Beware Of The “Yahoo”

We’re so brainwashed as a society that when we see “Yahoo,” we automatically think of the website that started as a search engine but is now the world’s biggest Internet portal, and the #4 website on planet earth, according to Alexa.com.

But once upon a time, “a yahoo” was a person who was nuts.  Crazy, unpredictable, illogical, and unreasonable.

The “yahoo” has his or her place in the real estate dictionary as well, and has for quite some time.

Who is the “yahoo?”  He’s the person who makes you say, “That house sold for WHAT?”  He’s the person that wins the bidding war……..by a country mile…

CrazyPeople

Along with “the yahoo” often comes the term “throwing the boat.”

“It’s a great house, and I’d love to buy it, but I’m sure some yahoo will throw the boat at it,” a buyer might say.

I think I heard the term “yahoo” my first day in real estate.

Two agents were laughing about a situation that happened the night before.  There were multiple offers on a house (back then it was probably $499K….), and while most of the bids were clustered around $520-$530K, there was one yahoo who offered $600,000, and was the clear winner.

But was he really the winner?  Or was he just nuts?

I learned very early on in this business that sometimes, common sense does not prevail.

The adage, “a property is worth what somebody is willing to pay for it” definitely holds value to me, but at what point does it not?

Let’s say a house is listed for sale at $699,900.

You have seven offers, beginning with the reverse-yahoo who submits an offer of $699,900, conditional on the sale of his house in Ajax, then offers of $728,000, $735,000, $740,000, $758,000, $760,000……….and $886,000.

That has to demonstrate that maybe a property isn’t always worth what somebody is willing to pay for it.  That’s where we as Realtors define “the yahoo.”

I tell my buyer clients who are entering a multiple offer situation, “We know what we think this house should sell for, and we know what we’re comfortable offering.  I think we have the number to take this property down, unless some yahoo comes along, and blows us out of the water.”

There isn’t much more that you can do, than that.

In the situation above, if the second highest offer is $760,000, and some yahoo bids $886,000, I don’t think any of the other six buyers – who offered between the asking price, and $760K, is going to have any hard feelings once they find out the sale price!  Sure, they might be disappointed and disillusioned by the market, but in these situations, I tell my buyers, “That’s one more active buyer out of the market, and we wouldn’t have paid that price anyways.  Let them have it.”

If you think I’m making these numbers, and these situations up, I assure you – I’m not.

A North Toronto home was listed for sale last week at $1,100,000 – little low, but isn’t every house priced for multiples?  I figured it was a $1.2M home, maybe $1.25.  But some yahoo threw the boat at it!

Jaws dropped today when we heard that a bully offer was submitted, and it sold for $1,418,000.

$318,000 over asking, with no competition.

That buyer is an absolute yahoo.

In my humble opinion, this buyer could have waited until the scheduled offer night, and got this property for under $1.3M.  I bet my reputation on it.  Maybe the buyer could have even got it for $1.25M.  I guess we’ll never know!

To me, the whole point of a bully offer is to submit something slightly less than your maximum price for the home, to see if the seller bites.  Otherwise, you up the ante on offer night.

But this yahoo had other ideas, and the real estate community is laughing.

You can’t compete with the yahoo.  You’re utterly powerless, and all hope is lost.

But that’s just the thing: you don’t want to compete with the yahoo!  Oh sure – you wish he wasn’t bidding on the house you want to live in for the next twenty years, but you sure as hell aren’t going to compete with him.

My colleague was in multiple offers on Monday night for a nothing-special home, listed at $969,000, with only three offers.  Her clients bid $1,037,000, which is quite reasonable given that there are only two competing offers, and there’s a 50/50 chance that one of them isn’t that strong (ie. under $1M).  But wouldn’t you know it – some yahoo came in and bid over $1,100,000, and she was blown out of the water.

There’s nothing you can do here, folks.  You just sit back, let it happen, and move on to the next.

Ask the buyer who submitted that $1,037,000 offer, “Would you have paid an extra….say…….hundred grand?”  Not on your life.

Nobody likes losing small.  If you’re going to lose, you want to have no regrets, and that’s why losing BIG can cushion the blow.

I’ve lost by $500 before.  That hurts!  $875,500 to $875,000 on a house in Leaside back in 2005.  I’ll never forget that one.

I’ve lost by $1,000 as well, and I’ve lost by under $5K probably two-dozen times.

Those ones really hurt, and it makes the buyer second-guess him or herself, for days (if not weeks) on end.

But when some yahoo throws the boat at a house, it makes you, 1) pause, and double-check to see if you had the number right, 2) react to the fact that this DID just happen, 3) provide a reactionary smile, as you start to find this funny, 4) do that “hmmm” thing with your lips, where you begin to nod as you mull it over, 5) shrug if off, and say, “ah well,” as you accept what happened, and realize you didn’t have a shot in hell, and feel absolutely no regret; you almost pity the buyer who “won” the property.

So why does a yahoo throw the boat at a house?

What makes this person so damn illogical?

In my experience, there are four major reasons:

1) Severe, unexplainable, emotional attachment.

A classic example of this: the yahoo grew up in the house forty years ago, and the house is sacred, and priceless.  Leave nothing to chance, and go nuts!  $1,418,000 on $1.1M!  DO IT!

Maybe the yahoo’s brother lives on the street; or his ailing mother.

Perhaps the yahoo’s boss lives on the street, and he sees this as a way to work his way up the ladder, and payscale, and perhaps the insane price he has to pay for the home is an investment in his future.

Whatever the reason, the yahoo can often have some bizarre attachment to the property, that results in him taking the spread between the #2 and #3 highest offers, and multiplying that by about 50….

2) Tired, defeated, beaten, and broken down.

I hear about these buyers that have offered on fourteen houses and lost each and every time.

Where do these people come from?

If my buyer lost on his or her fourteenth property, I’d say, “Guys, you need to fire me NOW because I’m not doing my job, not explaining current market conditions, not helping you be aggressive, and basically dragging you along as the market continues to appreciate.  I think I cost you a 10% gain on a house you could have had last year!”

I don’t think agents do that, but I would…

Regardless, the person who is so tired of losing, and so scared of going back out to pound the pavement again, as the search continues, will often go nuts on offer night, and just throw the boat at a house.

A yahoo isn’t always born a yahoo.  Often, a yahoo is created by circumstance…

3) The wife.

Ladies, don’t kill me for this one.

But when a man leaves in the morning, and his wife says, “Don’t you DARE come back tonight without that house,” there’s little he can do.

When a woman wants something, she wants it.  And sometimes, you find yourself going to Esso at 1am on Saturday night to get her rainbow Skittles, just because she saw a commercial on TV that made her realize she wanted them.  Ahem…

Men are clearly the weaker sex, and often, we throw caution to the wind to satisfy those we love.

I’ve seen this happen before several times.  A man says, “What price do I need to put down to GUARANTEE I get this house?”

“A billion” isn’t a bad number at all…

4) Misreading the market.

Just as I berate the buyer who offers under the asking price, when there are six competing offers, we often see some yahoo show up, with absolutely no understanding of the market.

Back in about 2008, when the condo market was insanely hot, and properties were getting multiple offers, I had a listing for $299,900, that had two offers.

Both buyers knew they were in competition, and I told them both, “Bring your best offer.  This is a one-shot deal, and there are no send-backs.”

The first offer came in at $311,000.  A very noble offer indeed.

The second offer came in at $350,000.  It was bonkers.  Just epic stupidity.

My client actually blurted out, “HOLYFUCKINGSHITBALLS” as the agent stood there in the kitchen and presented the offer.

I think I actually gave him a paper-cut when I snatched the certified deposit cheque out of his hand…

Perhaps this buyer and his agent had a reason for submitting that offer, but in my opinion, they simply misread the market.

That offer was classic “yahoo” behaviour.

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We’ve seen a lot of this in the past, and I don’t expect it to stop any time soon.

In most multiple offer situations, the winning bid is 1-2% higher than the second-highest bid.  That $699,900 house that sells for $776,000 will usually have a second-highest offer of $770,000, and that buyer hurts for a week or two.

It’s maybe in 1/10 cases where somebody is 10-15% higher than the next best offer, and that’s the yahoo.  He’s always lurking.

Like I said – there’s nothing you can do if the yahoo is competing for the house you want.

The only thing worse than being the yahoo, is trying to outbid him…

13 Comments

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  1. mr james adem says:

    Hello sir;
    good day to you am Mr James dame l love to buy a property from you but for now l want help from you on fund transfer to your company account by your name the fund is up to 12.5million dollars the money we keep for me by you when l come to you l will buy the one on your property’s that is up to 4 or or5 Bedroom for family use any price l will Buy OK from you
    thanks for your cooperation
    yours faithfully
    business consultants
    Mr James adem

  2. mr james adem says:

    Hello sir;
    good day to you am Mr James dame l love to buy a property from you but for now l want help from you on fund transfer to your company account by your name the fund is up to 12.5million dollars the money we keep for me by you when l come to you l will buy the one on your property’s that is up to 4 or or5 Bedroom for family use any price l will Buy OK from you
    thanks for your cooperation
    yours faithfully
    business consultants
    Mr James adem

  3. Rob Fjord says:

    irrational exuberance….the psychology of the market will produce more and more of this until we hit the top. Im now hearing smart people say the market will never crash…. blah blah immigration, blah blah permanently low rates, blah blah chinese money.

  4. Kyle says:

    We already have huge world class International events (Caribana, Pride, TIFF, Fashion Week, etc) that don’t cost the city a fortune to run and bring huge net positive economic benefit and raise our City’s status on the world stage. Even though that idiot Ford keeps trying to kill them. I’d be in favour of the city throwing a little more money and support behind those events where the economics are already proven, rather than mortgaging the future for the Olympics. And any analysis about infrastructure, should really be based on the fact that it is sorely needed, not because of some one-time sporting event.

    1. Kyle says:

      I’m an idiot, i wrote this comment on the wrong Blog post. Should have been on the Feb 26 post

  5. Julie says:

    The problem with the yahoo overpaying for the house in Chaplin Estates is that every seller will want to match it and yahoo has effectively rendered the market of older, smaller homes in Chaplin out of reach for the $1.0-1.3M buyer. So yahoo throwing money at that house has a wider impact.

  6. Jonathan says:

    To me this article speaks to the benefit of an open bidding process, but I know that topic has been beaten to death previously on your blog.

    I think this issue really speaks to how easy it is to get financing these days. That person or couple bidding $886K likely isn’t all that wealthy (otherwise they would be buying a more expensive house) but earns enough to qualify for a jumbo mortgage thanks to lenders’ eagerness to give borrowers enough rope to hang themselves with. People focus on the monthly payment rather than the actual purchase price, so they only see that extra $50K or $100K is only a couple hundred bucks a month. Of course, all of that principal needs to be paid back someday, with interest! it’s all after-tax dollars too, so with a 40% tax rate that $100K is more like $166K in pretax income. Even a “little more” like $20K is basically equivalent to buying a new car on credit and then setting it on fire…

    A house is the the biggest purchase you’ll ever make in your life, and you’ll be paying for that “just a little more” for the next 25-30 years.

  7. Den says:

    Some people don’t buy a house to flip, or as an “investment”. They buy them to live in, as “homes”. Maybe the insanity is the system we have of upbidding houses itself that forces someone who REALLY wants it, to you know, actually LIVE IN, to feel they have to put a huge offer in so they can get it. And if they can afford it, does it matter if someone else thinks it was worth it? It’s all relative really.

    I can’t afford to buy a house but if I was looking and found one I wanted I’d have no problem with seeing that I could get it. Paying a bit more (IF one can afford it of course.) is worth a lot more to me than wasting my time with the games that are played selling houses via “auction”. To someone like me, it’s not about what others value it at, it’s about what it’d be worth to ME to get it and whether it’d be worth it.

  8. Gypsy says:

    We don’t have to look too far. We have some of the craziest yahoos here commenting on this post. Kenneth Thomson, 2nd Baron Thomson of Fleet, bless his soul, would rather share a single ice cream cone with his wife and dog rather than buying too many. I have also read that he would bargain shop for grocery for 25 cent difference. And yet, yahoos here advocate some people to over bid by 100,000, because they could save time. This is the dot.com moment of 1999, we are witnessing right now in real estate.

  9. johnny chase says:

    Dave – are you saying that in multiple offer situation the selling agents are informed of the prices of all the other offers? I would think that is the best offer is 10% higher than the second best offer the listing agent would keep that private.

    1. Geoff says:

      He could be basing his information off the times when he’s the listing agent, no?

      On the main topic, one thing to consider is there’s more than currency in the world. There are some people who have money but don’t have time. Whether it’s because they’ve sold their own home, or are moving from another country, or are just gollum like and wantssss ittsss…..

      It’s not always crazy to pay $100,000 over the nearest offer, if you have the money but not the time to continue the process. That’s one thing I’ve learned, that value is in the eye of the beholder,

  10. IanC says:

    Reason 5: They just love and want the house period, and love it in dollars (which they have plenty of) more than the general market does. It’s like reason 1 – but the attachment is explainable.
    Neighbourhood, natural lighting/exposure, layout, feeling. These are personal factors that can vary greatly between a single individual compared to the general market that determines a price.
    If you have 100 homes, half with a market value of 1.0 million, and the other half with a market value of 1.2 million, some people would fall in love with and select a cheaper house! An individual might prefer a smaller yard and a closed kitchen where the general market might heavily devalue those features.
    This 1.0 million dollar house is desired more than all other 1.2 million dollar houses to that person. This attachment can be sanely explained.
    So why offer 10-20% over market? It’s a bit of the other reasons….(2-4).
    f you are loaded, your house is less of an investment and more of a home.
    A person might have other vacation homes, boats, ex dependent spouses and children, or other expenses where your dwelling is not a huge part of your life expenses.
    Paying an extra 10-20% above “market” value might be a trade off for peace of mind and living in the exact house that you want. The risk of losing and searching again is too stressful for some (Reason #2 a bit). They have a very low tolerance for “failure” to get the house. They want to be able to focus on more important things on their life than making house decisions and live in a great house to boot – at a price they are willing to pay! Perhaps they meant to overpay a more reasonable 10% extra to lock it down, but misjudged it (Reason #4). They now paid 20% extra or higher.

    So, if you were to analyze each “yahoo” house deal, you would not be surpised to find all of your reasons creeping in a bit – each within reason. However, the overal accumulated result being: HOLLYFUCKINGSHITBALLS!

    1. Kyle says:

      I agree with IanC

      There are some people who just know exactly what they want. I’ve heard of people who have narrowed down their search to just a few potential addresses (e.g. South facing, renovated, detached, 4 bedroom, with garage parking in Garden Ave School District). There may only be 20 such houses and maybe only one or two each year that go for sale, so when one of these comes up they’re in it to win it.

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