Real Estate is Not eBay!

Home Sold at Auction

There is an alarming trend among many buyers of real estate these days. We’re seeing more and more people who want to “place bids” rather than to “make offers” on a home.

Real estate is not eBay. While some real estate is sold in an auction format, the vast majority of sales are not. I realize that in some markets buyers are in full control given the volume of short sales and foreclosures, but in many places the markets are balanced and in some places there are seller’s markets.

In the north Dallas suburbs, there is a severe shortage of good properties under $150k. Last weekend I was out with some first time homebuyers who had been looking for weeks. We found a home the first day it was on the market. By day 3 there were multiple offers and my clients actually had to offer more than list price in order to secure the contract. It’s a seller’s market for good homes under $150k.

I’ve seen buyers totally upset when their low “bid” was not countered while a more reasonable offer was negotiated and accepted. That’s not to say that a lower offer is not appropriate at times such as with an overpriced property. However, throwing in a bid at 70 percent of market value on a hot property is usually a waste time. 

Many investors use this approach but don’t really care if hundreds are rejected while they look for the one seller who will sell at that price. The average home buyer will quickly become frustrated using this method.

Many of our younger buyers have grown up bidding online and to some extent bidding has become part of America’s landscape. While I suspect this trend will continue in consumer goods, I don’t think it will last in the housing market and certainly does not apply to seller’s markets.

My advice is to know what kind of market you’re looking in and use an appropriate strategy rather than always going in with a “bidding” strategy.

Tom Branch, Broker, CDPE, SFR

Photo licensed from iStockPhoto

We Want To Place a Bid on That House

The phone rang in the office this morning. I had just walked in and grabbed the call. I introduced myself and asked the caller what I could do for them. “We saw the house you have for sale at 123 Anywhere and we want to place a bid on it” the caller stated.

Home Auction

Licensed from iStockPhoto

I ran through my usual questions:

“Are you working with an agent?” – “No, we don’t have an agent.”

“Have you seen the house?” – “No, but we want to place a bid!”

“Are you paying cash or have you been preapproved for a mortgage?” – “We’ll need a loan but we can take care of that next week.”

“Are you aware that this is a Short Sale property and make take some time to get bank approval?” – “It’s a foreclosure?”

I was holding a power-hour open house later, so I suggested they stop by and take a look. This house is priced well below market because it needs extensive work. Personally, I think financing is going to be a problem because of structural issues.

But none of this is what really got to me today. It’s the eBay mentality that appears to be taking over our industry.  The only listings where I can place a “bid” are HUD Foreclosures. HUD Foreclosures are sold using a sealed bid auction format.

Every one of my 36 listings is “for sale” and I’m not running a reserved price auction. Yes, price and terms are negotiable but I expect buyers to make offers on a property by completing the proper contracts, being able to show reasonable earnest money, and proof of funds or a mortgage pre-approval from a reputable lender. When I’m working with buyers, I explain this to them if they talk about placing a “bid” on a property. 

It’s not just the clients either. I hear Buyers Agents talk about placing bids on properties all the time.

Why do I think we need to make sure that buyers are not in “bid” mode?

While there are many issues, many buyers expect to be able to cancel their “bid” at any time without ramification. I had a buyer on one of my listings who decided to back out at the last minute. To make matters worse, the agent calls asking us to release the earnest money back to the buyer so they can use it for another property! This is not just a non-performing bidder email and a negative feedback situation. There can be serious legal and financial consequences.

How did we get here? Perhaps it’s a combination of the run-up mentality leading up to the melt-down in 2008 and a generation that has grown up purchasing things through auction sites. Regardless of the reasons, little real estate is sold in auction format and it’s critical to understand the implications of entering into a contract.

Tom Branch, Broker, CDPE, SFR