Real Estate

Playing to win with multiple offers

By From page C2 | April 06, 2012

Multiple offers are happening more frequently. Sellers like it when buyers compete against each other for their property. Multiple offers nearly guarantee sellers will get full price or better without giving up huge cash concessions or paying the buyer’s closing costs.

Multiple offers are changing the direction of the market. Last month nearly one-third of all homes closing escrow sold within 30 days at 99.5 percent of the listed price. Homes priced less than $300,000 fared even better. Half of them sold for 102 percent of listed price.

Although multiple offers demonstrate the positive direction of the real estate market, they have their downside. They are unsettling to buyers who are unsure of their position in the deal. This uncertainty, which may last for days or weeks, can easily lead to frustration, misunderstandings and hurt feelings. Although two agents (the listing and selling) will end up with satisfied clients, it will be a disappointing situation to everyone else.

The multiple offer phenomena is partly the result of fewer homes available for sale. In March of 2008 the MLS showed 1,500 county homes for sale. Currently, we have about 900 listed. But there are really fewer than that. Of the 900 showing as active listings, 250 are short sales with accepted offers waiting for the lender’s approval. So the true number of homes available is closer to 675 than the 900. That’s less than half what was available four years ago. With the county’s monthly sales averaging 200 homes a month, we have less than a four-month supply of available inventory. Four years ago ,when averaging 150 sales a month, we had a 10 month supply.

Initial pricing will attract multiple offers. Most agents suggesting a listing price to sellers will use the market valuation approach. We study what homes of similar size, condition and location have been selling for and make price adjustments for the differences. If property values are increasing, we may add a pricing premium; if values are declining, perhaps a discount.

Another listing strategy employed by a few agents is to price the property so low as to purposely attract multiple offers. Let’s say I determine the market value on a home to be $250,000. At that price it should sell within a reasonable amount of time. But instead, I convince the seller to list their home for $199,000. The price is so attractive that it generates multiple offers and hopefully a few over the market value of $250,000. This modified written bid auction can be successful for the seller but a waste of time and emotions for most buyers.

Imagine buyers, who for weeks have been following every new listing, surprisingly discover “their” home just got listed at $50,000 less than what they were prepared to pay. They excitedly call their agent, rush out to look at the property, write a full price offer only to discover there are already six offers on the house and none will be considered until next week.

Sellers hold all the cards when faced with multiple offers. They can accept the highest offer, make a counter offer to one or all offers or patiently sit back and wait for more offers. Playing the multiple offer game is a little different for buyers.

Often multiple offers can be avoided when interested buyers preview the property early. Buyers need to closely monitor the new listing. When a new property shows up, don’t wait for the weekend, a sunny day or until it’s convenient for Aunt Sally to come along. Make the time and go. The early bird eats.

When a buyer discovers an attractive home they would like to buy it will likely be attractive to others. Buyers should anticipate competition from other interested buyers and be aggressive with their first offer. Buyers should rely on their agent for direction on the initial offering price who can quickly determine the market value of a property of interest. Besides, most offers are subject to the appraisal meeting the purchase price. If it doesn’t, the buyer will have an opportunity to negotiate for a lower price.

Today’s low interest rates moderate the impact of offing full price or better. I recently lost a deal because my clients would not pay over the listed price for a home that was well worth the value. The home sold for $5,000 more than listed price which, based upon our low interest rates, only added $18 to the monthly mortgage payment.

It is more difficult today to avoid a multiple offer situation. A few years ago, if a property already had an offer or two many buyers would back off, not wanting to get involved in a bidding situation. With a scarce selection of homes, that luxury doesn’t exist anymore. Buyers can’t win unless they play. If the seller hasn’t accepted another offer, interested buyers should step up and submit an offer.

Don’t get discouraged. When faced with a multiple offer situation play aggressively but if you lose, play again. Buyers will have an excellent selection of foreclosures coming on the market over the next six months and interest rates should remain in the 4 percent range for the balance of the year. Remember you can’t win unless you play.

Ken Calhoon is a real estate broker in El Dorado County. He can be reached through his Website:

Ken Calhoon

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