Misinterpreting 'Bidding War' Statements From Brokers

Posted by urbandigs

Thu Apr 22nd, 2010 01:00 PM

A: It's time to put the statement 'Bidding Wars' to rest. It's just way too misleading and infers that there was a broad change in price action across the market. When readers see MSM articles titled, "Bidding wars now run-of-the-mill", they mis-interpret that title to mean brokers are yelling how prices are at peak levels again and you better buy now before you miss it. In reality, that interpretation is far off. What you need to know is, that at all times in the market there are 'multiple offer situations' happening. Its highly individual and linked to the motivation and pricing strategy of any one seller. In the end, if you price low enough you will get multiple offers; does that mean the market has shifted? Of course not. Its only on certain occasions that the market sees a shift in inventory, sales pace, and buy side psychology all at once that its worth discussing as a possible changing state of the market. I believe we recently came out of one of those occasions.

Many people wonder why any buyer would even participate in a multiple offer situation. Its easy for sideline buyers and renters to wonder this because they don't know what the individual situations surrounding multiple bidders may be. I often find that my motivated clients with a time pressure to close on a property, only need to lose one sought after property to a higher offer to trigger an attitude change on how the next strategy might be implemented.

In The Real Deal's recent article, "Bidding wars now run-of-the-mill", I noticed this very interesting comment by a reader:

"The only way buyers learn from a bidding war is when they lose the apartment, that way they don't hesitate the next time."
There is a lot of truth to that statement. I have seen buyers swear they will never get involved in a situation where multiple offers were submitted and a best & final situation declared, only to change their mind completely once they lose a property or two of serious interest.

That kind of buyer originally thinks:

a) I will control the negotiation
b) The place is worth ONLY what I am willing to pay, nothing more
c) I will wait for the seller to lower the price and/or get more motivated to deal with me
d) Why hasn't this already sold? Where are the bids? There aren't, therefore I am right and the seller is wrong on what their place is worth.

...only to see the property of interest go to contract leaving them wondering who could have stepped up and what price they paid? If the situation was a multiple offer one and the buyer took it easy, its when they lose the deal and see that CONTRACT SIGNED update on the website that they start to believe maybe, just maybe, there are other ready and willing buyers out there bidding on Manhattan property.

Either way, to experience these situations as a serious and motivated buyer is to change something inside the mindset of that buyer. The end result is a buyer that is much more likely to get more aggressive the next time they find a property of interest, after learning of the failure to secure the deal by prior strategies.

Now take a step back and look at the market as a whole. As I said above, "Its only on certain occasions that the market sees a shift in inventory, sales pace, and buy side psychology all at once that its worth discussing as a changing state of the market." One of those times in my opinion was this past January and February. Looking back, I saw the confluence of...

a) a sharp decline in Active inventory trends as a result of the sustained strong sales pace starting from mid 2009, plus...

b) a sustained uptick in sales pace, plus...

c) months of sales seeing the most desirable and properly priced properties go to contract and close, plus...

d) progressive improvement in buy side confidence leading to even the most skeptical buyers seeing targeted properties go to contract...


January and February saw buyers scrambling to bid for whatever new and desirable property hit the market; and that was remotely close to being priced properly. As a result, multiple offers were being submitted on a much wider pool of properties at the same time - reported to you in late February. Brokers picked up on this change. My clients experienced at least six of these lost deals over those two months before securing their deals for a new property just listed on the market.

The data that shows this best is the sharp decline in both Listing Discount and Days on Market trends from Q4-2009 to Q1-2010; courtesy of Miller Samuel - View larger image:

daysonmarket-listingdiscount1.jpg

History usually shows that these types of mini-euphorias, which I described as starting from an adjusted lower level from peak, don't last long. And I believe this to be true as of now. While the market continues to seem strong to me, its a bit "less frenzy-ish" than it was in February & March. Likely the result of rising inventory and a slight turn around in demand as many buyers already pulled the trigger and now await closing.

The Skinny: Followers of Manhattan real estate constantly ask for state of the market reports and naturally, the journalists out there go to the brokers for answers. I'd like to believe the brokers being interviewed are accurately reporting on what they are seeing; but of course can only trust myself and the colleagues I have learned to trust over the years as to what's going on out there. So when I see comments like, 'Broker's lies to make you jump in! Listen to them and you're dead!', and 'Brokers are liars!', I see how a simple article can be mis-interpreted.

The marketplace saw a confluence of forces that led to a hectic first few months of 2010; forces which took many months to embed into the mindsets of the buyer pool in this market. There are reasons why buyers get aggressive towards property newly listed or submit a 'gap up' offer when there are other known bids in. And it probably has something to do with what that buyer just went through for another property. This occurs at some level at all times in a healthy marketplace, but on occasion it affects the broader market across price points at the same time. I believe we just came out of one of those occasions.



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