained by Day Seven. You’re not giving it away, and appreciate that you have properly tested the market.
5. You don’t get any offers: Lower your price 5% to keep the urgency higher. After 30 days on the market, buyers will already be pricing in a 5% to 10% wrong-price factor, so you might as well stay ahead of them.
You can spend a million dollars on advertising and do open house every day, but if the price isn’t right, the home won’t sell. Once you have accepted that fact, and realize that you and your agent are conducting a search for what the market will bear, use the Giveaway Meter to guide you. Yes, there is always a chance for a lucky sale, but if you go that route, you should list in short spurts (1-2 months) so buyers won’t see a long stretch of failed listing period on your record.
Every year we hear how the industry is going to change, and specifically, how the internet will cause the sellers of real estate to change their ways.
Zillow and Trulia sell advertising to realtors. They will be in full support of the status quo, as seen below in the video. They want the full-commission model to stick around so agents have more money for advertising!
The R-team brokerage is a solo operator who relies on their whiz-bang website to generate customers. But that makes them potential enemies with Z&T. Glenn takes a shot at both in this piece, while doing his usual touting his company:
But his company’s formula has a weakness. The agents showing the houses are just part-time door-openers, while the agent who writes the offer is back at the office – they have never seen the house.
They are hoping that reduced commissions and fancy tech talk will overcome this structural flaw. But without expert advice in the field, buyers will hedge a little on price, and as long as there are multiple offers, they will struggle to compete. Plus, in a bidding war, will a listing agent select an offer from the red team in a close race? I have done so, but I’ve also heard grumblings from other agents about doing the opposite.
Then you have Harcourts, who announced this week that they are bringing their auction expert from Australia to show America how to do it. If they and auction.com could get some traction, maybe the industry will head that way. But the reserve prices and auctioneers bidding against buyers will be a turnoff.
Zillow seems to be leading the way, so status quo will probably win out.
When there are multiple offers on one of my listings, I am happy to divulge the pertinent information to all parties – because transparency benefits the seller. But most listing agents act like they are guarding Fort Knox, and won’t give any guidance on what it will take to win.
What do you do?
I ask these questions of the listing agent:
1. “How many offers are there?” To warm them up, start with an easy math question.
2. “How will you handle? Will you request highest-and-best from each buyer, or just take the highest offer?” In almost every case the agent hasn’t given it a thought, and is caught off-guard. All that matters is how they feel about highest-and-best, and gauge whether they might just sign an offer.
3. “Have you, or anyone in your office, written an offer?” I have won a bidding war when the listing agent wrote an offer with their own buyer, but it takes guile and guts to pull it off. But first, you need to know if that is the case. P.S. If they hesitate, the answer is yes.
Secondly, rank the property. Is it in the 95+ percentile of homes you have seen? If so, big-cash and/or desperation could turn this bidding war into a freak show. Determine an offer price that makes you uncomfortable, and then add some mustard.
If it is a nice home, but has some warts – then use this as a guide:
The 2013 C.A.R. Home Seller survey was conducted by telephone with 600 people statewide to measure their perceptions of the home selling process. Eligible respondents all closed escrow on their homes within the six months prior to August/September 2013.
The survey found that nearly half or 43 percent of respondents expect home prices to rise over the next year. That number jumps to 58 percent when the time period is extended to five years. In the previous survey 9 percent expected a short term increase while 12 percent thought prices would rise over five years.
Nearly all of the sellers, 98 percent, said they had received multiple offers on their home, up from 83 percent a year earlier. The average number of offers was 5.9 compared to 3.1 in 2012. This competitive market also led to bidding wars and 45 percent of sellers said they had received offers above their asking price and more than a third said they had received three or more such offers. On average sellers received 2.2 offers above their asking price.
