I'm Competing Against Multiple Offers. How Do I Proceed?

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The first thing to consider is that maybe you shouldn't. You never want to get involved in a bidding war. There's a classic riddle I ask every single one of my buyer clients at least once.

"How often does the Deal of the Century happen in real estate?"

The preferred answer is "About once a week." I'll give full credit for anything under two months. Yeah, you might not get this one. But another bargain just as good will be along soon. My point is this: There just aren't any properties worth getting into a bidding war over, and part of a good buyer's agent's job is keeping you from going overboard because you've got tunnel vision for this one property.

The second thing to consider is that just because the listing agent tells you it's a multiple offer situation doesn't mean that it actually is one. Quite often, agents don't understand that lying about this is a good way to scare desirable potential buyers off, and they say they've got four (or fourteen, or four hundred) offers hoping to shake a better offer out of prospective buyers. Ladies and gentlemen, if these offers were any better than the one you just sent over, they'd be in hot and heavy negotiation with the other offer, if not in escrow. I've been told this on December 24th when the property had been on the market for six months. Neither Santa Claus nor the Real Estate Fairy are real. Yes, sometimes it may be the truth. See the answer to "How often does the Deal of the Century happen?" above. The rest of the time, it hurts the seller more than the buyer, scaring off good offers and puncturing credibility. Credibility is like a balloon - if there's one hole for the air to escape, what you've got is nothing. I don't understand agents who do this to themselves, especially as it hurts their clients also.

The third thing to consider is that you're always subject to how the the seller and their agent want to handle the transaction. You can't force them to do anything, even act in their own best interests. I'm coming up against an awful lot of horrible listing agents who respond as effectively to offers made as any other black hole. Put in a good offer and you get all the response of someone dropping it into a black hole. If you're not familiar with black holes, there's only three pieces of information it's possible to get on a black hole: Mass, charge, and spin. The real estate impact is similar; We can see it's still listed "active" on MLS, but no matter how many phone calls, emails, and faxes we send over to the listing office, we never get a response to our offer. And some of these listing agents have the gall to complain when they do respond six or eight weeks later that all of the prospective buyers have moved on. So be aware that you can't force the listing agent to respond at all. Fiduciary duty is supposed to accomplish that, but real world experience tells us that it often fails. I can point to many agents and brokerages that are completely incompetent at anything other than getting signatures on listing agreements.

In neither case am I saying that you always want to walk away from all multiple offer situations. What I am saying is that the situation is rife with potential for disappointment and other morale busters. But if you can keep a healthy attitude and not let the idiocy and failings of those you cannot control bring you down, it's still an attractive property that you obviously want. If you put in an offer, you might get it. If you don't, I can guarantee you won't.

The next thing to consider is trying to find something other than money that the sellers want, and offering that in lieu of a certain amount of cash. There are as many possibilities as there are scenarios. Short sales often want certain specific things, lender owned properties usually want different things, and regular sales still others. There is always the possibility that something other than money will win the day, and the smarter the seller and the better their agent is, the more likely this will be the case. Something over fifty percent of all escrows have been falling apart locally, thanks to the new appraisal standards, other legislation passed by Congress, and a generally over-paranoid lending environment.

Some sellers and their agents just stupidly choose the apparent highest offering price, and nothing I nor anyone else can say is going to dissuade them. The most probable explanation is that listing agent's commission check - since commission is paid upon official sales price, they will advise their client, the seller, to take whatever the highest offer is. Some of these agents may have ten or twenty years in the business and just consider it "bad luck" that all of their listings have the same exact problems after they have a contract. Problems are always with us, as well as the potential for problems. If it were easy, anyone could do it and there would be no need for real estate agents. But an agent where the vast majority of their accepted offers have these problems isn't luck - and the one common factor all of their problems have looks them in the mirror every time they walk by one.

There are strategies available to buyers that take advantage of this stupidity. Most of the common ones are variants upon the classic sales trick of the sales "take away". Get the seller wanting your offer, then make them work for it, doing things they would never have done for what they end up getting. Once the seller has chosen one offer and everyone else wanders off feeling demoralized and let down, that chosen buyer has a lot more power than they had previously, at least if they use that power carefully. The property goes back on the market two or three weeks later, and everyone looking at it in MLS is going to wonder what's wrong with it. I don't like using these strategies and definitely prefer not to, but some listing agents practically beg me to do so.

Another thing that can help quite a lot is your Buyer's Agent Presenting The Offer In Person. Theoretically, listing agents are required to honor this request or show written instructions to the contrary signed by their client, the seller (Clue to a certain nameless agent who knows who I'm talking about: A "forwarded email" is not acceptable for this). All too often, however, listing agents throw roadblocks in the way. It's actually in everybody's best interest for buyer's agents to present their client's offer in person, but many listing agents obsessed with control (or with getting both halves of the commission) throw so many roadblocks and so many delaying tactics that it's not worth fighting over. This is yet another excellent reason for sellers to write into the listing contract that the listing agent will not get the buyer's agent half of the commission! Maybe an extra half percent as a concession for doing the other agent's job as well as their own, but not the entire thing. I never accept dual agency, and every agent I respect agrees with this position. If someone insists upon me writing an offer on one of my own listings, Winforms has a very simple one page form called a Buyer Non-Agency Agreement that spells out that I am acting solely on behalf of the seller, and I'm just doing whatever it is because that seller's interests require me to, not because I'm accepting agency on their behalf. Nor is the buyer's agent presenting the offer something you can do on every property - the chances of it happening on lender or corporate owned property are pretty small. But if your buyer's agent presents your offer in person, that's an opportunity for humanization - making you into a human being that the seller can empathize with, not just a faceless pile of paper with markings on it. It's also an opportunity to stress the desirable parts of your offer.

As far as money itself goes, every client I have in a multiple offer situation gets asked two important questions:

1) If you got the property for this price, would you be happy or not?

2) If someone else got the property for $1000 more, would you care?

The proper answer to the first is "ecstatically happy!" If the happy part isn't in there, they're offering too much and need to reduce their offer. It doesn't matter if similar properties are selling like hotcakes for twice as much. If the client isn't happy, it may mean they need more discussion of the market, or alternatives to that property, but they shouldn't be offering that much money. The answer to the second should be "no", an indication that they really are offering what the property is worth to them. Not that they have to offer that much, just that they might. If they want to offer some lesser amount, I'll still do everything I can to get the offer accepted, but in that circumstance my clients are accepting the increased likelihood that someone else gets the property for a price less than they would have been willing to pay.

A question that's never misplaced is "Are we wasting our time with this offer?" It communicates quite plainly to the listing agent that under the current circumstances, this is the best they're going to get from you. You just have to be willing to walk away without hesitation if they say "Yes." It's not necessarily the end of the line for you and this property, it's just the end of the line for now. If the property is still on the market weeks later, a renewal or even a lesser offer can often move it "Pending" in your favor. It has to do with credibility, and steadily worsening circumstances for would-be sellers of real estate. Quite often the agent or seller who isn't willing to talk rationally in April is desperate in July. It's their own fault, if they had negotiated in good faith in April the problem would have been solved on terms more favorable to them.

Caveat Emptor

Original article here

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2 Comments

Dan-

This is another good--thoughtful-- example of how much you care about the people you're serving.

How do you really measure how important winning a particular house is? How do you keep the clients from overpaying for a house because of one feature.

~Chris

Dan Melson Author Profile Page said:

There sometimes are limited availability features that, together with other factors such as location, make the property uniquely valuable and therefore worth a premium to that client.

However

These situations are a LOT less common than most folks think.

The usual antidote for consumers who have to have a given property is to show them another just as good. At least 98% of the time, I can find another that fits that bill.

Please be civil. Avoid profanity - I will delete the vast majority of it, usually by deleting the entire comment. To avoid comment spam, a comments account is required. They are freely available, and you can post comments immediately. Alternatively, you may use your Type Key registration, or sign up for one (They work at most Movable Type sites) All comments made are licensed to the site, but the fact that a comment has been allowed to remain should not be taken as an endorsement from me or the site. There is no point in attempting to foster discussion if only my own viewpoint is to be permitted. If you believe you see something damaging to you or some third party, I will most likely delete it upon request.
Logical failures (straw man, ad hominem, red herring, etcetera) will be pointed out - and I hope you'll point out any such errors I make as well. If there's something you don't understand, ask.
Nonetheless, the idea of comments should be constructive. Aim them at the issue, not the individual. Consider it a challenge to make your criticism constructive. Try to be respectful. Those who make a habit of trollish behavior will be banned.

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About this Entry

This page contains a single entry by Dan Melson published on December 25, 2013 7:00 AM.

Investors Aren't The Only Ones Who Can Fix Ugly Properties was the previous entry in this blog.

What if Your Partner Refuses to Pay Their Share of a Loan or Mortgage (or Won't Pay on Time)? is the next entry in this blog.

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