Yet another reason why agents are occasionally helpful.
Buyers and sellers face many challenges. For example, so much of real estate seems intuitive. Yet it isn't. Here's another, very unintuitive challenge buyers and sellers face: they often have friends, relatives and co-workers, and those friends, relatives and co-workers often want to help.
Awhile back some buyers I was working with were interested in a very snarky home in Los Gatos. The bathrooms were gorgeous, the landscaping profuse and verdant, the neighborhood neat and tidy and the schools "award-winning". So naturally, the open houses were packed and the offers shaping up to be multiple—six or so, according to the listing agent. Six was certainly credible: my analysis showed the home listed at the bottom end of its likely sales range, with the possibility, even probability, that it would sell for five or six percent above list.
Of course, no buyer wants to pay too much, and my buyers wanted independent confirmation that the home's sales price might be bid up that much above list. Fortunately(?), one of them had a co-worker who could provide that confirmation, someone with direct and up-to-the-minute breaking-news experience in the local real estate market, someone whose home not only was on the market but just recently in contract. If only this co-worker could be coaxed into divulging that highly sensitive, highly valuable information.
She could, and the similarities between the two homes were striking:
But there were dissimilarities too. One favored the co-worker's home—larger size—while another favored the snarky home—the co-worker had a San Jose, not Los Gatos, address.
Pretty amazing, huh? Two homes, seemingly quite comparable. And my buyer was pretty lucky too, right? Inside market information, hot off the press.
So naturally the co-worker's home had sold for way over list too, right? Wrong. Just barely above, even with six offers. And the buyer with the highest offer had backed out after a few days in contract ("not sure why"). Now the co-worker was "discussing" with the next-highest offer, which also was barely above list.
Based on her disappointing experience, the co-worker was "surprised" that my clients were thinking of offering much above list.
I replied:
Thanks. I think this shows why sellers shouldn’t price their homes without assistance. I haven’t seen the home, but I looked at the virtual tour and here’s my take:
The home is only four or five houses away from the huge electrical towers that run through that area, and many buyers are concerned about their possible health effects.
· There’s nothing sexy about the home. The kitchen is nice (and better than the home you like) but the granite tile is so ‘90s “we saved big by not installing slab”. The one bathroom I saw is far from “done”: new vanity, maybe from Home Depot, but the tub tile surround is vintage 1968. The landscaping is adequate but nothing like the home you like: dead spots in the front lawn don’t make for curb appeal. The house is generic mid-range rancher, not bad but not great.
· I’ve found that the further south you go in that area, the nicer the neighborhoods tend to be and the higher prices tend to be. I’d say the home you like is in a neighborhood that's a notch above your co-worker’s.
· Yes, a Los Gatos address does make a difference.
· Nobody cares that much about a newer roof, except a seller. Buyers just assume it’s a good roof. If it isn’t, they deduct accordingly, but they don’t add value for a three-year-old roof.
· You co-worker's home is a little larger, but its lot is a little smaller, and "dirt" makes up a big part of a home's market value around here.
The offer scenario your co-worker mentions is typical South Bay: six offers but only a little above asking, although pricing the home that close to its appraised value was a mistake. The buyers who made the highest offer got cold feet, thought they’d paid too much (and maybe they did), and bailed. Every buyer who prevails in a multiple-offer situation has a moment when he or she thinks, “I got the house, therefore I paid too much. Those other buyers must know something I don’t”.
The fact that the sellers have to “discuss” terms with the second-highest buyers (who didn’t leap at the chance to move into first position) suggests that those buyers too might be having second thoughts. A “TFT” (transaction fell through) hurts a home's perceived attractiveness. On the other hand, the home you like is well-priced and well-presented, and the sellers have good momentum. That translates into more motivated buyers.
So that was my reply. Of course, agents are notorious for encouraging their gullible clients to bid well above list. But, as it turned out, the snarky home did sell for five to six percent above list. Not once—more "highest bidder's remorse"—but three times.