"Back in the day," (circa 2004-2005) when multiple offers were as common as 100+ degree days in Phoenix, it was a lot easier to be the highest bidder for a house. I would write the following clause on all our offers: "buyer to pay $1,000 more than the highest offer received by the seller." Of course, there were more details that went along with that clause, but they won't be discussed here. Home sellers seemed to eat it up. So was I part of the problem with home prices appreciating like mad? Well yes, I was ... in my small corner of the world. The only things I can say in my defense are: a.) my buyers really wanted the homes and it was my job to get them, and 2.) I stopped doing that when it became apparent that prices really were getting ridiculous.
Fast forward to today. Multiple offer are back. Are we insane? Well ... NO! REO properties are being priced so low (even when compared to pre-boom days) that it is easy for clients to get excited again. So what do you do when the listing agent says these dreaded words ... "we have received several offers on the property"... ? Well:
- you share the comps (including REO's that were both "acquired by" and "sold by" banks)
- subtract 2 more years of depreciation and continuing REO deals (let say 10% for each year ... this is a guess)
- subtract repairs
- subtract a little more (because you want to get the best deal for your clients)
- subtract a little more (because you never want your client to be upside down)
... and then you dust off the infamous clause: "buyer to pay $1,000 more than highest offer received by the seller." For those who are faint of heart remember this: the seller still has to send an addendum stating what your "highest price" will be. If the price becomes too high, the buyer doesn't sign the addendum and the next highest bidder can have the house. Additionally, a buyer has a 10-day inspection period in which they can be released from the contract. Possible reasons include: "we don't like the neighborhood after driving through it at night," or "there are too many needed repairs," or "the HOA is too tough." In other words the buyer is not locked into a price that is deemed unreasonable.
This is an effective strategy to get a home your buyer wants. But guess what? Banks do not seem to like that clause. I have tried it on several occasions and each time was told to "submit only your highest and best offer." So what do you do when your client says "so ... how much should we offer?" Well, I refer back to the 5 steps mentioned above. Then I remind them we want to guard them against future depreciation. Then I ask them "what does your gut tell you?" This works sometimes, but not too often. Usually my question is followed by their question: "what offering price will it take to get this house?"
Does anyone know where I can buy a reliable crystal ball?
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