“Showings begin at 12 p.m. Thursday. Offers will be reviewed at 2 p.m. on Monday. All offers must be received by 12 noon on this date.”
So read the broker showing notes of a property I listed not too long ago. It’s an increasingly common tactic… putting a desirable home on the market for a fixed period of time and letting agents and buyers fight, gladiator style, to the bitter end.
This particular home ended up with 12 offers, all of which were over list price, including two cash buyers.
It is no fun to be a buyer in the Denver market these days. Insane competition and limited inventory lead to competitive shootouts on a daily basis, with buyers including escalator clauses, waiving appraisal contingencies and often agreeing up front to take the home “as is” – especially for homes under $300,000, where there is simply no inventory to speak of.
For lower down payment buyers, the chances of landing a turnkey home in this price range are becoming increasingly remote, as cash buyers, large down payment buyers and “appraisal waivers” repeatedly win the day.
I ran into one of these situations a few weeks ago with one of my buyers, but rather than take the words appearing in brokers comments section of the MLS at face value, we challenged them.
For this particular listing, which hit the market on a Friday morning, the sellers said they would not review any offers until Monday night. Which seemed to be a shame, because my client truly loved the home and was willing to fight to get it.
Now every buyer is different, and the playing field in real estate (as in life) is often not level. Those with cash or enough money in the bank to waive appraisal clauses have a significant advantage. And that was the case with my buyer on this home. He was making a sizable down payment and could live with a low appraisal, although I felt the home was priced right for this market and that we could probably get it to appraise.
So we wrote what I call a “knockout offer”. We swung hard, swung fast and gave the seller a short deadline to accept on the premise that my buyer had a very short timeframe for closing on a home and needed to get one locked down that weekend.
Our offer was pretty terrific: $3,000 over list, as is, no appraisal objection, buyer pays for title insurance, earnest money was doubled ($1,000 of which went “hard” upon acceptance with another $2,000 going “hard” after the inspection), and closing in 21 days. Plus we included a bank statement to show we had the resources to deal with a low appraisal, should one occur (it didn’t).
The total investment of the over list price offer, title insurance and “as is” provision probably added about $5,000 to the seller’s list price. Truth is, it was my belief that had this property been shown over the weekend, with multiple offers a foregone conclusion, it may well have cost my client more than $5,000 out to outbid the herd on Monday, not to mention he could lose the property all together.
And so with a short deadline for acceptance and some strong persuasion on our part, the seller accepted our “knockout offer”. The property went under contract that night and weekend showings were cancelled, sparing my buyer his date with the gladiator’s ring.
I listed another home recently using the same “fixed time frame” listing period strategy, only to have another agent issue a knockout offer (or what he considered to be a knockout offer) for my property. It was $11,000 over list price with a 20% down payment. But it didn’t waive the appraisal clause, it didn’t let any of the earnest money go hard until the Loan Objection Deadline, and it didn’t offer to take the home “as is”.
A great offer? Yes. A knockout offer? No.
Knockout offers are not for the faint of heart. I don’t necessarily recommend them, unless it is an extraordinary property and you are truly willing to put your money where your mouth is.
More than anything, you need to know that they exist, that people are trying them and they are (sometimes) having success with them.
The red-hot Denver real estate market is a rough and nasty place these days, and buyers are willing to do fairly desperate things to get a good home under contract. I have never seen anything like this in 20 years, and I’d personally be pretty happy if things would just calm down a little bit and we could get back to something a bit more normal.
But I don’t make the rules, nor do I make the market.
My job is represent my clients (both buyers and sellers) with all the skill and creativity I can muster, ethically, in hopes of getting them the very best outcome possible.
Cash buyers and large down payment buyers do have an advantage, though, and some are willing to write knockout offers to prove it.