Buyers understandably wary of bidding wars

By Elizabeth Erickson | Aug 08, 2012

Currently there are few homes for sale and a disproportionate number of qualified buyers. We know there’s a huge “shadow inventory” of bank-owned real estate, but regardless of the reasons, qualified buyers are frustrated.

When new listings appear there’s often a piranha-like feeding of multiple offers. Thorough brokers attempt to find comparable ‘solds’ to show solid support for bidding higher than list price.

A recent residential listing had nine offers in 24 hours before the listing broker removed the key box. List: $239,000. Nearby solds: $260,000-$285,000. Winning bid: $262,000.

This was a first-time buyer holding on tight for the ride – trusting in her broker’s advice. Final confirmation? An appraised value of $272,000. The appraiser noted the multiple offers, stating, “that expresses market value.”

But here’s a more complex scenario: 2006 town home: $249,000. Same complex: Two short-sale solds for $209,000 and $215,000. Five offers in two days. Winning bid: $266,000.

As said by that appraiser, multiple offers create current market value: What willing buyer(s!) and seller agree upon is a rather classic case study of ‘supply and demand,’ in commodities of say ... oil or real estate.

Five offers, two in the $260,000 range, off-set the two prior distressed short-sales from three months ago. This ‘sold’ will become the new comparable benchmark in that complex.

Did these buyers pay too much or did the previous short sales get a steal? Is this the beginning of a crazy, out-of-control repeat of the 2005-2009 housing debacle?

Or were the two distressed sales at the bottom of the bell curve, just before the market began to pull out of that free fall?

When the sellers (then buyers) bought this town home in 2006 they put $150,000 down on a sale price of $380,000, which makes this not a short sale to the bank. ‘Only the sellers lost money.’ (Loaded sentence.)

History: Good loans had been combined with millions of known bad loans creating the three-headed Wall Street monster called “credit default swaps.” These were sold to millions of unsuspecting investors by our creative Wall Street Wizards.

Those CDS ultimately brought this country’s economy to its knees. (Excellent summary in “Margin Call,” a 2011 release starring Kevin Spacey.)

But what’s the difference between this environment and that one?

Then: A glut of millions of unqualified buyers created an unrealistic demand for housing for an environment of irrational inflation rates of 20 percent and more.

Now: A glut of hundreds of thousands of well-qualified buyers, few listings, home prices rising somewhat. But it feels like (no crystal ball in this column) ... feels like a balancing out from free fall of this last year of equally unbelievably low selling prices.

(My answer: Recent buyers just lucked out.) However the winning buyers of this very desirable town home lucked out, too.

Could it be that this rise is simply a glimpse of a healing economy? We’re not there yet, but it’s a hopeful sign that we just might be looking at the horizon...

Elizabeth Erickson is owner and designated broker of Gallery Homes Real Estate. Contact her at erickson@galleryhomesre.com or at the office: 425-212-4300 or direct: 425-508-1405, or go to www.galleryhomesre.com.

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