People say to me, “I bet you’re loving this market”, expecting that realtors are raking it up these days.
I lost 50+ bidding wars with buyers this year who lost out to others who insanely overpaid with no regard for the comps, or because listing agents were too lazy to give everyone a fair chance. Neither of those are healthy for the market in general, yet no change is on the horizon for 2022.
I found myself in two more bidding wars this week!
The two properties weren’t the superior buys in top condition – instead, both were very average and priced with no regard for the comps. Yet they both had multiple offers over list price during the week between Christmas and New Years?
This is my 698th blog post of 2021, and the best way to review the year is to scroll through the highlights and lowlights here:
Because I wanted to make the competitive bidding all about price, I was willing to live with the other terms in each buyer’s offer.
The winners included a $50,000 good-faith deposit in their full-price offer – which was a little light. Typically, the deposit is 3%, which would have been $101,850. But every buyer can blow out of escrow during their contingency period, regardless of their deposit amount, and once they do release all contingencies, they must be satisfied enough that they intend to close.
I’m not going to give them a reason to walk away from $50,000, so it would take a catastrophic event for them to cancel after releasing all contingencies. Would they walk away from $50,000, but not $101,850? It’s possible, but if it’s a catastrophic event, then the extra $50,000 probably wouldn’t matter.
When you treat people right, they don’t cancel.
We spent the six weeks preparing the home to be spectacular, which included repairing the water leak that happened right as we got started. The master shower faucet leaked inside the wall, and it went straight down to the family room fireplace and TV niche. We had our mold remediation guy handle the re-construction, plus did a mold test that came back clear. Everything gets disclosed to the buyers, so you might as well do it right the first time.
The buyers reviewed the information, and were satisfied.
When you treat people right, they don’t cancel.
The house is 18 years old. When the seller bought it, the home inspection noted that the HVAC was nearing the end of its useful life, and that there were several fogged windows. We expected that the home inspection by these buyers would reveal the same.
Buyer’s remorse is real, and it gets magnified in a bidding war. When paying above the list price, it is natural for buyers to want to claw back some of it. We expect it, and are prepared for it.
The previous seller gave us a credit for the fogged windows, so it was just a matter of getting them done, and we knew the approximate cost of a new furnace and air conditioner.
We discussed whether we should replace the HVAC and windows in advance, but decided against it – and left them for the buyers to claw-back instead. Once requested, we were happy to oblige – unlike most agents who want to start World War 3 over every repair request.
When my listing of 1463 Paseo de las Flores hit the open market on October 18th, there had been three other properties that were providing guidance on price.
The monster 7,277sf home at 519 Samuel had been in escrow for almost two months, and 628 Lynwood had been languishing unsold for 110 days. On September 27th, a model-match to my listing, 820 Jensen, came on the market at $2,899,999, which was devastatingly-low compared to our anticipated list price of $3,395,000. I called the owner/agent to suggest that she may want to raise her price, and sent her the six comps that were outside Encinitas Ranch but all over $3,000,000.
Her response? “We’re comfortable with our price”.
I called her a couple of weeks later right before we went on the market to inquire about her sales price.
Her response? “You’ll see it in the MLS when it closes”. Great, thanks.
(The eventual buyer’s agent told me that she received four offers – three at her list price, plus his cash offer at $3,060,000. The sellers took his cash offer.)
I was undeterred, and we hit the market at our $3,395,000 on a Thursday afternoon.
The next day at noon was the first showing, done virtually by an assistant.
Any buyer who responds that quickly must be highly motivated, so I didn’t hold it against them that the principal agent didn’t come or that it was a virtual showing. It would be hypocritical for me to have an objection since I’ve sold multiple houses virtually.
They made a full-price cash offer by the time I got to open house at noon on Saturday.
Greg and I entertained a big crowd at the open house, and one of the first attendees was a woman who brought her mom and her best friend, which I took as a good sign. She mentioned that she knew the previous owners, and had been to dinner parties at the house! They stayed for an hour, during which I told her that I had received a full-price cash offer.
Before the open house was finished, I received her cash offer for $3,500,000.
Every other agent would have taken her offer.
It was a whopping $105,000 higher than the first offer, she was charming, and she had spent serious time inside the house. It would look like a no-brainer choice to every other agent.
But I’m not like every other agent.
I called the first agent as I was leaving the open house, and told him I had received the $3,500,000 cash offer. I asked if he wanted to beat it, and if so, that I would go back to the second buyer and give her the same chance to beat his. We would go back and forth until a buyer prevailed.
We went five rounds before the second buyer passed at paying $3,800,000, and – armed with this insider information – she ran over to Lynwood and bought that house instead for $3,550,000 and a 10-day escrow. It still shows as a pending listing today, but I know what happened because the listing agent is advertising his good fortune all over Facebook.
The sellers of 820 Jensen? They were the buyers of Samuel, and they paid full price, $3,599,000.
We are wrapping up our sale in Encinitas Ranch, so I thought it would be a good time to comment more on the unconventional and remarkably transparent open-bidding process I employed to determine the winner.
Because nobody else does open bidding, some may question it’s merits. Here is why it is so much better than the current blind-bidding used throughout the nation:
Every buyer has a fair chance to win.
Buyers know when losing is imminent, and can raise their offer.
Buyers determine their own fate.
Winners are determined promptly – within hours.
In the end, everyone feels like it was a fair and honest selection method.
Compare my method to the features of blind-bidding:
There’s no specific process.
How the winner will be determined is unknown.
Buyers don’t know anything about the competition – if any.
It always drags on for days with no communication.
Losers walk away feeling like something is wrong with realtors and process.
The messy non-transparency of blind-bidding makes you want to go take a shower.
Unlike the black hole that is usually presented by listing agents, I explain rules of engagement in advance to the agents involved – specifically, that they will always have a fair chance to win, which is welcomed!
Will I change the real estate world with my method?
Maybe – if enough sellers list their home with me. I’m available – contact me today and we’ll get started!
It happened again yesterday. I got the Dear John letter from a listing agent.
This one was somewhat unusual though. I always ask a listing agent how they will handle multiple offers, and 100% of the time it’s some version of spreading them out on the coffee table and picking the winner.
But when I asked this agent, she flipped it back on me and asked, “Well, how do you handle them?”
I responded, “I call back every agent and tell them the price to beat, and mention that they are going to lose if they don’t beat it.” It gives every buyer a fair chance to determine their own fate.
The listing agent responded, “Oh that’s how I do it too!”
What? I’ve never heard that before. Thankfully, my buyers liked the home enough to pursue it, and we submitted an offer that was $22,000 over the list price, with the normal concessions. It’s an offer that should be considered as a contender.
You can guess what happened. The usual five days go by, and yesterday I got an email from the listing agent who said that because she received offers that were higher, they selected a better deal.
Someone asked the question, “Does the realtors’ blundering incompetence with handling multiple offers actually feed the frenzy? Do their Dear John letters ramp up the intensity?
I thought about that one for a while.
I am a competitor at heart. I was lucky to be on some great sports teams when I was a kid, and learned the difference the hard way. Some teams have great players but don’t win. Other teams have a few talented players but are winners because they are scrappy and determined.
Think of the Padres. Even though they have finally had some great players, they aren’t very close to winning anything yet. During the last half of the season, they mailed it in, and lost a lot of games to inferior teams.
If we lost a game because of a bad call by the umpire, or an honest mistake by a player, we would be frustrated but could shrug it off.
But if we lost a game that was very competitive and everyone played their heart out, it would motivate us the most to learn from it, and never let it happen again. It’s the killer instinct, and it comes from honestly played, head-to-head battles.
I think homebuyers today who get burned repeatedly by agents who don’t give them a chance to compete fairly with the other bidders are being dumbed down. They get numb to losing, and while it might cause them to offer a little more next time, their building resentment keeps them from throwing everything in.
Open bidding gives homebuyers the opportunity to go higher than they ever thought they would.
You know there are agents out there thinking, “Jim, you sniveling little baby – why don’t you just get your buyers to offer more money so they can win the bidding war?”
First off, a bidding war is when participants are bidding against each other.
What is practiced around here is blind bidding, where buyers just guess at what offer might win.
Nobody wants to pay more than they have to, or more than they should. With no other influence, buyers will submit their bid based on the comps, or their comfort level.
But when presented with a price to beat, emotion takes over. With the fear of losing the property being a real possibility, buyers are much more likely to go higher than they originally thought, in order to win.
It becomes more about winning and losing, than paying a comfortable price.
There will be an occasional blind bid that swamps the boat, and produces a sales price that others wouldn’t have touched. But how do you know? You don’t.
Conducting an auction-like process where bidders are pitted against each other and know the number they have to beat is the most reliable way to reach top dollar. The fear of loss is real, and motivates people to do things they wouldn’t have done on their own.
Yet, realtors around here won’t consider! Why not?
Most everyone thinks it’s against the rules, but this is in the contract:
Offers not necessarily confidential: Buyer is advised that seller or listing agent may disclose the existence, terms, or conditions of buyer’s offer unless all parties and their agent have signed a written confidentiality agreement. Whether any such information is actually disclosed depends on many factors, such as current market conditions, the prevailing practice in the real estate community, the listing agent’s marketing strategy and the instructions of the seller.
Agents can include the confidentiality agreement but it doesn’t mean anything unless all parties agree.
In my bidding war on Saturday, the agents were happy to participate. They enjoyed the transparency, and the chance for their buyers to determine their own fate!
I mentioned the cash offer we made on Saturday on behalf of buyers hoping to purchase a home in Carlsbad. It finally came to a conclusion last night.
It went the same way all of the other multiple-offer situations have gone:
It dragged on for days.
Little or no communication.
No transparency about the process or how a buyer will be selected.
No open bidding.
After a day of being kept in the dark, I suggested to my buyers that we should improve our offer and just hope for the best. We submitted a new offer above the list price, 14-day closing, and free 30-day rentback. A worthy offer!
I got the call late yesterday – Sorry, we’ve gone in a different direction.
I appreciated the call because they usually come by text so the listing agent doesn’t have to offer any explanations. Because I had the agent on the phone, I pleaded with him to give me the winning sales price, which he did.
When I told my buyer about the winning bid, he said,
“I would have paid that.”
“IN FACT, I WOULD HAVE PAID MORE THAN THAT.”
It’s not just about treating all buyers and buyer-agents fairly (part of the Code of Ethics).
It’s about LEAVING MONEY ON THE TABLE, which is happening everywhere because listing agents are too lazy or inexperienced to conduct a proper bidding war. Even if you don’t have the guts to do open bidding like I do, then at least give every buyer a chance to make their highest-and-best offer, which used to be the standard up until this year.
Now, the listing agents only worry about grabbing their favorite offer, and going back to sleep.