When To Step Aside In Multiple Offers

Business

5 minute read

March 21, 2013

Much easier said than done!

Don’t pretend for one second that you wouldn’t get caught up in the emotion!  But when would you say “Enough is enough?”

I chose that photo for a reason.

Sometimes, I think that the multiple offer process is a lot like musical chairs.

It’s an unnecessarily long, drawn-out process, that starts with a lot of people, involves a lot of pushing and shoving, maybe a little cheating, the odd broken alliance, some hurt feelings, and in the end comes down to one person who feels like they’ve won something special.

I’ve made no bones about my feelings toward “bidding wars,” or more specifically, the listing agents who have no problem lying and gouging for the almighty dollar.

And usually, there are a good number of people who say, “Isn’t it the listing agent’s JOB to get the highest price possible for the seller?  Why should they adhere to any unwritten guidelines or made-up ethical standards?”

I agree, but it doesn’t mean that I don’t like the games that are played during multiple offers.

Yes, it is the listing agent’s job to get top dollar for the seller.  But to what end?

If you went to an auction, and you were the highest bidder on a painting, the auctioneer slammed his gavel and said “SOLD,” and then ten minutes later, the auctioneer was out in the parking lot selling it to somebody else for $100 more than you paid, wouldn’t you have a problem?

The rules are what they are, or more to the point – there aren’t any rules, where perhaps could or should be.

My colleagues often disagree with my view on multiple offers and the frustrations that often result.  Case in point, a multiple offer situation that happened last week…

There were fourteen offers on a house, priced at $789,900, and the listing agent promised it would be a “one shot deal,” and encouraged buyer agents to “bring their best offer.”  She then promptly “sent back” half of the offers – seven in total, to “improve” their offers.

The highest offer of the fourteen was $901,000, but he said she was sending back anybody over $850,000.

Is that fair?

What is far?

Fair is: whatever the listing agent and seller want it to be.

It will never be anything but.

In my mind, an offer of $850,000 and an offer of $901,000 are in completely different leagues, and I wouldn’t send back the former.  But to each, their own, and somewhere out there, reading this right now, is a person who is saying, “I wouldn’t hire David because it sounds like he won’t f*** people for the very last half-dollar.”

You’re all free to draw your own conclusions.

So the listing agent in this case sent back seven offers, telling each, “You’re free to improve, or not, totally up to you.  But we will be taking the highest offer that is re-submitted.”

An hour later, she sent back the highest three of those seven offers, to “improve” once again.

The house sold for just shy of $1,000,000, and the listing agent did exactly what she was hired to do: get the highest price for the house.

My readers at this point will likely fall into one of three categories:

a) Those who are pissed off that this happens, and wish there was a set of identifiable rules for multiple offers.
b) Those that have no problem whatsoever with this, and would advise “buyer beware,” and “open market rules.”
c) Those that hate any and all Realtors, and can’t get past their hatred to even formulate an opinion.

My opinion on the above situation is twofold:

1) I have a problem with it.
2) I am in no position to have a problem with it.

Confusing?  Yes.

I have a problem with it because it’s not the best way to buy or sell real estate.

And I can’t have a problem with it because it’s totally fair, legal, ethical, and within the rules that exist.  It happens every day, and there’s nothing we can do about it.

Until a deal is signed, and there’s a cheque being held in trust, nothing is etched in stone.

A listing agent can tell a buyer’s agent, “Get me $555,000 on paper, and I swear on my life that this deal is done.”  But those words are meaningless!

So in a multiple offer situation, if the listing agent says, “This is a one-shot deal, bring your best offer, there will not be any opportunities to improve,” he or she is completely free to do whatever they want after that.  They can send people back until 4am if they want.  Anything goes.

But should it?  Should anything go?

That’s not for me to decide.

It’s up to the seller to direct their agent, and it’s up to the buyer to be advised by his or hers.

And that is the point I wanted to make today.

After all the above was said and done, and I freely admit “I don’t like the way that’s handled, but there’s nothing really wrong with it,” I still have to advise my buyer clients when to get involved in multiple offers, when to get into a downright “bidding war,” and when to walk away.

It’s so easy to get involved, and it’s so hard to walk away.

When my clients are entering into a multiple offer situation, I’ll be blunt and tell them, “Anything can happen.  We could be done in 30 minutes, or we could be there all night.  We could ‘win’ with our first and best offer, or we could be sent back six times.  Every agent handles it differently.”

And then I’ll ask them to write down three prices:

1) The price they would love to pay, within reason.
2) The price that represents their absolute maximum for the property.
3) The price that would make them laugh out loud if they heard somebody paid it.

From there, you can strategize accordingly.

If there are fourteen offers, you’re going with #2, hands down.  Whether you get “sent back” or not, you’re going with your top price.  You’ll have no regrets if somebody pays more, regardless of if there are any second kicks at the can.

If there’s only one offer, or two offers, or if there are three offers and your agent is in person to present, sees and sizes up the other agents, feels some weakness, etc., maybe you go with something in between #1 and #2.

But whatever you do, don’t go above your #2 price.  $1,000 more?  Okay, let’s talk.  But I’m constantly amazed by the buyer who goes into multiple offers, ready to pay $875,000, offering $865,000 and leaving “some room for improvement,” but ends up paying $955,000 for the house.

Buyers get caught up in the frenzy, and emotion plays a huge role, whether you want to believe that or not.

And just because somebody “wins” in multiple offers, doesn’t mean that you won’t feel like a winner if you graciously step aside when the bidding gets to be too much.

If you don’t like the process, step aside.

If you don’t trust the listing agent and the way things are being handled, step aside.

If you don’t want to go back for “improvements,” step aside.

And when the price gets out of hand, all the more reason to step aside.

Whoever buys that house, at 5-10% more than you were willing to pay, is one more buyer that’s out of the buyer pool and who you won’t be competing against.

My colleagues would say, “Sure, David, but that buyer bought a house tonight, and you and your client are still looking.”

Well, if a house is truly worth what somebody is willing to pay for it, then there really can be more than one winner.  The highest-bidder wins, and the person who laughs at the eventual sale price wins as well.

Stepping aside might be the best move you ever made…

Written By David Fleming

David Fleming is the author of Toronto Realty Blog, founded in 2007. He combined his passion for writing and real estate to create a space for honest information and two-way communication in a complex and dynamic market. David is a licensed Broker and the Broker of Record for Bosley – Toronto Realty Group

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23 Comments

  1. IanC

    at 8:16 am

    I can see how not having rules can be very frustrating.

    Two things:

    #1)

    Giving someone a chance to improve their offer, does not sound like a sign back (where a remorseful bidder could walk away on the spot).

    There is nothing to prevent a seller from giving a single offer a “chance to improve”, is there? With or without a competing offer? Buyer’s don’t do this because it is an obvious bluff if they don’t officially decline the offer. Could this ever happen?

    – – –

    #2)
    I think it’s hard to read people’s minds and say an 850K offer is not in the league of a 900K offer.

    People are skeptical and not always surprised when a “ONE SHOT” deal goes three or four rounds. I could be willing to pay 975K for a house (and still not be upset if I “lost it”). I might then take a huge chance and offer 850K on the first round, if I had a lot of money and a list of other houses in my back pocket. I’ll always try to buy something for LESS that what I am willing to pay – just never MORE than what I am willing to pay.

    I do realise that sending too many offers back to unqualified purchasers wastes everyone’s time, creates a false frenzy, and raises false hopes.

    I just think with multiple rounds, offers of 5% difference – it’s hard to discern everyone’s motivation.

  2. Paully

    at 8:41 am

    I am curious about this line in your post:

    “The highest offer of the fourteen was $901,000, but he said she was sending back anybody over $850,000.”

    Did the listing agent actually tell everyone involved what the highest offer was at that time? Was every potential purchaser told the exact same thing?

    I always thought that the listing agents try to keep the auction as blind as possible, to try to encourage some stressed-out, frustrated potential buyer to come up with a crazy-high offer.

  3. Joe Q.

    at 9:39 am

    David writes: “And usually, there are a good number of people who say, “Isn’t it the listing agent’s JOB to get the highest price possible for the seller? Why should they adhere to any unwritten guidelines or made-up ethical standards?”

    Is there not also an issue of reputation? I know there are Realtors in the GTA who are known for repeatedly sparking “multiple offer situations” through under-listing and / or then pulling a double-ended offer into the mix. When we were house-hunting, we actually avoided a few places listed by agents who were known for this.

    1. ScottyP

      at 10:25 am

      Very good point. This agent’s word is dirt, IMO. There’s no way around that, despite the fact that in this instance she netted an extra 100 grand for her client.

      This has got to come around to bite her somehow, no? Or are buyers so much at the mercy of the sellers that the agent’s reputation generally doesn’t come into play as much as it should?

      1. jeff316

        at 12:08 pm

        It already has bit her – people like Joe Q. are doing their research and avoiding listings by agents that don’t sell according to his preferences.

        1. Joe Q.

          at 12:23 pm

          You make it sound as if I’m some kind of pampered snob.

          I think most prospective buyers, all else being equal, would avoid deliberate multiple-offer setups — especially those in which other shenanigans were added into the mix.

          In any case, these practices are unlikely to have a real impact on the listing agent’s business as long as listings-to-sales ratios are low (as they are now).

          1. jeff316

            at 2:28 pm

            It wasn’t meant as a snarky comment. You are an example of the system at work. Run enough crazy bidding wars and the savvier consumers will learn to avoid you.

            We were somewhat similar. We avoided the listings of the top seller in our neighbourhood – partly because we could not afford most of her listings 🙂 , but also because she has a rep as a cutthroat seller’s agent. We didn’t want to get involved with that.

            The calculus is going to be different for each buyer. For some, the house, or neighbourhood, or ‘need’ will outweigh the risks of a bidding war. For others, like yourself and to a lesser extent me and my wife, it’s not worth it.

  4. DavidP

    at 9:49 am

    I really like the open bid system in Sweden that they mentioned in “Relocation Relocation”. It reigns in the emotions so that people don’t accidentally end up taking on more than they can chew.

  5. Pen

    at 9:51 am

    “But whatever you do, don’t go above your #2 price.”

    Precisely!

    Set the ceiling and live by it is what all buyers should keep in mind and when they waffle it is up to their representative to remind them of this commitment to themself. They should not even consider the $1,000 more it can become, 2,3 thousand more that’s a premium paid for emotion.

    1. jeff316

      at 12:08 pm

      ^^^^^ Exactly. ^^^^^^

  6. Geoff

    at 9:54 am

    I have to say that having been through a bidding war, it #@$#$#ing sucks. At least in your auction example, I know what others are bidding, and it’s very transparent. Here, it’s so blind it’s awful.

    I know in our case I called it right (with some help from the agent we hired). We were going to go all in at $450K (in 2007) on a house asking low at $409 and literally almost before we wrote the numbers in, I changed it to $440 as we knew there other bidders in the process and “I wanted someplace to go.” We were asked to submit our best offer, and we submitted $451K. I’ve always felt that if I had gone in at $450K and then improved our offer to $451 it would not have looked as good as we did, “coming up” $11K.

    1. jeff316

      at 2:32 pm

      Exactly. If we want to standardize bidding process then that’s fine (however unlikely to ever happen to all house sales), but there are implications to changes that reduce the ability of sellers and buyers to strategize.

  7. Marina

    at 9:59 am

    In a way I really like your example, because I’m of two minds about it.

    On one hand, I don’t really like most tactics in multiple offer situations. They really do play on people’s emotions.

    On the other hand, with her tactics the agent got her clients an extra 100,000 DOLLARS!!! That’s not chump change. As a seller agent, it’s hard to argue that she did an OUTSTANDING job. And as a seller, I’d be hard pressed not to hire her.

    It’s one thing when the agent sends back offers to get an extra 1 or 2 thousand out of people who have been there all night.

    But 100K? That’s performance!

    1. ScottyP

      at 10:20 am

      What you say is true, but there’s a second side to the coin: That agent’s word is worth no more than the gum I scraped from the bottom of my boot.

      But as you implied, that agent’s *lack* of scruples is the very thing that helped net her client an extra 100 Gs. So we can’t really blame the agent here, though I hope she can sleep well at night knowing that her word equates to no more than a dirty ploy. (Maybe the extra commission will cushion the blow?)

      Her negotiation skills can’t be called into question under the rules of the game (or the lack thereof), but how about her humanity? Hmmmm.

    2. George

      at 2:45 pm

      There is no guarantee that the agent got top dollar for the property. Some potential buyers may have decided not to participate at all in the process due to their hatred of the multiple offer game.

      After enduring this several times in the past, I refuse to play again. All of my offers will be bully offers with expiry times.

  8. MM3

    at 10:35 am

    I have no problem with multiple rounds to bid. I have a huge problem with doing so blindly. I can’t believe it’s legal. It should be transparent, above the board. Everyone should know what the others have bid, and if someone wants to bid higher or otherwise enhance their offer, then go to it.

    1. Joe Q.

      at 12:26 pm

      I agree with you, but a small handful of people are likely getting ready to explain to you why your proposed system will never work.

  9. JPD

    at 11:12 am

    As a recent seller of a semi in a desirable neighbourhood, we knew what number we wanted to get for our house and were prepared to list $20K under that number, with the hope/anticipation that we’d get what we wanted for the house. Our agent persevered and convinced us to list $60K under what we’d accept for the house, telling us that it would draw in more potential buyers who could be convinced to offer more. We felt funny about this, discussed at length and finally agreed to a list price that I would never, ever would accept in an offer. It never sat well and still doesn’t.

    So the house goes on the market and there were an insane amount of viewings, it was a nightmare for my family to manage. Not fun but the house was listed too low and generated too much interest, as crazy as it sounds.

    So offer night comes and we were firm with our agent, we’d only send back the top offers if they were really, really close. We got a lot of offers that night, the lowest offer was significatnly over our list price further proving that we listed too low, and everyone knew it.

    Also, most of the offers were well above our desired selling price so we felt we were already done. We did send back the top few (they were so close) and when they came back they were again really close (like $3K apart close)but we called it a night and went with the top offer, fair and square – as communicated with the agents at the beginning of the night. I feel for the people who lost out by $3K but as a seller, I refused to be an a-hole. Could we have gotten more money? Yes, I definitely think so. Would someone have then completely overpaid for our house? Yes. Would that have bothered me down the road? Yes.

    So I think this whole notion of multiple offers also affects sellers. Not every seller wants to haggle potential buyers down to the last penny and squeeze them dry, playing on their emotions. In fact, most know what the stupid-price is for their house and we came close to it with ours. Sure, let the market dictate but sometimes it feels more like agents lining other agents’ pockets – the higher a house sells for, the more it benefits both the seller and buyer agents.

    1. 2sides

      at 11:53 am

      …and this lining of pockets goes on and on and on and …
      a little bit like a ponzi scheme, no?

      we all know that prices are sticky upwards. and it is also known that homeowners would rather stay in their home (possibly put money into it) than sell at a loss.

      when will the industry move to a flat fee commission structure?? I’d say it’s about time, but really it should have happened 10 years ago. time to remove the conflict of interest. yes the selling agent is doing their job by maximizing the selling price (only if desired by the sellers, as mentioned above) but the buying agent gets a slice of the cake as well…therein, why wouldn’t they urge their buyer to pay more (as in the above bidding war example)??

      1. ScottyP

        at 12:52 am

        It’s an interesting question, 2sides. Not sure of the answer, perhaps DF could elaborate.

        JPD, you have a decent approach to all of this. Some ultra-capitalists may call you crazy for refusing to squeeze every dollar you could out of the process, but most likely you’re the one who’s sleeping well at night.

  10. dave

    at 1:22 pm

    Frankly, I’m shocked at the lack of regulation in the process of house sales. I think it is entirely inappropriate that an seller can advise( via their agent) that it is a “one shot deal”, and then simply ignore that representation and send the offers back.

    If it’s going to be a blind auction, then it should be a binding blind auction, with no sendbacks.

    1. Vlad

      at 10:32 am

      No one is making you play. You can always take your ball and go home.

  11. Peace Maker

    at 4:30 pm

    I recently sold mine by listing it at 30K-40K below fair market value. I got only one offer and sold it at 525K. But most important thing was it had no strings attached (no home inspection or financing). Buyer was approved and was lucky that there were no multiple offers. I think buyer got a great deal.

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