Here I describe some of the details of how the sale went down on Glenmont in Solana Beach, which listed for $1,499,000 on January 8th. Not every agent operates this way – many will just grab a cash offer and go for the easy close. But I prefer to go all out:
http://www.zillow.com/homedetails/669-Glenmont-Dr-Solana-Beach-CA-92075/16726516_zpid/
We are shambling our way towards using an auction format to sell houses, but then again I was the idiot who thought we’d have video tours of every listing by now!
From the WaPo:
They find, in research published in the journal Real Estate Economics, that only around 3 to 4 percent of homes on the market across the country were selling in bidding wars for years prior to the bubble. Then at the bubble’s peak, nearly 30 percent of homes in metropolitan D.C. were selling this way, the highest share of any metro Han and Strange studied. The same was true of about 22 percent of home sales in Baltimore and Norfolk, 23 percent in Las Vegas and 26 percent in Los Angeles.
Since the housing collapse, these crazy numbers have declined, but not back to their earlier levels. As prices have fallen and the number of home sales has, too, bidding wars haven’t disappeared apace. That means that we’re probably seeing not just a lingering effect of the housing bubble, or even a pure product of high housing demand, but a new strategy for selling homes that was embraced during the bubble.
“The persistence of this suggests that people have decided that this is a good way to think about selling these kinds of goods,” Strange says, “selling housing in a more auction-like way.”
If a list price once meant the seller’s ceiling, for many homes it’s now the buyer’s floor — the number with which the auction can begin. Part of what’s going on here, Strange says, isn’t just that the small supply of homes for sale continues to push up their price in certain markets like D.C. (bidding wars still made up about 12 percent of sales here as of 2010). Real estate agents are also strategically listing homes below their value to create bidding wars.
“One way to see all of this is that housing is this incredibly important good, it’s easily the most important asset in a typical household’s portfolio. As a share of total wealth, housing is huge,” Strange says. “And yet, the way houses are getting marketed, very broadly speaking nowadays, is an awful lot like it was 50 years ago.”
If you’re a buyer or a seller, you sign a contract with a real-estate agent who understands what’s going on a lot better than you do. They negotiate on your behalf and split a commission, typically about 6 percent. The way information is traded — through home visits, negotiations and market comparisons — is more or less how it’s been done for decades. For most of this time, buyers would set an aspirational price, then negotiate down from there.
“With the rise of bidding wars, we shouldn’t think that the housing market — like other markets — is just going to keep doing things in the old traditional ways forever and ever,” Strange says. “There are going to be changes.”
“People are making these million-dollar trades,” Strange says of homebuyers. “But we really don’t know that much about the housing market, where it’s going, what demand and supply are. It’s an amateur market where people are making these huge, huge decisions.”
What can you do for buyers when a bidding war erupts?
Reader 3rd Gen SD asked yesterday,
“You regularly mention pricing to engineer a bidding war. Do you have a post you could link to that describes your strategy, including how you manage same?”
There are no rules or regulations on how to handle a bidding war – each realtor is on their own to devise a strategy. As a result, most don’t do more than spreading out the offers on the seller’s table and picking one.
Back in the REO days, the banks would insist on countering each bidder for their highest-and-best offer, and that is the most common solution. But agents are reluctant to tell bidders how many offers there are, or at what price point – they just want you to bid blindly. In those cases, at least every bidder has a chance to win, but without some guidance they are likely to be conservative.
When my sellers get multiple offers, I’m working the phones myself. I am asking questions to qualify each buyer, and giving their agent some coaching on what it will take to win.
It’s the pitting of each buyer against each other that results in top dollar sales. They are much more likely to pay a higher price if they have a number to shoot at – AND they feel like they have been treated fairly.
Here are specific examples of how I do it:
https://www.bubbleinfo.com/2013/12/15/how-jim-handles-bidding-wars/
https://www.bubbleinfo.com/2012/11/30/open-biddingtransparency-live/
https://www.bubbleinfo.com/2013/04/18/price-coaching-for-bidding-wars/
Why doesn’t every agent handle multiple offers this way? Because they don’t have to – sellers still think they did well, price-wise, and they can tell their friends and family that their house was sold in a bidding war.
Thinking of selling? Hire Jim the Realtor!
When there are multiple offers on one of my listings, I am happy to divulge the pertinent information to all parties – because transparency benefits the seller. But most listing agents act like they are guarding Fort Knox, and won’t give any guidance on what it will take to win.
What do you do?
I ask these questions of the listing agent:
1. “How many offers are there?” To warm them up, start with an easy math question.
2. “How will you handle? Will you request highest-and-best from each buyer, or just take the highest offer?” In almost every case the agent hasn’t given it a thought, and is caught off-guard. All that matters is how they feel about highest-and-best, and gauge whether they might just sign an offer.
3. “Have you, or anyone in your office, written an offer?” I have won a bidding war when the listing agent wrote an offer with their own buyer, but it takes guile and guts to pull it off. But first, you need to know if that is the case. P.S. If they hesitate, the answer is yes.
Secondly, rank the property. Is it in the 95+ percentile of homes you have seen? If so, big-cash and/or desperation could turn this bidding war into a freak show. Determine an offer price that makes you uncomfortable, and then add some mustard.
If it is a nice home, but has some warts – then use this as a guide:
Here is the wrap-up report on the 5-offer bidding war we had on Ivy Rd.
Most bidding wars lack transparency – the listing agents just want you to send in your best deal and they decide which is best.
I handle the bidding wars personally, and pit all contenders against one another to ensure top dollar. It takes more work – but it’s worth it:
The inventory is extremely picked over, and any house within 5% to 10% of being right on price has sold – leaving only the junkers, bad locations, and OPTs (see video). When a hot new listing hits the market, it really stands out – making buyers jump.
The wild and furious bidding wars for the high-quality properties are likely to continue – if you are thinking of moving, get good help!:
In the previous post I mentioned that when I represent sellers, I give price coaching to agents during a bidding war.
What is price coaching? It is giving hints about the competing bids.
Let’s use the Manzanita case for an example.
Once a highest-and-best offer came in above $700,000, I started telling the other agents that it would take more than $700,000 to win. It gives others a number to shoot at, rather than the guessing game that feels like a black hole.
I was also very specific that we were not going to let this linger, that we would select a winner on Monday afternoon, which we did.
Putting parameters around the game helps bidders decide their fate. It is much easier for buyers to say “yes” or “no” to going over $700,000, then to just let them wander around, price-wise.
Once we had three people willing to go above $700,000, I kept giving hints until all bidders said that they had reached their maximum.
This is the opposite of what most agents do. Most agents will put a note in the MLS that says, “there are multiple offers, send in your best offer”. They also make it clear that they aren’t going to tell you how many offers there are, what price it will take to win, or even what their process is to select the winner. This is the sealed-bid method.
The sealed-bid process encourages bidders to offer less than their valuation of the item, because everyone wants a deal, and there is no fear of loss to push them to their maximum.
My method creates the closest thing to an auction/open bidding, which is the most effective way to find top dollar.
There are no rules or guidelines on how agents are supposed to handle a bidding war, so every seller and agent are their own. Get good help!
Once we get past the Super Bowl, home buyers will be out in force, resuming their hunt for a new home and hungry for a deal.
Boy, are they going to be surprised.
Not only is the active inventory as tight as ever, the new listings are dribbling out, compared to previous years. Here are the number of new listings that hit the MLS between Jan. 1-9, and their average LP/sf:
| Jan 1-9 | New Listings | Average LP/sf |
| 2009 | ||
| 2010 | ||
| 2011 | ||
| 2012 | ||
| 2013 |
There were 15% fewer listings this year, compared to 2012.
But look at the average list prices – the $569/sf is 42% higher than the 4Q12 average sales-price-per-sf ($400/sf). The average list price is similar to 3-4 years ago, back when sellers thought they deserved higher prices due to the homebuyer tax credit.
This is how the Big Standoff begins.
Historically the first quarter hasn’t been a time for big price increases, but admittedly, this is the new abnormal so it’s possible that buyers are willing to step it up. Here is the track record of the average $/sf of NSDCC detached-homes sold in the fourth quarter, compared to the following first quarter of the next year:
| 4Q:1Q | Avg 4Q $/sf | Avg 1Q $/sf |
| 2008 | ||
| 2009 | ||
| 2010 | ||
| 2011 | ||
| 2012 |
The first quarter usually comes out a little sluggish on pricing – each of the last four years has seen a lower 1Q average than the previous fourth quarter. We could break that streak, but by how much? $410/sf? $425/sf? Look how that compares with the average list prices!
With so many sellers shooting for the moon, the few who price their home realistically will be getting more attention than ever. We will be hearing more crazy bidding-war stories, and it will be because there are so few sellers who are listing for reasonable prices.
it’s not the end of the world. It just means that we can expect 2013 to be like 2012, where the first half of the year saw relatively slower sales due to buyer patience, and an active second half of the year once sellers get more realistic.
The inventory numbers will stay low by historical standards, but the unsold listings should start growing over the next couple of months. Let’s start tracking them – today there are 649 active (unsold) listings of detached-homes in NSDCC. Their average LP is $722/sf – so at least this year’s new listings are under that!
P.S. We won our first bidding war of 2013!
Lily has an article about the bidding wars and shortage of inventory downtown:
http://www.utsandiego.com/news/2012/aug/30/downtown-market-update/
Buyers fret at the thought – and many will say, “I’m not getting in a bidding war!”
Here are my thoughts on bidding wars:
1. It means you have found a decent property with a good price on it – which isn’t easy these days! You should at least find some comfort in your advanced hunting skills, and ability to identify a quality buy – congratulations!
2. It also means it will be likely that the other buyers and agents will panic, and half of them will hit the eject button – so hang in there, the competition is likely to eliminate themselves.
3. There are no rules or standard procedures, so get the listing agent to commit to a specific process – how will they handle multiple offers? Will they counter each one with a specific price, or will they ask each bidder to submit their highest-and-best offer?
On a hot, new listing, it is better for the seller to ask for highest-and-best offers – because you don’t know how high a buyer might bid. If faced with a H&B request, only submit the price you are comfortable with, and tighten up all the other terms so at least you have improved your chances the best you can – and hope for the best.
If they counter each bidder with a specific price, it is imperative that you ask the listing agent how they will pick a winner if everyone signs their counter. Typically the answer is a vague and lame, “well, we’ll just look at them all, and the seller will make a decision”, when really it gives the listing agent a chance to play God and select their favorite agent or some other slimy way of choosing.
They may have countered a specific, but different, price to each bidder, but that is rare – agents aren’t that smart. But if they say that they did, then you may want to consider offering more than the seller gave you, just in case.
If it is a tired, old listing, and/or you think the listing agent is bluffing and you don’t care enough about buying this one, then don’t respond. If there is any chance of coming back later, you don’t want to tip your hand, or sully your reputation now. I think it is rare that agents bluff, because they aren’t good at it, don’t have much experience at it, and they don’t want to blow a sale. If you are going to be suspicious, be wary of the top-notch agents, but they usually have their assistants doing all the work anyway so there’s less chance than you might think – plus typically they are in it to maximize their volume of sales, not toying around.
4. Discuss strategies ahead of time. You don’t want to be in the heat of battle and have to figure out how you are going to handle it on the run.
5. Read Paragraph 3K of the C.A.R. Residential Purchase Agreement.
6. Remember that you always have your contigency period to sort things out.
Whether you are selling or buying, you should ask questions of your agent about bidding wars, and how they handle them. They should have recent success stories and/or strategies available – because they will need them! My winning percentage is down a little due to other agent’s buyers willing to pay a lot more than they should – if you love the house, add a little extra mustard, just in case – but don’t overdo it.
Are you looking for an experienced agent to help you buy or sell a home?
Contact Jim the Realtor!
CA DRE #01527365, CA DRE #00873197
