3 Strategies You Should NOT Use in a Multiple Offer Bid.

Beating the System?

Multiple offers are simply a way of life in San Carlos real estate these days.   It has been well documented on this site that the combination of a shortage of listings combined with the sudden surge in the number strong buyers has created an extremely tight housing market right here in the City of Good Living.  That means just about any home that's in decent condition, priced well, and is in a good location is going to attract a LOT of attention — and a LOT of offers.

As much as buyers hate competing in multiple offer bids, it's the price to pay for competing in a strong seller's market.  You either accept it, or you don't participate in the market.   Sellers are quick to remind you of how the tables are turned in a buyer's market — lowball offers, tons of contingencies, and unreasonable concession requests.

Some agents are employing some “creative” strategies in an attempt to give their buyers an advantage in a multiple offer bid, or to circumvent the process entirely.   Some of these strategies are effective, but many are not.    This post will highlight three commonly used practices that simply don't work.

#1.  The Weak Pre-Emptive Offer.

In theory, one of the best ways to avoid a multiple offer scenario is to not let it happen in the first place, right?  Why wait for everyone else to get their ducks in a row when you're ready to go?  That's where the pre-emptive offer comes in to play.   It's a bold, disruptive strategy where the buyer and their agent decide to put in an offer almost immediately after the house is listed (and sometimes even before it's listed), regardless of the listing agent's plan on how they'll take offers.   Savvy buyer's agents who have had success with this strategy realize the key ingredient that makes a pre-emptive offer successful:   It must be compelling.

Lately, I have heard from a few listing agents who reluctantly agreed to accept a pre-emptive offer (or had no choice because it was literally handed to them), only to find out that the offer was significantly below the asking price and had all kinds of conditions and contingencies attached.   What could the buyer and their agent have possibly been thinking in this scenario?   Clearly, the seller understands that the market is white-hot and they're likely to get multiple offers — so, why would they possibly accept a sub-par offer without testing the market?   There's nothing essentially wrong with a pre-emptive offer — it just needs to be compelling enough to convince them not to put the home on the market.

What's the downside for the buyer?  Because the pre-emptive offer is “disruptive” — i.e., you're forcing the agent and the seller to look at an offer before they're ready — you have essentially over-committed and under-delivered.    Besides saying “no” to your pre-emptive offer, you've put yourself at a distinct disadvantage in the agent's eyes when you circle back a week later and present your offer with the rest of the other buyers.   Pissed-off agents have long memories.

#2.  The Sneak Attack.

When a listing agent and their seller decide to set an specific date to listen to offers, the intent is to level the playing field as much as possible for all interested buyers.   This enables everyone to put their best foot forward on the same day, and the seller can then make an informed decision from all of the available options.     In an effort to keep the process as transparent as possible (without divulging confidential information), good listing agents usually inform the various buyer's agents who many disclosure packets have been downloaded, and how many offers they are expecting — to the best of their knowledge.

In return,  the agent of the interest buyer is supposed to inform the listing agent of their intent to present an offer.   It's a professional courtesy that works both ways — the listing agent can then set the expectations for the seller, and all of the competing buyer's agents have a relatively accurate count of how many offers they're competing against so that they can adjust their offer accordingly.

But some buyer's agents are employing a tactic that I refer to as the “Sneak Attack.”   They fully intend to write an offer on the property, but they decide not to tip their hand and inform the listing agent, and thus keep their offer out of the overall count.  The rationale here is that if you lull the competition into thinking there will be fewer offers, it will keep the amount of the over-bid down.   After all, you're going to write an offer differently if there's 4 offers than you would if there were 8.

So when it comes down to the day when offers are to be presented (quite often with the sellers in attendance) the Sneak Attack Agent shows up completely out of the blue and wants to present an offer.  Does that sound like a good strategy?

Here's why it backfires:   Put yourself in the listing agent's shoes.  You have painstakingly prepared your seller on what to expect this day — how many offers to expect, and how long it will take to review them.  And don't forget that many sellers actually attend the offer presentations.   So if they're expecting a handful of offers and have allocated an hour or two, and it turns out to be an all afternoon affair with a bunch of unplanned mayhem, it really makes the listing agent look like they didn't have control of the process.  Also, the Sneak Attack Agent has likely not established any rapport with the listing agent, so there's no “gut feel” on how much the buyer actually likes the property, and how serious the offer is.

The bottom line:  If you want a sure-fire way to alienate the listing agent, this is it.

#3:  The Bait and Switch.

The third strategy is especially devious, because most often it's not done in good faith.   This is how it works – the winning bidder drives the price up to a point that they really have no intention of paying.   Once they've won the deal and are in contract,  they use whatever means they can — legitimate or otherwise — to negotiate the price right back down.    This could be leveraging their own questionable inspection reports, or just simply taking exception to conditions in the house that were already disclosed.

The rationale behind this strategy is that the buyer feels they now have the seller over a barrel instead of the other way around.   All of the hysteria surrounding the house has died down now that it's in contract, and all of the other buyers have gone away, so the seller will be motivated to cut a deal to keep the contract in place.  The alternative is putting the house back on the market a second time — and that never looks good.

But a smart listing agent will secure a back-up offer (look for more on this in another post), so if the winning offer doesn't perform to their commitment, they have another offer to fall back on.    It gives the seller the ability to hold their ground in an unreasonable negotiation.

The Bottom Line:  Do it Right.

I've been involved in quite a few multiple offers already this year and have been successful in the majority of them, so I have seen these strategies back-fire in other agent's faces on numerous occasions.   At the end of the day, it's not always first offer or even the highest offer that gets the prize.  And misguided “creative” strategies are no replacement for fundamental trust and transparency — even in this crazy market.