The Trouble with Multiple Offers

I am working with five buyers, and ALL have been in multiple offer situations.  This is crazy.  I know; there is a housing shortage, not unexpected and loudly discussed in the news as one after the other builder went bankrupt during the downturn.  But this is beyond the ridiculous.  It’s like a feeding frenzy.  So here we are.  For a time the only homes that stayed on the market were the dog houses…the ones that needed some “TLC”.  Now, even they are getting multiple offers.  It takes above list price to ‘win’, and that’s often with zero concessions requested.

I remember how sellers got the stew beaten out of them during the market downturn.  They had to paint, install new carpet, dance, give up the firstborn child and give away the house to get it sold.  Maybe this is the universe balancing, but I see major issues arising.

Listen, there’s no question that the sellers benefit from this crazy market.  But here’s what’s happening.  House prices are being artificially inflated due to the high demand/low supply paradigm, and I don’t think many of them will appraise for these ludicrous prices.  I see a future of offers falling out during the appraisal process and buyers losing that chunk of money…because the lenders will SURELY make that a non-refundable, pay-up-front fee.  They’d be nuts not to.  Then, we’re going to have a boatload of people who buy high and get stuck when the market comes to its senses.  First time buyers don’t have the money to make up the difference between their offer and a lower appraised value, so in many cases they will lose the appraisal fee.  They can’t afford that.  Agents should protect these buyers.

I know, realtors get a bigger commission from a higher sales price, but the problem is, the buyer clients most certainly will feel the pain later when they try to sell and the feeding frenzy is over.  And let’s don’t forget the builder new home prices.  One builder company who started their pricing at 170 two years ago are now starting at 240.  That’s a huge jump in pricing in that amount of time and guess what?  They can do it and get away with it.  But it’s a bad idea.

I’m warning my clients up front about this situation, and most of them resist the urge to offer too much money…and of course some of the homes do justify the prices…but everybody needs to remember that we are going to be listing these artificially high priced homes down the road, and I remember how painful that was for sellers.

Of course it’s up to the buyer how they want to proceed, but good buyer agents should be spending time explaining what’s going on here.  And yes, I like to make money too, but not at the expense of my buyer clients.

I will say this though: It’s a snooze-you-lose situation out there.  Better have the OTP partially filled out and ready to fly when you go house hunting.  Man, it’s a fast market out there.  So I tell my clients this:  If you HAVE TO HAVE this house, expect to pay full list price and don’t even think about asking for the moon with regard to concessions.  And I remind them that there ARE other houses out there.

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