The 1-2 Punch: When A Deal Falls Through
A: Very interesting topic for a post that comes straight from the field. You have a new product on the market, priced right, that procures an accepted offer near ask within the first week. The deal eventually falls through. Then, a new bidder comes in with a strong bid, but not as strong as the first, and gets very little response. The 1-2 punch for the seller takes control right out of the 2nd bidder's hands leaving a situation to deal with. What to do?
Its hard enough being a buyer of Manhattan real estate these days without having to deal with lack of negotiability because of a previous deal falling through. How is a broker to advise their client?
On the one hand, the seller must be ready to go after experiencing a deal slip away. But on the other hand, being that the first offer was slightly under asking it makes any future offers that may be lower but still strong, seem not worthwhile! The seller broker is clearly doing their job and bringing in offers left and right for their client, but in the end they need to generate a fully executed contract of sale to get credit and move forward to closing.
When a deal falls through, the psych of the seller changes a bit. First off, they get a taste of what their property might sell for. Second, they get more confident and patient when it comes to future bids. Third, they keep the ball in their court and play hardball especially if the two bids come in within the first 4 weeks of the listing. All of this doesn't bode well for the buyer in terms of control during the negotiating process. Not such a bad thing if the property is priced right to begin with.
So, how does a buyer broker advise their client in this situation. Certainly you can advise them to go just under ask and get the deal done on the premise that bids are coming in quickly on the property in question which obviously means the product is getting traffic and is priced properly. Or, you can play hardball back and stick with the lower bid in and see how time changes the mind of the seller.
The only way to be sure is to put the seller into a situation where they might lose the 2nd deal! Question is, does the 2nd bidder want to risk losing the property? So, here is what I would advise my clients to do based on the economic and emotional status of the buyer:
Buyer Loves Property & Can Afford It - A property is worth what a buyer is willing to pay for it. If the deal is only $10,000 away or so and it is economically feasible for the buyer to pay that amount, go for it! Obviously the property is priced properly which is why the buyer loves it (assuming they did their homework and has product knowledge) and multiple bidders have made a play for it. So whats the problem. Taking into account past comps and current products in the price point, if the deal is within striking distance I would say to my client to up their bid and end the ping pong game now before a third bidder comes in and they lose the property they love.
If it does get you an accepted offer, don't waste time! Tell your real estate attorney to do their diligence promptly so that you can sign the contract and send it over to the seller attorney with your 10% deposit. A deal is never done until the seller countersigns the contract and the seller broker is wise to fully market the property until this happens. As you can see, deals do fall apart and the fact that the property was almost lost creates a sense of urgency to other interested buyers.
Buyer Likes Property & Will Have To Stretch To Buy It - Here is where I don't like my clients going. Its never a good idea to stretch far above your intended budget to get a property you love! That is allowing emotion to take over the investment decision.
If the buyer (2nd bidder in this case as first bidder deal fell through) already put in their MAX amount they can afford and anything over this amount leads to a sacrifice in quality of life, then your decision is clear! KEEP THE BID IN & PUT A DEADLINE ON IT!
In the end we must not forget what buying a home is all about beyond the investment value. When making the decision to buy, you need to:
A: Love the home
B: Can afford the home; job is stable & salary is high enough
C: Look to stay for at least 3-4 years
D: Know product knowledge and how to bid properly
Most sellers want to sell their home and those that price their homes high and dont get any bids for months, tend to react more aggressively when one finally comes in. However, on the flip side, those sellers that price right and get multiple bidders in a relatively short time period tend to get more stubborn. As a buyer you need to decide which strategy you want to take once that first deal falls through because chances are the seller will not be that accommodating!
Do the right thing. Sleep on it, take into account how much you love the property and the happiness it will bring to your lifestyle without sacrificing quality of life financially, and make your decision with a clear mind!
Posted by Mbt
Thu Jun 3rd, 2010 01:41 AM
I think another reason fees are not being paid and free months not offered is that prices have come down. Apartments are moving but part of the reason is that prices came down to a point at which they will move.