Why do buyers offer $100,000-$200,000 over the list price?
- The sellers and listing agents aren’t demanding it.
- The home isn’t priced $100,000-$200,000 under value.
- Half the homes are selling for list price or under.
- There will be others for sale.
There isn’t a threat of transparency either – every listing agent (besides me) does blind bidding, and then just takes the highest offer. It would be understandable if there were rounds and rounds of open bidding and the buyers’ ego kicked in because they KNEW they had to out-bid everyone else to win.
But with blind bidding, you don’t know anything about the other offers (if any).
The extended frenzy is causing buyers to voluntarily sacrifice hundreds of thousands of extra dollars in trade for the hope of ending their frustration – and if they still lose, then they offer even more next time!
The frustration builds over time, and buyers go through a fairly predictable sequence:
Early-on: I’m not going to play that game – I’m not desperate.
After losing 2-3 houses: These people are nuts.
After losing 4-5 houses: Ok, this is ridiculous. I gotta get this over with.
The biggest problem is that it seems there are always people with more horsepower who started the process earlier and, as a result, are MORE frustrated than you.
Once buyers reach the peak frustration level and end up winning a house, they are left in disbelief with the one universal thought: “Oh, what have I done?”
It becomes obvious that buyers are paying tomorrow’s prices today, but they come to terms with it later because there are enough other reasons to buy this house that paying the frustration fee gets forgotten.
If overpaying is part of the environment, what can a buyer do?
- Get to the peak frustration level quickly, and/or just buy the first house you see.
- If you are going to overpay, then insist on buying a superior home.
- Only buy an inferior home if the defects can be fixed with money.
You will have a 15-minute tour to size up the home and make decisions that will affect the rest of your life.
You’d be crazy to attempt that without a solid, experienced agent to assist you!
Yet, even with all this pent-up frustration among buyers, it doesn’t occur to listing agents to go back to all the other bidders and give everyone a chance to overpay.
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Great write up.
This was an excellent piece that you have written. Very well stated JTR.
Thanks Bob and NCG!
In how many cases do buyers shrug their shoulders and turn to their agent and say, “How much over?”
Can the agent back up his price with solid reasoning, or do they just say, “everyone paying $200,000 over, so you should too”?
Maybe it would help if “someone” pointed out that every extra $100k is two weeks in Hawaii every year for 30 years. Or $100k invested for 30 years is an extra $500k plus for retirement.
How did this predominance of blind bidding, and single round of offers before one is selected, get started? It wasn’t always this way. Granted, you can only counteroffer one buyer. But there was a time when you could send everyone back to improve their offer. And even- if everyone agreed,- disclose price and terms to encourage open competition. Offer deadlines and a single offer submission before one is “anointed” as winner stifle competition and potentially actually limit the seller’s ability to find the “best” buyer and get the “best” overall price and terms.
How did this predominance of blind bidding, and single round of offers before one is selected, get started? It wasn’t always this way.
I agree, and all the way through the initial frenzy of 2020, agents were still countering every buyer for their highest-and-best offer. It isn’t the same as open bidding, but at least buyers were on notice that it was competitive and had a chance to compete.
About a year ago, listing agents just got lazier, and decided it was too much work to counter every buyer – why not just take the highest and go back to sleep!
Granted, you can only counteroffer one buyer
The seller-multiple-counter-offer allows every buyer to compete without committing the seller.
All buyer responses are sent back to the seller for review. There is an additional signature line at the bottom, and the seller signs only the winner’s response.
Realtors have always been a copy-cat business – we just do what we see everyone else doing.
Once an agent is on the buyer’s side and gets screwed once or twice in blind bidding, they get determined to screw everybody the next time they represent a seller. It may not be a conscious act, but because most agents are unconscious anyway, they can’t wait to stick it to the next guy.
“The seller-multiple-counter-offer allows every buyer to compete without committing the seller.”
Jim- This is the first I’ve heard of this. Is this a form or process you developed for your own use? I’m not aware of this as a commonly available step or strategy in contract negotiations. Please educate me (again, as you have many times) on how to do this so I can provide better service to my sellers and all these buyers getting beat up in this market. I’m in Raleigh NC, and it’s supposedly the third most competitive market (don’t know how this was determined this but that’s what the newspaper said…) so we have all the same craziness you have in California.
I’ve been a broker over 30 years, in four different states now, and I’m still learning. And you’re still teaching me. I very much value the articles through Residential Realty Today as well as your youtube videos.
The SMCO is a standard form from the CAR that’s been used for the last few years. Here’s a copy (since deleted):
Those in charge don’t want any public access to our forms!
Seen it. Many thanks. Don’t believe we have that form from Raleigh board. So glad for the heads-up and pdf.
Just occurred to me. Even though agents in your area have this form available, you’re still seeing predominantly blind bids and offer submission deadlines. What a shame.
What a shame.
Indeed, especially for their sellers who are leaving money on the table.
I had a dream where consumers filed a class-action suit against realtors for being so lazy, and put them all out of business. I was the only one left!!!