#394 in a series of true experiences in real estate
April 2002, Hills Newspapers
The housing market we work in is wild right now, unexpectedly so. Last fall things seemed to slow down a bit, and agents and buyers were hopeful that some sanity in sales would reign.
It would be nice, for instance, if our market allowed buyers sufficient time to consider and choose what they want to buy. It would be even better if the competition for houses was not so great. But we are experiencing anew an exceptionally brisk market with numerous contenders for many of the available houses. It is frequently the case that buyers make offers on many different houses before succeeding in buying one.
This is a very trying situation for buyers and their agents. It takes a lot of time and enormous spiritual investment to search for a suitable house, investigate its condition, decide to make an offer. What price to offer is the decision that must be made next, and this can be a killer.
All too often the list price only hints at what the house will sell for. How much cash the buyer has for down payment and closing costs, and how much he can afford to pay for a loan must be considered. Then, depending in part on how many other people will also be making offers, a buyer decides what price he’s willing to pay.
Agent and buyer must guess what the market value of any given house is, i.e. the price a ready, willing and able buyer will pay. Buyers ask their agents, “How much will this house go for?” And, “What would I have to pay to make sure I get this house?”
But no one knows the answers. Until the offer or offers are presented to the seller, until the seller finds one acceptable and enters into a contract to sell, it is impossible to accurately predict what today’s market value of a given house is.
Much time and thought are given to “sweetening the pot.” In addition to offering as high a price as possible, buyers intent on winning provide the best possible contract terms. They shorten, or eliminate entirely, the period of time they will take to inspect the house after they are in contract. They lean on their loan brokers for promises of shorter and shorter closing periods.
If the circumstances are right, they offer free rent-back time to the seller, days, or even months, that the seller can remain in the house after the sale is closed. They agree to buy, of course (it’s almost a given these days) completely “as is.” If the house needs a roof, or new furnace, or dry rot repair, the buyer takes responsibility for any or all of these, not the seller.
And they write letters to the seller, sometimes including photos of themselves and their family, words about why they especially appreciate this particular house, reasons why they hope they will be chosen to be the new owners.
It’s tough. It’s a shame. People go out on a limb, agree to extraordinarily high purchase prices, pledge their hearts and souls, go further than they feel good about going — in order to buy a house.
Why? Why is this necessary? Supply and demand. That’s the answer. There are more people who want houses here than there are houses available for them. This may not be true in St. Louis or in upstate New York (I don’t know), but here, in Berkeley, Rockridge, Montclair, Albany, and environs, it is the case.
What’s astonishing — incredible, really — is that there are so many people who have the wherewithal to compete in this housing market, so very many who can pay $600,000, $800,000, a million dollars or more, to live here.
That this is the case has become abundantly clear to sellers. Most of them are tickled to pieces to find at what price they can sell. They listen to the offers, exclaim with delight, and choose to accept one. Usually the highest price, and the best written contract, wins, the buyer who the seller believes will close the sale quickly and easily. But not always. Sometimes the seller accepts a lower price from a buyer he has become attached to, a buyer with small children, for instance, because the seller would like children to grow up in his house.
The seller is pleased, and the buyer who gets the house is happy, too. This is how it works most of the time. But lately we’ve heard about something else that is happening, not often, but in a few cases. Here is a story of seller greed, one we fabricated, but it is similar to (although milder than) the stories we’ve heard.
The seller and agent decided that $800,000 is a fair price for the seller’s house. They are hoping that more than one person may want to buy it, and if so, it might sell for more. In fact, there are 5 offers, and they are all higher than list. The top two are quite high — $890,000 and $910,000. One buyer is willing to pay $90,000 over asking while the other will pay $110,000 over. Imagine!
But in this case, the seller (and perhaps, too, his agent) isn’t satisfied. Instead of signing one of the contracts, the seller counters both these offers. He will sell, he says, to whomever will pay $975,000.
What?! The seller now wants $175,000 over what he asked? Yes, he does.
The buyers are dismayed and angry. They feel they’ve been blind-sided. They made their highest and best offer, agreeing to pay hugely more than the seller was asking, but the seller is turning them down. Both may simply walk away. Or, maybe, one of them will agree to pay $975,000.
But at what price to the seller? We believe, because we have seen it demonstrated time and time again, that a good sale involves more than money. We know that both buyer and seller can feel that they have received the long end of the stick. It happens all the time.
For both ethical and practical reasons, it is important to engender and maintain good will in a transaction. A buyer who has been treated badly, one who feels he’s been “taken” is not likely to be happy. He will very probably immediately begin to question the goodness of the house. He may say, “The seller didn’t even replace the sump pump. The downstairs bathroom is really small. I never did like the orange Formica.”
He’s questioning what he’s let himself in for, and he will go on doing it. If he proceeds with the sale, after he moves into the house and things go wrong (things always do), he’ll still be feeling stupid and therefore upset with the seller who made him feel that way. When it turns out that replacing the sump pump doesn’t make the basement dry after all, his thoughts may turn to a law suit. This sale may not be done and over; it may go on, although in another form.
This market is crazy. Sellers are selling their “goods” at unprecedented prices. We think it behooves sellers and agents to be thankful for the windfall, but to treat our buyers rightly and with caring. We wouldn’t be selling at all without them.