The following story represents something that happens quite often in real estate, but I don’t think these stories get told.
Well, I suppose if you were the buyer in this story, you’d tell everybody!
It’s a common tale of greed, expectations, and disappointment…
Although this transaction didn’t involve me, I feel like I was involved from the get-go.
I work with a tight-knit group of agents here in the basement, er, “lower level” of Bosley Real Estate, and we’re all aware of eachother’s goings-on within the business.
My colleague, who we’ll call “Joan,” has been working with a buyer who is jet-set on the Queen West area for the last four months.
Just when Joan thought that there wouldn’t be any new, suitable listings until after Christmas break, the so-called “perfect” property came up in her buyer-client’s number-one building. He had given Joan a list of five buildings that interested him back in the summer, and this building was at the top of the list. The price point was exactly what he was searching for, and the interior layout was almost exactly as he had described in his initial email months prior.
There was only one problem, however: the sellers were holding-back offers until December 1st.
Are we in that kind of market?
I’m not sure.
I certainly don’t advise my sellers to hold-back offers right now; perhaps I would do so only in about 5% of situations, and I think most of those situations would involve houses instead of condos.
Regardless, Joan showed the property to her buyer and he absolutely loved it.
Priced at $454,900, it was perfect, and he was sold. He told Joan that despite the hold-back on offers, he did not want to “lose” the property.
This, I fear, is where some buyers let their emotions get the best of them.
You can’t “lose” something that isn’t yours to begin with, and seeing it any other way may only serve to help you overpay for the property.
Joan ran the comparable sales and determined that the property was indeed worth what they were asking – perhaps a good portion more. Maybe it did make sense for the sellers to hold-back offers and slightly under-price the property, but the timing seemed odd since the Fall hasn’t been all that hot a market to sell in, and we are rapidly approaching Christmas.
Joan’s client was very firm on his desire to get this property at all costs, so Joan but together a “preemptive offer,” or what the media or other Realtors like to call a “bully offer.”
Joan’s client signed an offer for $472,000 with a quick closing and only a condition on a review of the status certificate, and Joan called the listing agent to tell him.
The listing agent, however, wasn’t willing to listen at all.
Joan did her job – she faxed the offer to his office right before she called him, so it was clear that the listing agent saw the offer and the fantastic $472,000 offer price.
But the listing agent told Joan that the sellers wanted to wait until offer-night, and he advised them to do so as well.
I smiled when I first heard this.
I told Joan, “It’s like his dog just did his business on the sidewalk, and now he has to close his eyes and hope he doesn’t step in it.”
The table was set for a serious let-down, and even though this wasn’t my deal, I couldn’t wait to see how it ended up!
Bully-offers have a purpose other than the obvious attempt at getting the property before offer-day; they help to test the waters. In a red-hot marketplace, if you’re truly not sure how under-priced that $599,000 house is, you can prepare a bully offer for slightly less than you’re willing to pay. Submit that $645,000 offer as a bully, and if the sellers turn up their nose at it, you’ll know that you have to improve that $645,000 on offer night. I’ve done this many times before in red-hot markets, and sometimes the listing agent will tip his hand and say, “We’ve already received two other bully offers!” Now you know what to expect on offer night…
In Joan’s case, however, I had a feeling that the sellers (via their agent) had set their expectations far too high.
Joan put forth a fantastic offer of $472,000 on a property listed at $454,900, and I would have to think that the sellers hmmm’d and haww’d at this offer for quite some time before turning it down. Actually, wait, I don’t think that. No, I think they blindly turned the offer down because they assumed that whatever bully offers came in were only a sign of “better things to come” on offer night.
In actual fact, Joan’s client might have paid more than $472,000 if he knew what he was up against. He was in love with the area, the building, and specifically this unit, so if somebody said, “Hey buddy – it’s all YOURS for $477,000,” he probably would have done it.
But our market doesn’t work like that, and unfortunately for the sellers, “offer night” didn’t materialize as they had hoped.
Joan sat around all day waiting for any sign of competition, but initially, there was none! She had registered her offer the day before; hoping to scare off any buyers who were on the fence and didn’t want to be in competition, and so far, it looked like it was working.
But at about 6:00PM that night, the listing agent called to say that there was a second offer. However, he tipped his hand whether he knew it or not and said, “Yeah, they’re faxing it over as we speak.”
An offer that is faxed is usually not a good one. Occasionally, that faxed offer may blow everybody else out of the water, but I’d say that nine times out of ten, it’s not a good one. The agent faxes the offer instead of presenting in person because he knows it’s a waste of time to drive downtown, find a place to park, meet with the sellers, wait for them to review the offers, and eventually turn him down.
Joan now knew that she was in control.
She assumed that the competing offer was within a couple thousand dollars of the $454,900 asking price, and in actual fact, it could very well have been below asking! I wouldn’t put it past anybody who is faxing an offer…
Joan advised her client to offer $458,000 and hold firm.
This was four days after Joan’s client had offered $472,000 and his offer wasn’t even entertained!
Joan drove to the property and presented the $458,000 offer to the sellers, and of course, they were confused.
They wondered how in the world she could offer $458,000 today when she offered $472,000 last week.
I wonder how I would have handled this. I wonder if I would have been able to hide my smug grin and if I could avoid basking in the seller’s stupid mistake.
Joan was a pro and she simply told the sellers, “My client was very emotional last week when he submitted that offer and he has recently re-evaluated his financial position. He’s also seen a few other properties in the area this week that have shown him there are other options out there.”
Of course, none of that was true. The truth was that these sellers were morons and they turned down last week’s offer – now it was going to cost them $14,000!
The sellers pretended to dwell on the two offers, and of course they tried coming back and asking for more money, but Joan and her buyer held firm.
In the end, they got the property for $458,000.
I wonder if the sellers slept at all that night…
Personally, I think the listing agent is partly to blame for this. I wonder if he should have sat his sellers down and really forced them to consider the pros and cons of accepting/declining that initial $472,000 offer.
I think the sellers must have believed that there was something magical about offer-night, and that this was truly the best strategy to bring home the bacon.
There’s no magic in real estate. Just grim realities.
If you turn down $472,000 you had better be damn sure you’re going to get more down the road. Unfortunately, there’s no way of knowing, which is why I think you simply MUST accept an offer that is $17,000 over the asking price in what could almost be called a buyer’s market.
This isn’t the first time I’ve heard a story like this, and it certainly won’t be the last time.
In any risk/reward strategy, sellers really need to consider the risks.
But more often that not, they can’t stop thinking about the rewards, and it can cost them dearly…