Shark Infested Waters: RE Buyers Going Deep to get an edge !

When you have a market moving as fast and as furious as the real estate market is currently moving, there is a natural progression toward some pretty wild offer situations, loads of very frustrated buyers and some offer tactics that are going to blur the line between the idea of good faith and fair dealings, and below-the-belt strategies on behalf of different buyers and their agents.

Before we get into a discussion of what some of those tactics may be, understand the reality of our market:

  • The current buying frenzy is not anything that is going to end soon.  I realize that is a bit of a bold statement, but I am confident in making it.  The amount of buyers trying to secure a property right now is completely and totally overwhelming.  This group grows by the day.  The bottleneck that has ensued after four years of a buyer build up and now sparse inventory is truly amazing.  Our paltry active listings are simply adding to the frenzy.
  • This market can affect buyers differently.  Some go all in and will get a property at all costs figuring that, while they are paying a premium today, it may look like a very fair deal in six months.  There is also a group that may throw their hands up and rent for a period of time.
  • For those buyers that do stick it out and fight for properties, the frenzy escalates exponentially.  From what we have seen so far, most buyers are digging in and are ready to fight.
  • I recently read a comment online by a  buyer in which the buyer blamed realtors for the escalation in the market.  Trust me on this one, very few realtors enjoy this type of market.  Realtors cannot make a living if we do not have inventory.  Realtors do best in a market which is progressing with moderate growth, not a market in the middle of a massive correction.

Here’s what we can extract from the current status of the  housing market:  Extreme frustration on behalf of buyers, agents and really, all of those connected to the real estate industry.   As we enter the true spring market, here are two likely tactics that you will see on display

Sneak Attack

Normally, when a property is expecting multiple offers, the listing agent can say with some certainty exactly how many offers he or she is expecting.  Lately, buyers’ agents have not been tipping their hand ahead of time to the listing agent, figuring they do not want to give other prospective buyer groups notice that there may be more offers in play…..thus, possibly reducing the amount of the committed buyers’ offer price.  Here’s an example:  In the last two weeks, I went into multiple offer situations where the agent (up and until the final hour) was expecting 7-8 offers.  Both listing agents kept all interested agents in the loop.  Both of these offer situations saw 20 and 21 offers, respectively.  The unaccounted 13 offers came from agents within the last hour and without any real notice to the listing agent that they had a client tracking the property.  Those coming in at the last minute, had a slight advantage in that they knew the offer count would be higher.  For me, last week was the final straw with situations like this with regard to my listings.  Moving forward into spring I will have an offer process in place where each offer being submitted must confirm the night before.  I am hoping other agents will follow suit and help level the playing field for everyone.

Sharp Offers

This type of offer isn’t really a below-the-belt type of tactic, but it can be a cutthroat way to jump your competition.  For the most part, they have been on hiatus for the last five years, but they are back and you can bet that you will see them this spring.  Just what is a sharp offer?

A sharp offer comes into play in a multiple offer situation where you have a buyer that wants to be competitive, but wants to understand that they will not be outbid by another offer within a certain range.  At its core, a sharp offer is just like any other offer except for the fact that it has an additional term that says something to the effect of, “Buyer agrees to pay $10,000 over the highest and best offer, not to exceed X”.  Sounds simple enough, right?  Not exactly, and here is why:

(1) When agents do submit sharp offers, the line above is very similar to what you may see.  However, any sharp offer language should be more detailed.  What if the highest offer was 100% financing or had other bizarre terms that a seller in this market would not have taken anyway? In that case, the sharp offer buyer has just paid more than he or she really needed to.  The language needs to be more complete.  Here is a part of the clause that I use in this situation to protect my buyers:

“If buyer is not the highest offer, Buyer agrees to amend the purchase price to $10,000 higher than the next Reasonable Offer, not to exceed X.  Reasonable Offer shall be deemed to be any offer with at least 20% down payment, is not contingent on the buyer selling their current home and has a 30 day (or sooner) close of escrow.  Seller also agrees to produce a copy of such Reasonable Offer for buyer inspection.”

(2) Some agents refuse to deal in sharp offers.  Either they have had a bad experience with them or some may not feel that they have the experience to deal with the language.  Again, this type of clause is creative and does not have a pre-formatted section on our standard offer form.

(3) Some sellers can be put off by sharp offers.  It can be viewed as a way to short-cut the system.  Usually, if you do not want to risk annoying a seller, your offer price better be competitive with the other top offers.  The additional, sharp offer language is intended to put you over the top.  Again, what you are looking to do is avoid the counter or multiple counter offer situation.

Purchasing a property this spring is not going to be impossible, but they will go to those buyers who are most prepared for what’s ahead.



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