Handling Multiple Offers in Today's Market

Posted by urbandigs

Wed Feb 24th, 2010 09:22 AM

A: Whether you question the sustainability of it or not, you can't deny that some well priced properties out there are receiving multiple offers in the past 4-6 weeks or so. However, that doesn't mean each will end in a bidding war! In fact I find that while sellers love bids competing with each other, almost all buyers and many brokers out there hate them - it just "complicates things" they say! They call it a war but it's not really a bidding war; which I would describe as a situation in an auction where two or more bidders aggressively battle each other in a transparent manner sending the final price for the item much higher - each buyer knowing what they are up against with each move. For highest & best situations in Manhattan, interested buyers are simply provided a deadline with which to provide their most aggressive offer for the target property. In the end, the seller broker and seller review all bids submitted and choose the highest and best one to proceed with! However, "highest & best" situations are often perceived as bidding wars and that alone could scare many qualified buyers running for the hills!

Disclosure: I no longer work with sellers and currently spend my time servicing buyers only. This is a big no-no in regards to building a successful broker business model. The proven broker model is to establish a successful sell side business and to the best of your ability, recycle business (buyers) as traffic comes in - the team approach allows for this and the power in numbers adds to production volume which increases the split distribution with your employing brokerage firm. Then, the team continues to work the referral base expansion aspect of the business. Since UrbanDigs LLC became a member of REBNY, I have been working only with buyer clients as it fit my niche target audience, business model, and compliments my ongoing vision for where I see UrbanDigs.com in the years ahead. You will soon see where I am going with my vision.

bidding-war-manhattan-real-estate-nyc.jpgThe most important thing every buyer should understand about a property that declares a highest & best situation is that you only have to bid what you are comfortable with bidding!! Nobody is forcing you to get into war with anybody and since you are not told the competing offers, there is no back & forth for you to ponder whether to up the ante a bit more! It's basically a one and done!

Now, as I wrote in my "How To Handle A Bidding War" piece almost three years ago:

It is very important to note that the intended seller strategy of a bidding war is to encourage a sense of urgency via potential property loss and NOT to install fear into the prospective buyers. I can't begin to tell you how important this is. By installing fear into the bidders rather than encouragement to participate in the bidding war, chances are you will 'scare away' and lose one of the bidders messing up the entire goal of the war.

The ultimate goal of the bidding war is to procure the highest & best bid that generates a signed contract for the seller!
I'll take this one step further and add that a desired goal of a 'highest & best' scenario is the gap-up potential from one of the interested bidders.

The key is knowing when the situation is ripe for a 'highest & best' declaration, as many brokers and sellers with minimal experience in Manhattan real estate transactions may get a bit excited and ahead of themselves. The ideal situation is when the listing broker receives BOTH of the following:

1) Two or more ACCEPTABLE offers - the offers must be in the realm of acceptability by the seller. There is no point in calling for a 'highest & best' situation when the seller is asking $1M and you receive two offers below $800,000 that the seller has no intention of accepting due to price alone! The buyers' terms must be acceptable as well...

AND...

2) Two or more QUALIFIED offers - the two or more offers must be financially qualified to both be able to secure a loan commitment and to pass board approval; assuming it is a co-op.

Simple. Clear. Easy enough. Now, every offer has its own variation of terms that must also be considered by the seller in these situations - closing dates, inclusions/exclusions, gifted monies, inspection requests, etc..

Assuming your property has procured both of the above, you now have a choice to make on what to do - but before I go into the choices I want to discuss the concept of 'gap-up' bids.

Gap-up Bids: this occurs when a very interested buyer deals with a highest & best situation by going all in in regards to aggressiveness! Let's say you got a property asking $2,895,000 that was priced such that it received multiple offers; a highest & best is declared and deadline for submitting offers provided to all interested buyers. To ensure they get it, one buyer decides to bid $3m! I consider this a gap up offer that may not have come in like this if negotiations were privately held. This actually occurred for 35 Bethune Street, Unit 2/3A...which is in contract now awaiting closing - let's revisit this discussion in a month or two when we see how far over ASK the winning bidder went to get that desirable duplex! Another example of a gap-up offer was 37D @ 115 East 87th street at the peak of the market, closing some $600,000 over ask after a best & final environment was set by the broker!

Gap-ups don't always happen for highest & best situations, but the environment certainly exists for one to occur. Moving on, when multiple qualified & acceptable offers are submitted the seller has two choices on how to proceed:

a) Handle Independent & Private Negotiations

Pros: Allows you to continue marketing the property and continue the negotiations back & forth for as long as the seller likes or as long as the buyer(s) participate, less chance of scaring away buyers,
Cons: Limits the gap up potential of a highest & best, time may allow for a competing property to come to market and steal one of your buyers

b) Declare A Highest & Best Situation

Pros: Increases the gap up potential in a bid, usually ends the process fairly quickly, usually keeps the sense of urgency on the most interested and the winning bidders to produce a signed contract
Cons: may scare away some potentially strong buyers who 'don't do bidding wars', the situation is usually not handled correctly by the broker or seller, if it fails to produce an executed contract from the interested buyers it could leave the seller in a bad position

Both have its pros & cons and I don't have time to think about and list them all. Experienced brokers will know when to advise a seller which path to take; there is a feel to it that good brokers are quick to pick up on. Handling this situation the wrong way can end with no deals done, no bids left, and a listing that lost all control after being in the driver's seat going full speed ahead.

For newer agents that don't know how to handle this kind of situation, go back and read my article on handling multiple offer situations. In the end, experience will be your best lesson on how to handle similar situations in the future; so when you encounter this environment be sure to focus on how you handled it, how the buyers responded and reacted, and how everything played out! Learn from your mistakes so that next time you don't make them!


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