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bidding wars

Sellers, you don’t need 20 offers

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Sellers, getting twenty offers is the dream, right? That way you can be choosy about accepting the buyer with the strongest terms and probably a higher price too. But do you really need that many? In other words, can you get the same price with just a few offers? Let’s kick around this idea today.

THE SHORT VERSION:

1) No surprise. Getting more offers tends to lead to a higher sales price.
2) Sometimes just one offer can go way above the list price.
3) Homes with one offer also more regularly close way below the list price.
4) You don’t need 20 offers (but it sure does help).

THE LONGER VERSION:

Let’s look at some visuals and then consider some takeaways.

County Visuals: First off, I’m concerned these visuals are going to be confusing, so sorry if you’re thinking, “Dude, I only see dots and I have no idea what’s going on.” The goal is to show how much higher the sales price is compared to the original list price while considering the number of offers. Basically, when a dot is at 100%, it means a home sold at exactly the original list price. Or if a dot is at 110%, it sold 10% above the list price. Or 95% means it sold 5% lower than the original list price.

Question: What happens to prices when there are more offers?

The big plain truth: The truth is properties with more offers tend to close higher above the original list price than properties with fewer offers. Duh, I know we could have said that without the research, but it’s good to see what stats actually show rather than going with what we feel might be true. With that said, sometimes a home with just one offer can actually close at the same high percentage above the list price as a home with ten offers. So technically you don’t need ten to twenty offers to command a huge price (but it sure does help).

Neighborhood Visuals: Let’s check out some neighborhoods too instead of just the county. What do you see?

Conclusion: There are fewer data points to consider in the neighborhood visuals, but the takeaway is the same as the county (see above).

QUICK THOUGHTS:

1) 20 offers: If you’re getting 20 offers, it’s probably because you’re priced too low unless that’s what every listing is getting.

2) Aim for a few: Price it reasonably and you’re more likely to command a few solid offers and statistically be in the zone to compete above the list price. The reality is you don’t need 20 offers to get a huge price (but it helps).

3) Hang in there buyers: It’s not easy out there right now, but it’s worth noting not every sale is getting ten offers. It may feel true, but the stats don’t show it is.

4) Not everything is getting bid up: While many properties go 10% to 15% above the original list price, many homes sell below the list price. The narrative is Bay Area buyers are swooping in, paying cash, and everything is getting bid up, but that’s not true when looking at how many homes recently sold below the original list price (basically any dots below the 100% line).

5) Clear advantage: Having lots of offers gives sellers a huge advantage to be selective and accept contracts with the best terms (and probably higher prices).

6) Layers of the market: Not every price range is experiencing the same dynamic when it comes to multiple offers and getting bid up. This is why it’s so dangerous to take an experience with just one property and call it a trend for the market. Maybe. Maybe not.

I hope that was helpful. Thanks for being here.

Questions: How many offers do you think is ideal for a seller to get? Why are some listings able to command a huge price even though they only get one or two offers? What is it about those ones? Any other insight? I’d love to hear your take.

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Multiple offers & paying above the appraised value

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It’s getting a little crazy out there. Let’s talk about multiple offers and buyers paying above the appraised value. I want to give some perspective from the lens of an appraiser, and I’d love to hear your take. Any thoughts?

MULTIPLE OFFERS: The other day I heard about a property that had 20 offers and the contract price ended up being 16% above the list price. What the? Clearly the market was willing to pay more than the list price, so maybe the property was priced too low. Yet if the seller accepted the very highest offer, are there really comps and data to support a value that high? That’s always the question. Here are some things to keep in mind.

1) Magic: Appraisers aren’t magicians. They have to support the value they say exists. Sometimes appraisers are told, “There were 20 offers above list price,” and maybe that says something about value, but appraisers still have to use actual comps and adjustments in a report instead of the number of offers.

There are multiple offers above list price.
Are there multiple comps above list price?

2) Getting stuck on the list price: It’s important for appraisers to be cautious not to give too much weight to the list price because sometimes it really doesn’t reflect value at all. It might seem like a red flag for a property to be in contract 16% above the list price, but what if the property was priced 16% too low? Moreover, if the sales and pendings all support a value 16% higher, then it’s a no-brainer to see the appraisal come in at that level. But if nothing is anywhere close to the contract price, then maybe the property got bid up too high.

3) One Buyer vs everyone: There might be one buyer willing to pay more than anyone for whatever reason, but market value is about what the market will pay. If a bank is going to lend on a property, it’s a good bet to lend on market value rather than one individual buyer’s perception of value. 

4) Offering high: Let’s remember some buyers make offers based on the amount they are qualified to borrow rather than looking at the comps. This reminds us sometimes high offers don’t always mean value is there. 

5) Offers as data for appraisers: The number of offers can be helpful for appraisers. If we know there were 20 offers above list price and it looks like value is going to come in lower, then the number of offers can at least prod appraisers to dig deeper to understand value. In other words, if 20 buyers are willing to pay more, but I’m coming in lower, I better be ready to explain why. Appraisers can also use the number of offers as supplementary data. So an appraiser might write in a report, “I gave Comps 1-2 the most weight because they were most similar, and 10 of the 20 offers were at contract price or above, which also helps support the opinion of value.”

PAYING ABOVE THE APPRAISED VALUE: I’m hearing more from agents about contracts where the buyer says, “We’ll pay $10,000 above the appraised value.” This tends to happen in a market with low inventory and when buyers feel desperate about getting an offer accepted. Anyway, when I read a buyer is willing to pay above the appraised value, my gut reaction is to think the buyer probably believes the contract price is too high. Can you relate? Yet I’m paid to be objective, so I cannot let what a buyer wrote in a contract influence my conclusion of value. Besides, to be fair, contract verbiage like this might be about a buyer trying to get an offer accepted rather than what a buyer believes about value. Ultimately it’s crucial to remember support for value is found in the market with comps and data rather than what a buyer writes in a contract (this is why I recommend agents to communicate well with appraisers).

Radio Interview: By the way, I had a 35-minute conversation last week on a financial radio show. If you need some background noise, check it out here.

I hope that was interesting or helpful.

Questions: Anything else to add to the conversation? Did I miss something? I’d love to hear your take.

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