As we enter the last month of the fall real estate season, it’s still a seller’s market out there. So in this column I have some words of advice for buyers and a word of caution for sellers.
Last month, I wrote about how to compete in a bidding war, starting with making an offer price at the listing price and including an escalation clause. As you can see from the chart below, properties in Washington overall are selling at pretty much 100 percent of listing price. I have included data from 10 mid-city zip codes to show the minor variations—both above and below that 100% ratio—often within the same zip code at different time in the year. For example, in zip code 2005 (Logan/Thomas Circles), properties were selling for more than listing price (101% average) in March through June, but in August were selling for slightly less (97.3%) than listing price.
Usually those slight variations above the average are caused by competitive bidding situations, where the sold price of the property gets bid up above listing price through multiple offers on a property. But what if there are no competitive offers? What if the seller just wants more money?
In my last three bidding transactions representing buyers, we have offered full price along with an escalation clause in the event of multiple offers. However, in all three transactions, there were no other offers; yet the seller still came back with a counter-offer above their listing price. Why? Probably because they had set their original listing price too low, hoping to start a bidding war between multiple offers. So they weren’t really expecting to sell their properties at the original listing price. In two of these transactions, my buyers just walked away. But in the most recent transaction, the buyers accepted the seller’s counter-offer (at 102% of original listing price) because they wanted the property, and because recent sold properties in the immediate neighborhood had sold for 105% of listing price. Additionally, we were still able to negotiate certain favorable terms to the buyers to offset the additional price.
So what’s my advice for buyers beyond caveat emptor (buyer, beware)?
Try not to “fall in love” with the property, or at least hide your desire so that the seller can’t take advantage of your emotional connection. If you really want the property, be ready to spend more than listing price but set a realistic limit beyond which you are unwilling to go. Put additional contingencies and terms in your contract offer that you can use to negotiate with the seller if they counter with a higher price.
And what’s my word of caution to sellers?
Be careful of trying to incite a bidding war by setting an original listing price lower than what you really want. It may backfire if you don’t receive multiple offers. And by setting the price at a level you are willing to accept, you don’t risk alienating your ultimate buyer. After all, you’re going to be dealing with them for at least 4-6 weeks after the sale contract is ratified.
And to both buyers and seller: Make sure you are dealing with an experienced Realtor you like and trust. They can help you navigate some of these pitfalls.
Ted Smith is a licensed Realtor with Real Living | at Home specializing in mid-city D.C. Reach him at TedSmithSellsDC@rlathome.com and follow him on Facebook, YouTube or @TedSmithSellsDC. You can also join him on monthly tours of mid-city neighborhood open houses, as well as monthly seminars geared toward first-time homebuyers. Sign up at meetup.com.