Monday, August 31, 2009

Multiple Offers and "Winning" the Bidding War

Ever hear that old saying “win the battle but lose the war”?  That might be the case for buyers submitting multiple offers on different homes in an attempt to “win” the bidding war.


Here’s the thing. The house you “won” the bidding war at has to appraise for the agreed-upon purchase price. Appraisers can only look at sold, closed properties when they compute the appraised value on the house you “won”.

If the sold prices in the area don’t support the winning bid, there’s only a few choices:

  • the seller lowers the price to the appraisal value

  • the buyers bring in the different between appraised value and contracted purchase price in cash

  • Order another appraisal (and pay another appraisal fee) and hope it comes back at the higher, contracted purchase price

  • cancel the purchase and go back to the drawing board

We’ve got a buyer in this situation now. We honestly thought that their offer of $108,000 was within the bounds of reason and supported by the recent comps. But the appraiser didn’t, and it’s the appraiser’s opinion that matters. He says it’s worth 10% less, only $97,000.

We also were recently on the sellers’ side of the equation. Our seller received 12 offers. Several of them were so silly-ridiculously over the listing price that we didn’t honestly consider them. We set them aside, in the pile for “it’ll never appraise for THAT much” and moved on to other buyers’ offers that we thought had a better chance at appraising.

Banks used to throw around mortgage money like it was going out of style. The pendulum has swung far, far towards the other direction and nowadays banks are loathe to lend for any number of reasons.

Our buyers opted for a nailbiter and asked the sellers to lower the purchase price. A 10% hit to the seller’s net bottom line is difficult to swallow. We don’t know how it’ll turn out but we’ve got the buyers ready to get back in our car and start at square one again, looking at homes and competing in multiple offer, bidding war situations.

Buyers, be careful what you wish for. Winning a bidding war isn’t necessarily the end of your journey.

By the way, one of our favorite lenders, Justin McHood, wrote about this topic just the other day. He makes an excellent point - buyers who "win" a bidding war and THEN come to him for financing make him nervous. By all means, if you're going to over-bid on a property in order to win the bidding war, make sure you're using a Realtor who knows what they're doing. And tell your lender. If you're going to play chicken, at least make sure you've got a cheering section.