In real estate there are few phrases that discourage a home buyer as much as this one: “Please be advised that there are 47 offers on this property. Talk to your buyer and respond to this email with your buyer’s highest and best terms.” That is the exact quote from the email response I received when I inquired about our client’s “favorite” property listing. This one happened to be a bank home foreclosure in Phoenix Arizona that recently cleared the trustee’s sale.
I’ve been selling real estate in the Phoenix area for almost 13 years and have helped many clients purchase bank foreclosures. I’ve had many rich learning experiences, joyous celebrations with clients, and my share of disappointments. “47” offers is the most competition I’ve ever experienced for a home regardless of whether it was a bank foreclosure, short sale, or a normal sale. Check out this video and add 45 more people to it:
Of course buying a home is not like this. I just thought it would be fun to insert this video.
Buyers rarely, if ever, see each other. Occasionally a set of buyers may pass in the driveway of a property. However, in this case there was a constant flow of agents and potential buyers streaming in out and of this house. Some probably rubbed elbows and discussed the pros and cons of the house. Some may have even tried psychology to dissuade a competing buyer from putting in an offer.
Why so many offers? Here is the 1st reason: Lack of Homes for sale in Phoenix Arizona. This is especially true for short sales and bank home foreclosures. “Normal sales” are making a comeback.
But it must be said this property was listed for between $5000-$10,000 below market value — even at a time when most sellers are rolling the dice and pricing their homes at the top of the market.
What do I mean when I say “top of the market.” Let’s say you find 6 homes within a half-mile radius of the subject property to use for comparable sales. The average sales price of the 6 homes is $150,000 but the individual sales prices range from $138,000-$165,000. My definition of top of the market would be to price the property at $165,000 (because at least one seller was paid that much). In a seller’s market you find many homeowners who believe: “If 1 out of 6 sellers received $165,000 for their home we should also get $165,000 (or more) for our home.” This is exactly what happened during the real estate boom of 2004-2005.
Okay, now here’s the 2nd reason: this home was incredibly well priced and below market value. In my humble opinion when most home buyers and agents saw this home and the list price they thought: “what’s wrong with this house?” Well, there was nothing wrong with this bank home foreclosure. It was probably priced this low to get the very dramatic results it received — 47 offers. That way the bank could see what price the market would bear.
Though we won’t know the final sales price until it closes escrow, we can tender an educated guess what happened. Most of the agents presented comparable sales from the surrounding neighborhoods to their clients as they considered an “offer” price. They undoubtedly encouraged their clients to offer “over” the asking price because the property was worth more than the asking price. Many of them may have even encouraged their clients to offer considerably more than the asking price, even $20,000 above it.
Insanity you say! Perhaps not. In a seller’s market, and if you really like the house, sometimes you have to do what is necessary to get the house. But there is a safeguard built into any offer to purchase, at least where financing is involved: the appraisal. If the appraisal comes back lower than the purchase price you have 2 options: 1.) ask the seller (in this case the bank) to reduce the sales price to meet the appraisal or 2.) cancel the contract and get a full refund of your earnest deposit.
We have successfully done both. Recently a low appraisal resulted in our client getting a reduction in the purchase price of a bank home foreclosure from $525,000 down to $499,900. In another case the seller wanted the buyer to pay cash for the difference between the sales price and the appraised price so the deal was canceled and the buyer received a full refund of their earnest deposit.
So, the days are gone (at least temporarily) when a buyer can have a “one on one” (“mano-a-mano”) negotiation with the seller for a house in the Phoenix Real Estate market. Our housing market has taken on the feel of an auction with the house going to the highest bidder.