Realtors in Tampa, Florida, currently are experiencing multiple offers on properties in all price ranges. People are willing to pay the asking price (and sometimes more) because interest rates are so low and they fear that rates will rise next year. In my experience, properties that are competitively priced aren’t staying on the market more than a week, and sometimes they sell in only one day!
If you are a Realtor in an environment that breeds bidding wars, you’ll want to be prepared to counsel your buyers that they may wind up paying even more if they wait longer to buy a home — not only because home values are rising, but because interest rates are bound to rise. You also will need to be ready to explain what factors create multiple-offer scenarios.
Here are seven common questions you may need to answer the next time you find yourself handling a multiple-offer transaction:
1. “Is the listing agent telling the truth about multiple bids, or is this a tactic to get more offers?”
I always answer, “Maybe.” However, an ethical Realtor would not fabricate a story, and if you have worked with a particular agent in the past, you will know whether that agent is telling the truth. If you’re not sure, ask other agents willing to share their experience working with the listing agent.
2. “How much more should I offer?”
There’s no such thing as a crystal ball, but in general people are willing to pay up to 5 percent more than list price for a desirable property. If you believe the property will appraise at a higher value and this is the perfect home for your buyer, then they will see the value. Their fears will be diminished if you can support the home’s value with similar comparable sales.
3. “What’s wrong with the home? Why is it priced so low?”
This is your opportunity to let your buyer know that underpricing a home is a tactic some agents and sellers use to create a bidding war by quickly get a home under contract.
4. “How do I convince the seller to accept my offer?”
Make the offer easy for the seller to accept! Offers without repair contingencies are enticing to homeowners, especially if the owner already has relocated and can’t deal with coordinating bids and contractors. Unless you see something blatantly wrong with a home, it may be better to submit an “as-is” contract with right to inspect. This will allow your buyer to cancel under the inspection contingency period on most home purchase contracts. If your contract doesn’t state this, there’s usually an addendum you can tack on.
5. “Why would I risk offering more than the listing price?”
First, make sure you have an appraisal contingency in the offer, even if the buyer is paying cash. If the property doesn’t appraise as expected, the buyer will be able to renegotiate or back out of the contract.
If the property doesn’t appraise, the seller most likely will agree to sell it for the appraised value. The listing agent will explain to the seller that no one will want to purchase the home above appraised value, and that the same thing can happen with the next offer — thus, wasting more time. By the time the appraisal is done, the buyer typically has completed any inspections and is ready to move forward to closing.
6. “Why has the market become so competitive?”
Here in Tampa, our inventory is down to five months, which is half of what it was this time last year. This means that assuming no new listings came on the market and homes continued to sell at the current pace, the entire supply of homes would be depleted in five months!
7. “How does a seller create a bidding war?”
Sometimes sellers and their agents are pricing desirable homes on the low side, below market value, to create bidding wars and drive up the price. Sellers could wind up getting the same, or a little more, as they would have if they’d priced it higher. Seems like a “game,” but this strategy is what’s working at the moment.
If you are a listing agent and suggest this tactic to your client, you will want to let them know they are not obligated to accept offers, even if they are at list price. There may be other terms of the offer that are unacceptable to the seller; therefore, they have nothing to lose by pricing it on the low side. What they gain is additional market exposure and multiple bids from which to choose.
It’s important to note that the bidding war game isn’t for every seller in every market. The conditions have to be right — inventory has to be on the low side (three to five months) and the home has to be appealing to the majority of homebuyers.
What are your thoughts? Are you in the bidding war game?
A licensed Realtor since 2002, Rae Catanese regularly gives expert advice and insider tips about the Tampa Bay real estate market via her blog, The Tampa Real Estate Insider.