We Tell it Like It Is

When I blog about certain situations I've experienced, I do my best to give the readers a strong sense of what occurred w/out giving away the identities of my clients. Today, I'd like to give you a good illustration of what a multiple offer situation is like.

Last week, my buyers & I found a great home. It was brand new on the market in a northern suburb and it was in tip-top shape; priced for first-time home buyers at what I thought was an excellent deal.

We wrote up an offer the next morning after being told there was a lot of interest in the home, but no other offers submitted yet. We wrote the offer for $3,000 under the list price, plus asked for the seller to cover the buyer closing costs. Just before I submitted it to the listing agent, he called to inform me that another offer was coming in.

Since he was certain I had an offer to submit, legally, he had to tell me that another offer was coming and that we were going to be in a "competing offer situation". He also had to contact that other buyer's agent to let them know this as well.

I called my buyers to see if they would like to change their offer before I submitted it; now knowing we were competing against someone else. We decided together that we'd leave the offer the same, as we felt it was a good offer.

About 30 minutes after I emailed the offer to the listing agent (by now, its about Noon), he called me to inform me that he did not present the 2 offers to the seller yet because they found out a 3rd offer was coming in. They would wait until the 3rd offer arrived later that day** before they sat down to present the offers to the seller.

**Side note: In the real estate world, if the 3rd offer couldn't get to the listing agent by the end of that day, he would be taking an ethical risk by making the rest of us wait until the next day. A more ethical way to handle it would be to tell that 3rd buyer that if they can't get their offer in by the end of the day, then they will miss out on having their offer looked at.

The listing agent also made the decision to call "Highest & Best", as we call it in the industry. This means that there are a group of buyers that are now competing for the same home and the seller is asking that each party submit their best offer/the highest amount they are willing to pay. This is done so that the agent doesn't have to counteroffer everyone. They can just pick the best offer and work with that buyer.

Since the agent called "Highest & Best", I could go back to my buyers one more time and see if they would like to change their offer,knowing they are competing against 2 others. They decided to increase their offer to $1,000 over the asking price and have the seller pay their closing costs.

This whole time, the listing agent does not have to disclose to us the nature of the other offers. The situation is handled a lot like a silent auction where each buyer puts a bid in for the most they are willing to pay, not knowing what the other bids are, and hoping theirs is the highest.

Our offer was not the best one, unfortunately. We were out-bid substantially, I was told. The listing agent did not have to legally tell me the details of the "winning" offer, and therefore, he chose not to. My guess is that the "winning" buyer either didn't ask for his/her closing costs to be covered by the seller, or had the seller cover them, but offered them a higher sales price in exchange.

The multiple offer scenario is frequent nowadays for homes that are priced aggressively. Some sellers purposely price homes low with the expectation of getting multiple buyers to compete against each other--and see the sales price creep up as each buyer tries to beat each other out.

I see this a lot in foreclosed properties--especially in the northern suburbs right now where you can get a lot of bang for your buck!

I have a listing out there right now that is a short sale. I won't give the details of the property and I'm being vague about the identity of the seller, as I don't want to publically embarrass my client. But, I would like to help buyers out there understand that oftentimes, sellers that are going into foreclosure aren't the irresponsible idiots that they are often made out to be. Here is one story that proves that many short sales are the result of unfortunate circumstances beyond someone's control:

The seller bought the home a few years ago as their first place. The home was in excellent condition and the seller kept it that way. However, my seller met the person of their dreams about 2 yrs later and got married. Their spouse owned a home as well, and they decided to live there since it better suited their needs as a married couple.  They could not afford 2 mortgage payments, so they figured they would rent out the other place and use that money to pay the mortgage since the real estate market was not favorable to sell.

Unfortunately, the seller found out that the loan they used when they purchased the home restricted them from being able to rent the property out. They didn't want to take a chance and get caught, as the repercussions would be severe.

They realized they had no choice but to try and sell the home. However, they found out the current value of the home was about $50,000 less than what they paid when they bought it. If they sold the home, they'd still have to come up with a great deal of money to pay off the rest of the mortgage and they simply did not have that kind of money hanging around.

They didn't know what to do and the home was sitting vacant. Soon, they were missing payments on the mortgage because they could not financially keep up with 2 mortgages plus utilities, etc on 2 homes.

We were called in to help. We contacted the bank to let them know our sellers were going to try and sell the home short of what they owe on it. We knew it would never sell in today's market at the amount the seller owed. Fortunately, unlike most banks, this particular bank was willing to talk w/us about it. They sent a professional out to the house to establish the current market value on the home. Once this was established, the bank told us that is the amount they would take and we listed the home for that amount. They told us that in the past, they've been known to take up to 5% off of the list price if the buyer would like to have closing costs covered.

Since we've had the home listed, we've had many phone calls from potential buyers and agents who would like to offer $10,000-$40,000 under asking price. They have a difficult time understanding why we tell them not to waste their time.

#1: The seller is at the mercy of the bank in a short sale situation. The bank must make the final decision about whether or not to accept the offer.

#2: The bank is not the sole holder of the mortgage. The bank is at the mercy of at least one other investor, the mortage insurance company, and possibly a junior lien holder. So, the bank cannot make the decision to accept an offer without checking w/these guys first. All of them have different opinions about what needs to be done.

Its not a simple black & white situation. This is the politics we must deal with. And, it cannot be resolved by making a call to the bank and telling the president to get their act together. And when someone says "you'd think the banks would just want to get these properties off their hands", the answer is "yes, they do. But, its a lot more complicated than that.". Yes, its stupid. Do we have any control over it? Unfortunately, we don't.