Here is the wrap-up report on the 5-offer bidding war we had on Ivy Rd.
Most bidding wars lack transparency – the listing agents just want you to send in your best deal and they decide which is best.
I handle the bidding wars personally, and pit all contenders against one another to ensure top dollar. It takes more work – but it’s worth it:
The inventory is extremely picked over, and any house within 5% to 10% of being right on price has sold – leaving only the junkers, bad locations, and OPTs (see video). When a hot new listing hits the market, it really stands out – making buyers jump.
The wild and furious bidding wars for the high-quality properties are likely to continue – if you are thinking of moving, get good help!:
Prices are moving up rapidly on the lower-end of each market.
People complain that there is no inventory, but part of the reason is that sellers are pricing much higher. Buyers in the mid-to-higher-end of each market will get a smaller house or yard, but those on the lower-end are quickly getting priced out altogether.
Here are the number of detached homes sold in the last 12 months, and the number of active listings today:
| Town and Price Point | #Closed last 12 mo. | #ACT Listings |
| Oceanside Under $300K | ||
| Carlsbad Under $600K | ||
| Encinitas Under $700K | ||
| Carmel Vly Under $900K | ||
| La Jolla Under $1.1M |
Where it stops nobody knows, but you can expect the bidding-war intensity to be extremely hot on the lower-ends of each market.
Not all bidding wars are the same.
It is critical for the agent to properly access the buyer pool – to track both the actual and potential buyers – and the intensity of their pursuit.
The frenzy is not constant and predictable – get good help!
In the previous post I mentioned that when I represent sellers, I give price coaching to agents during a bidding war.
What is price coaching? It is giving hints about the competing bids.
Let’s use the Manzanita case for an example.
Once a highest-and-best offer came in above $700,000, I started telling the other agents that it would take more than $700,000 to win. It gives others a number to shoot at, rather than the guessing game that feels like a black hole.
I was also very specific that we were not going to let this linger, that we would select a winner on Monday afternoon, which we did.
Putting parameters around the game helps bidders decide their fate. It is much easier for buyers to say “yes” or “no” to going over $700,000, then to just let them wander around, price-wise.
Once we had three people willing to go above $700,000, I kept giving hints until all bidders said that they had reached their maximum.
This is the opposite of what most agents do. Most agents will put a note in the MLS that says, “there are multiple offers, send in your best offer”. They also make it clear that they aren’t going to tell you how many offers there are, what price it will take to win, or even what their process is to select the winner. This is the sealed-bid method.
The sealed-bid process encourages bidders to offer less than their valuation of the item, because everyone wants a deal, and there is no fear of loss to push them to their maximum.
My method creates the closest thing to an auction/open bidding, which is the most effective way to find top dollar.
There are no rules or guidelines on how agents are supposed to handle a bidding war, so every seller and agent are their own. Get good help!
Ken compared some of today’s tactics to those used at the peak:
They’re back after barely a decade: escalation clauses in real estate contracts, “naked” contingency-free offers and low-ball-priced listings designed to pull in dozens of bidders and turn routine sales transactions into auctions.
http://articles.latimes.com/2013/apr/12/business/la-fi-harney-20130414
I hope listing agents put their foot down about the escalation clause. Every buyer would pay an extra $1,000 if that is all it took to win, so it isn’t a fair way to determine the winner. Listing agents should demand that each buyer commit to a specific price, because those deals are more likely to stick.
No-contingency offers are great for the buyers with loads of money and guts, but wouldn’t you offer less than your maximum to compensate? To encourage more buyers to go this route, it would be smart for sellers to provide a home inspection report at time of listing. The goal is to sell the house, not to collect deposits from failed escrows.
You don’t have to list your home below market today to attract a crowd, just pricing it at the comps will put you ahead of other seller nearby. Either way, make sure your listing agent has specific and adequate strategies on how to conduct a bidding war.
Here are other ideas – for sellers:
1. Provide unlimited access to the property immediately.
On the Manzanita listing, I told the sellers to leave town on Friday, and come back on Monday prepared to make a decision. We communicated over the weekend in case there was a reason to change course, but the strategy worked great. We reviewed offers by email as they came in, and asked all eight to make their highest and best offer. By the time the sellers got back on Monday, we had the H&Bs and picked a winner.
2. Make sure your agent is ready, willing, and able to field inquiries.
The buyer-agents start calling, emailing, and texting within an hour of hot new listings hitting the MLS, if your agent is out to lunch they will burn the most precious first few hours and days of peak urgency.
3. Put an attractive price on it.
Buyers have no problem over-bidding, so resist the urge to tack on a few extra bucks. Chances are good that you added some icing to your cake already, so avoid the pricing overdose! You want/need max bidders so your bidding-war strategy can work effectively – there is nothing worse than having only two low offers, and when you try to get them to bid up, instead they bail. An attractive price will bring 5-10 bidders, and put more heat on them, not you.
Here are other ideas – for buyers:
1. You need a teflon memory.
If you keep remembering comps from last year, you won’t be buying a house anytime soon. I regularly see houses selling for 20% to 40% more than last year’s comps – it is a new day, and you can accept it, or wait.
2. Flash your cash.
The listing agents are telling the sellers to take the strongest offers, determined by who has the most cash. Prepare to provide a bank statement to substantiate your strength, and get fully pre-approved in advance if you want to utilize paragraph 3k.
3. If you want to sell your old house concurrently, you have a problem.
If your agent can do some fancy dancing, you might be able to pull it off. But it is so competitive, it would be a shame to miss the perfect house because you didn’t have this part handled in advance.
Admittedly, it is a quandry – if you sell first and rent, you have to move twice, and you could get priced out if you can’t find a replacement quickly and the market keeps moving.
The other options:
A. If you list your home for sale with an open-ended seller contingency to find suitable housing, you might lose some buyers and sell for less – and if you didn’t find a house to buy, you would have burned up your precious first-time-on-market urgency.
B. Have your house ready to sell, and when you find a suitable replacement, list your house for sale in the same hour and hope your agent is lucky!
C. Make an offer-to-purchase, contingent on selling your existing house – but don’t be surprised if most sellers send you to the back of the line.
Your agent should be able to address the options and offer some advice on the best choices.
Get good help!
Sellers need a listing agent who can handle this effectively:
Becoming a homeowner may be getting more difficult for San Diego buyers.
With multiple offers and low housing inventory, sellers are starting to ask buyers to submit offers without an appraisal contingency, meaning the down payment must cover the difference between the offer and the appraisal, if the appraisal comes in low.
“It is becoming more and more common as the shortage of inventory and the increase in buyer demand has continued through the spring and buying season,” said Maria Peña-Morales, owner of Team Q of Re/Max Ranch & Beach.
“Within the last month, I see it occur even more. The reason I think sellers are requesting it is because they want to remove any chance that the buyer will back out. If the buyers only qualify for a certain dollar amount and the appraisal comes in below, the seller could be stuck putting it back in the market.”
Joe Bertocchini, director of residential real estate at University of San Diego’s Burnham-Moores Center for Real Estate, said this action by the sellers could be a result of the selling “frenzy” that’s going on, with properties “flying off the shelf in less than 24 hours.”
“Sellers are looking for who the most probable close is,” Bertocchini said. “They look at the offers for who is paying all cash or closing with no contingencies, so they can close without any hiccups that might prohibit the sale of the property.”
Soledad Reaves, a real estate consultant with Re/Max Associates, said that in the past three months, four sellers have asked buyers to remove appraisal contingencies from their offers.
One of Reaves’ clients offered $285,000 for a condominium, which was high. The seller said there were plenty of offers and asked the buyers to remove the appraisal contingency.
“If you don’t do that, you’re out of the race,” Reaves said.
In that particular case, her client countered with a lower offer and removed the appraisal contingency. Another bidder offered a higher amount and her client’s offer wasn’t accepted.
In another case, a broker responded to an offer from one of Reaves’ clients, saying there were 14 offers on the property, and the price on the offers reached a level where the sellers were concerned it wouldn’t appraise. The broker informed Reaves of the requested purchase price and said the seller wanted a “significant” down payment and no appraisal contingency.
Once the trend caught on, it started becoming more prevalent, especially within the past month, Peña-Morales said.
“The more people who start to do it, the more it is continued,” Peña-Morales said.
“I think it’s pretty risky business if you’re going that route just because you’re not leaving yourself much of an out when going into escrow,” Bertocchini said.
But with so little inventory on the market and such tough competition, Reaves said buyers are willing to take that risk.
“Some people have been looking for quite some time. They’re tired of looking and are willing to pay the difference between the appraisal value and the offer,” Reaves said.
“I’m also seeing agents that, in their offers, write that they’re willing to pay $1,000 above any of the higher offers. It’s a very discouraging thing for buyers … who (don’t) have that much money, who are just starting to become homebuyers and they don’t have the cash, or have limited cash.”
Buyers who have been looking for a whole year are watching home values increase, interest rates remain low and monthly mortgages compete with what they pay in rent.
Bertocchini agreed that in this situation, most regular homebuyers are not able to move forward without that type of contingency, making this market more difficult for them. The competition with investors is “frustrating” for other qualified buyers, Peña-Morales said. And there’s no appraisal when there are cash buyers.
“The buyers on the market now are seeing multiple offers — 10, 15, 20 offers — primarily in the $400,000 to $800,000 range. And they’re getting beat out because someone else had the same dollar amount but was able to remove the appraisal contingency,” Peña-Morales said.
Peña-Morales said this also happened in 2005 and 2006, when people were willing to pay more than the asking price and remove the appraisal contingency, knowing they had to come up with additional cash.
“My concern is how it affects the housing market. Back in 2005, 2006, 2007, we began to see accelerating, and unnaturally accelerating, increases in sales prices and the appraisal value not being there,” Peña-Morales said.
Peña-Morales said she expects sellers to continue to ask for the appraisal contingency to be removed until there is more inventory on the market.
“Just because it’s relatively new that we’re seeing it, I don’t know if it’s something that’s going to continue,” Bertocchini said. “The way the market is behaving, I think anything is possible. I don’t think it’s bad for the entire market, but I will say it’s going to put an additional stress or additional frustration for individuals who are going to buy homes.”
From sddt.com
Congratulations to Tom for selling his new-build in South Park!
http://tomtarrant.com/modern-bungalow-sold-765000/
His timing was great – it closed for $765,000, which is probably $100,000 more than it would have been last year.
Watch the house get built from scratch in less than five minutes:
The open house extravanganza concluded today with a monster turnout – at least 110 people attended, including 18 realtors who were showing their clients – we’re up to eight offers, all of which are over list price.
Here we are discussing this house, and the market in general:
The blog whiteout earlier today caused me to contact my favorite WordPress expert, Alastair McDermott in Newport, Ireland, on St Patrick’s Day! He came through again!
Rancho Penasquitos is a real sweet spot for mid-range homes these days:
Are you looking for an experienced agent to help you buy or sell a home?
Contact Jim the Realtor!
CA DRE #01527365, CA DRE #00873197
