Our office email had an interesting thread today.
Blog Buddie Ed Schneider wrote an email note to colleagues about writing an offer on a house in Mount Pleasant in a twelve-way bidding war. Then my colleagues began to chime in, one after another, telling war stories of being in double-digit multiple contract situations over the past week.
In these situations, here are some of the things that people are doing to get the winning offer:
- Having the house pre-inspected so they go in without an inspection contingency
- Crossing out the financing contingency
- Crossing out the appraisal contingency
- including a healthy looking financial information sheet
- Including an obscenely high earnest money check
- Settling at the sellers' convenience
- Including an escalator clause agreeing to top competing offers by at least thousands of dollars with a cap way above the asking price.
Is participating in a bidding war a good idea? To get the house, you have to eliminate every way of getting out of the offer. So if when you wake up in a panic about three days after you are the winner of your dream house wondering what on earth you were thinking, well too bad! It'll cost you a bundle to get out of the deal - like that obscenely high earnest money check you wrote!
Earlier in the decade, if you wanted to buy a house, you often didn't have a choice. But today, there may be options. And when you do participate, you are doing your part to run up the prices in the market where you plan to buy.
When I'm not the listing agent, I hate bidding wars. Over the years, my clients won their share, but I sometimes felt a little queasy as I represented them. More often than not, I tried to work with them to avoid these situations. How?
- Homes that are look fabulous tend to attract multiples. Why not use your imagination and go for the ugly and poorly staged (and reasonably priced) stepsister who, with a face lift and tummy tuck could become quite a beauty.
- Homes that are priced below market tend to attract multiple offers, often pushing the sales price to way above market. It might make sense to look at homes that are priced at or a little above their market value.
- I never ruled out the homes that had been on the market for eons. Often they are a pain to show, have a resident pit bull, or some other issue that isn't related to the price or quality of the property.
In the early years of the decade, it was really hard to avoid bidding wars, and we felt lucky to be writing an offer on a place with only 4 or 5 other buyers. But today, in most price ranges and DC area neighborhoods, there is a lot to choose from.
You need to try to avoid getting caught up in the need to win - and the same thing applies to your agent! Just because 15 other people are going wacko over a house doesn't mean you have to do it, too!
Hi Pat... as much as the adrenalin of a bidding war get me going, I really do believe the system works the best when we have one buyer and one seller and the course of things flows according to a timeline and terms not coreced by pressure or fear of losing a property to another buyer. Everyone just seems to walk away happier when everything is said and done.
Steve, I've often thought that offers are like men. One really good one is best!
I have to agree with Steve, if you get too many offers going then we're not really working in our buyer's best interest. There's no reason to make a real estate transaction any riskier at this point when the market still has more opportunity for correction in the future.
I would have thought the recent downturn would make buyers a bit more cautious than that.
I agreed to meet a buyer at a new REO listing today. When I arrived another agent was waiting to meet his client, a couple knocked on the door and wanted to see the house while they waited for their agent to arrive, another agent arrived with his clients and finally my prospective buyer arrived. It was a full house, and since it's priced about 10% below market I'm betting a bidding war is on the horizon. Ugh.
We are seeing quite a few double-digit bidding wars around here now - it's nuts. Many of our buyers are first in shock and then don't want any part of it. ~Rita
That is the market here totally. There is so little new inventory that when something does come on the market in a good area at a decent price, it is gone right away. I have no idea when the one seller one buyers days will come back. Not here and not for a long time.
I am experiencing REO's with multiple offers. Buyers need to be careful though since the buyers could be bidding against themselves.
Pat, your list made me laugh truth be told. All items NOT in the buyers best interest. Unless they have scads of disposable cash that is. What I have seen happening here is the tip of that iceberg by a few listing agents. A house will come on the MLS at some ludicrous price, which was done, I am sure, to attract a load of buyers that will become so wrapped up in wanting this house that a bidding war will ensue. I am talking prices that you can't believe when you see the house come on the market. Interesting, agents were angry when they saw it, on the whole, and if a bidding war didn't ensue we would see the price raised by a significant dollar amount.
It is dirty business all the way around, always was, always will be. I have never had a successful outcome, and know of people who got a home that way and are now, unbelieveable as it may seem, in a house worth far less than what they paid for it.
Shame shame shame on those who are participating in pricing a home to attract bidding wars. I know, we are supposed to get the best price for our clients, but to me it is sleazy and risky business.
What a change from what I was reading just a few short months ago when properties were sitting on the market with no offers. It appears the real estate market is starting to turn in some areas. I wonder if part of the recent bidding wars are due to the $8,000 tax credit that is scheduled to expire. Hopefully we can get back to a balanced market which I have always felt is best for both the buyer and seller.
Pat...here's a thought for ya. Is it possible that some of those tossing back the keys and walking away got into the home via a bidding war? Is it possible that the rush to win put them in a no-win situation? We were there..........we saw reason go out the window. Now we have prices crashing back to earth. The very people that bid them up are walking away. The neighbors that cheered every increase in sales price over the last one sold are lamenting dollars lost when the air finally began escaping from the fantasy balloon.
One rhetorical question for bidding wars participants...what do I lose when I win?
Pat: interesting analogy to men.
Pat - I try to steer clear of as many bidding wars as possible , especially considering the condition of many properties in the First time buyer price range.
But as you know if it is inside the beltway and near a metro station all bets are off. I advise my buyers to get to lender letters one FHA and the other 203K FHA , that way if we bid up and win all "mystery" repairs can be covered and the buyer stays in their price range. I also can sleep at night knowing they are protected.
Pat,
In the case of the bidding war I emailed you about, the house was well-priced by an excellent and experienced agent who also advised considerably on its presentation. Basically, it was a perfect move-in quality three-bedroom house well-staged with a rental unit in a very desirable downtown neighborhood where most houses sell for more than what this house was listed for.
Since there were only three pre-inspections performed, the listing agent expected only three offers. My buyers were substantial but not cash rich and our offer required they use FHA financing, which requires appraisal and financing contingencies. We tried to balance these negatives by performing a pre-inspection so we could eliminate the home inspection contingency (the house came up aces) and having found out that the sellers would need a rent-back period of undetermined length to find their HOC, we felt we were perfected situated since my buyers did not need to move in quickly and a post-settlement occupancy would not be a problem for them. We also had a substantial escalation clause for tens of thousands over asking.
We did not get the property.
I'm told by the listing agent that we were close, but the winning offer had eliminated all contingencies and offered up more money than we had.
Whether the house will appraise at this new, high price is now a potential problem for the new buyers.
My buyers and I have already moved on to other possibilities.
It has turned into a seller's market in Prince William County with very low inventory. There are times where there are 30-40 offers on a listing. Its insane.
Pat - Wow. Things are not quite that interesting here except at the lower end which is predominantly REOs (and some short sales, which have only about a 25% chance of getting approved based on history). So are the buyers doing this to themselves, or are the agents encrouraging them? Other than the fact that someone wins the house, it never really makes sense and probably is not in the buyer's best interest.
Jeff
It is a crazy market.. in face there are several of them at this point.. and it is interesting to watch the shifts during this summer into fall.
I've been caught in multiple offer situations about 12 times so far this year (7 times with one buyer). It's no fun. I think the lower price ranges that are in good condition are attracting quite a frenzy.
Pat- isn't it great? I hear complaints now of 'what do you mean it already has a contract' from those who keep putting off making a decision- it makes me smile and think 'hello, what part of the market is picking up DON'T you understand?'
Pat, It's happening here too. There is not a lot of inventory. You offered some great suggestions. The bidding war environment is different from 2005. Buyers are more pragmatic. Many of the offers are equal. Same price equally qualified buyers. Because of appraisal issues buyers and brokers are becoming more creative. It's not always the highest bid. Here's another one: Offer to arrange a professional packer to pack and/or help the seller move.