Highest Price is not always the Best Price – From the desk of Rod O'Keefe
Highest Price is not always the Best Price – Part 2
As mentioned in Part 1 getting into a multiple offer situation is like hitting the Real Estate Lottery!... So the question that begs to be asked is: HOW? To get yourself there and WHAT DO YOU DO? Once you are in a multiple offer situation.
HOW to get yourself there?
- The how part is relatively easy as multiple offers come from offering extremely good home value to the marketplace. I have worked with Banks for years when foreclosing on properties and in many instances after I have provided them the valuation on the property the bank will intentionally price the home 1%-4% BELOW THE MARKET VALUE to create an “auction effect”. This “auction effect” will usually drive up the price 4-9% above the original market value. So for example, the Bank will take a home valued at $700,000 and list it at $689,000. Once the market has seen this aggressively priced foreclosure, everyone interested will go to court and bid the value up to something like $724,000-$744,000 hoping to ensure their offer is accepted.
- The “Auction Effect” is very powerful. It is where multiple buyers see the outstanding value and decide they want to purchase the home but at the same time, they know they will be competing with other buyers for the same property. Once this happens the buyer’s competitive juices take over and emotions run higher. It seems to be that human nature is to want something more when others want the same item in short supply. In many cases, the buyer’s logic is eroded due to the excitement of winning the offer process. This in turn drives up the price of the home dramatically.
WHAT DO YOU DO in Multiple Offer Situations?
- Once we know we are in a multiple offer situation (more than one offer has been submitted or we have been told that more than one party will be writing an offer), we ask for written permission from the seller to place all buyers in competition for the home. We then inform all buyers that they will be competing on price, dates, terms, and conditions.
The instructions to the Buyer’s agent may look something like this:
Please submit your best offer by 7 pm Thursday (tonight) leaving it open 24 hours until 7 pm Friday. All offers will be presented by an OKEEFE 3% agent only. We will read/submit any cover letters or videos if you provide them. Currently, there are a total of 7 offers from 4 different offices. Our client will be weighting the offers strength on the following criteria: #1) Highest Price, #2)Fewest subjects/conditions to be removed at earliest dates #3) Possession date (Ideally a Sept.).
Our board has also implemented a Direction Regarding Presentation of Offers which outlines certain stipulations as well and sets the criteria for the timeline of submission of offers in a multiple offer scenario.
Once we have received all the offers in the allotted time we will present them to the Seller and discuss the strengths, weaknesses of the offer, and potential strategy moving forward (see part 1 of this post).
Even though this may be the buyer's best offer, on occasion if the offer needs adjustments we will encourage the seller to be more specific on what they want (as this is the best time to ask) and go back to the buyer to improve the offer. Now in some cases, there is nothing more for the buyer to give or adjust but in most cases, because they know their offer is likely to be chosen they will often sweeten the deal a little more.
Having multiple offers is an exhilarating and ideal event for sellers. However, to ensure that a multiple offer scenario happens, a seller must price their home aggressively providing exceptional home value to the marketplace. This is a difficult concept for sellers to understand as it feels counterintuitive to what sellers are trying to achieve which is the most money for their home. To separate themselves from the majority of listings a successful multiple offer scenario arises with an aggressive valuation and marketing of your home. This strategy and marketing spearheaded by a strong agent and team will ensure you have multiple offers allowing you to win the Real estate lottery.
