I saw a list of a few homes and what the bidding looked like. The homes were underpriced on purpose.
What I saw makes me a little nervous if you are a buyer.
Yes… There were plenty of bids. The way the bids were distributed gives me pause. There were very few bids around the actual sales price. Most of the bids were far lower than the actual sales price. I am wondering if the frenzy is a little fake. I wonder if buyers are going to be left holding the bag.
I am going to give an example. A home is priced undermarket. Let’s say $1 million to make it easy. The house receives 15 bids. 10 of the bids are around 1.1 million. 3 of the bids are around $1,125,000. 1 bid is 1,150,000 and 1 bid is 1,200,000.
So we end up with 15 bids but only 2 are competitive. If the home was priced around $1,175,000, there may have been only 1 or 2 bids. Instead the home is priced at 1,000,000 so there is a buying frenzy. Is there really a buying frenzy?
The buying looks very thin at the top. If a little more inventory hits the market, is the market going to drop? Or, are the buyers who are bidding too low going to start bidding higher?
My neighbor sold her house at the peak of the market, and lost the sale when the bidding war got the juices flowing on some of the bidders, and then they couldn’t come through. Also, sometimes, in some markets, even if the house is placed under market, the bids won’t come a flowing. My MIL’s neighbor was highly insulted when she listed her house undermarket and still got inquiries and bids under that price. It’s entirely possible she would have done a bit better having priced it over market.
One needs a good realtor willing to do some work to deal with situations like that. The one I had when I bought just wanted to get the sale done and was worthless in terms of doing anything even a little different.
I would underprice a house if I were in a hurry to sell it. It brings interest to a house in a slow market where buyers will take their time. I’d also understand that I’m probably not going to get top dollar for the house, but hopefully the sale will be quick and time is money. My friend who sold her house as soon as it was listed, says that the quick sale vs her neighbor whose house lingered on the market , meant a lot more money in the pocket even though the neighbor did get a bit more in sale price. Especially if you have another place to be and are paying for two homes.
I’ve never understood the auction as a response to a soft market. It makes zero sense to me at all.
Auctions would make more sense in the old days when you looked at a place on Sunday afternoon, and called Monday to make an offer and found out that there were already two and one was accepted. So you sort of had a defacto auction without having to declare it.
I sold a house last year (for 25% less than what the town thought it was worth they had it over appraised). We started at their number and just worked it down over a period of several months (it wasn’t the best time to list since we had missed the beginning of the calendar year “relocation” window where people are looking to close near the end of the school year and be in the house by the beginning of the next).
We just worked the price down in significant increments until a couple of people who’d seen it and were considering it decided to move on it. I have to chuckle as I watch people whose house has been for sale for, say, eight months lower their price by 2%. That’s not the way to get it sold, or to entice an offer.
So far there’s no evidence that I’ve seen that buyers are truly going to “compete” for homes based on price. There is too much for sale that it out there for too long. If more inventory is listed, prices will fall. The competition now is from seller’s offering greater value to buyers by lowering prices.
I had a very smart friend, who, referring to the cycles in Manhattan co-op properties, explained it this way: “When the market is hot, you have to overlook imperfections and suboptimalities because if you don’t, you’ll never buy anything. But when the market slows down, and buyers have time and their pick of a broad range of properties, there are no “small” imperfections that are easily overlooked. Then, everything that isn’t good about your property is front and center in people’s minds. And the only thing that you have to work with is the price.”
Ok… I am talking about a hot market… The SF Bay Area. Homes sell within a week. Inventories are extremely low. Home prices are up 30 percent over the last two years. More in some areas.
It is 70 degrees out here.
This is so market-specific. Where I live, people list their house for ~5% over what they hope/expect to sell it at. It’s pretty transparent. In my market, if there were a bidding war, it would be because your broker gave you very bad advice about what to list your house at. We have plenty of inventory in the $1 million + range, so maybe that’s why people list their homes realistically.
I think another important factor, in addition to setting the price, is HOW you accept offers. I like the strategy of accepting offers on a certain date in concert with pricing it well.
I guess one if my points is the market is not as strong as it looks.
There are 10 bids on a property. 20 bids on a property but there are only 2 competitive bids on a property. Once you get passed the two highest bids, the rest of the bids are 5 percent lower… 10 percent lower…even 15 percent lower than the sale price. The 20 bids on a property are not real.
So what happens when those two buyers per property have bought?
I write this because my daughter is a buyer. The market looks like a mile long and a foot deep.
Dstark. Not in my real estate market, first…it would really backfire. Here, if someone offers you the asking price, you have to accept it. What if no one offered more? The seller would be stuck…well, maybe not because maybe the price WAS inflated.
I think the human response to this is why we have crazes, although of course “this time it is different”. 1 of those 2 top bidders gets the house, the 2nd one will probably get one soon, the rest that are within 5-10% each have to worry that on the next house someone in that group will say “the heck with it, tired of looking, I’ll pay 7% more and be done”. For all you know that’s exactly what happened to those 2 high bidders! Your D can decide to wait it out, and someday she’ll get a house at a price she is willing to pay. Someday may be in 4 months or 4 years…
As Keynes wrote in a different context “Markets can remain irrational longer than you can remain solvent.” Also what many bidders tell themselves is that even if they pay too much today, if they can stay put for 5-10 years they’ll not lose money. Which is true, until its not.
Mikemac, that is a great post. I like it very much.
My daughter is not going to wait it out yet.
She is going to bid again. Lost the first one. There are going to be 15-20 bids on the next place and her bid will be in the top 3.
If she gets the place, I hope she is ok in 5 to 10 years.
DS has found that the sellers are really benefiting from this under-pricing thing… His bids, often 30-35% over asking, no contingencies, are still losing out to higher, often all cash offers.
I would not want to be a buyer anytime soon. Here in the S.F. bay area inventory has been very low for the past few years, which really puts the seller in the driver’s seat. We purchased a 5-year-old prefab that was built in Germany about 2 years ago. The sellers could not sell the home at their asking price and quickly reduced the home by 5%. The home showed rather poorly on the inside. It had exposed European Larch wood walls, similar to knotty pine and buyers weren’t chomping at the bit for that “cabin look” here in the bay area. We sheet rocked over the walls and had them plastered and painted for a more traditional look. It only cost about $15,000 to have this work done. We used quarter-inch sheet rock so the windows and doors didn’t have to be re-trimmed. There were 6 offers in total. Ours was slightly over asking price, while the others were all under the asking price. Had the sellers had done the sheet rocking, they would have fetched their original asking price or more, according to a couple of my neighbor’s and my realtor’s comments.
If it is not going to be a good time to buy anytime soon, it is better to be a buyer now than in the near future. The lack of sellers is going to feed more price increases.
One thing about bay area real estate, prices don’t usually decline that much. When things go bad, prices usually flatten out.
My daughter would love to live near you jshain but the commute doesn’t work.
I had one room with wood walls and I sheet rocked the room before I sold the house. Looked much better with sheet rock.
My daughter is bidding very soon. I hope she gets the house. There will be a new record price in the neighborhood.
His bids, often 30-35% over asking, no contingencies, are still losing out to higher, often all cash offers.