KNOCKOUT OFFERS

“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.

THE SIX MONTH RULE

I showed a home on Monday that was listed three days earlier for $219,000.  Good neighborhood, clean property, updated with a newer roof, newer windows, and a new furnace in the basement. 

The sellers weren’t looking at offers until noon on Tuesday, so we were still okay on timeframes. 

The problem with this house, at least from my perspective, is that it was simply too obvious.  These days, if there is nothing blatantly wrong with a house and the price is anywhere close to reasonable, especially at the lower price points, a bidding war is simply a foregone conclusion. 

And so as we turned the corner and walked into the kitchen, there they were… 31 business cards from 31 different agents.  I called the seller’s agent to get the scoop – 14 offers in hand, and counting.  Multiple all-cash buyers. 

“If your buyer can’t waive the appraisal clause,” she said, “don’t bother.”

And there you have it.  The story of the Denver housing market in 2014 for buyers under $250k. 

It’s demoralizing, really, whether you are a buyer or an agent.  The fact is that 31 agents (at least) showed this home before I got there, 14 of them wrote offers, and in the end… one gets a paycheck (but only if his buyer is all-cash or willing to waive the appraisal clause).

For all the good news you hear about the Denver housing market, there’s another side to it.  And that is the high number of agents (especially buyers’ agents) who are literally being starved out of the business by the amount of competition in pursuit of limited inventory.

When markets get crazy and emotional (like this one), bad behaviors become more common.  While most agents have integrity and strive to do the right thing, not everyone plays by the rules.  

This leads to some agents lying about cash offers, some agents lying about their buyers’ (supposedly) strong motivation, some agents making up stories about why this house or that house is “the one” for this buyer.  Some agents will say their buyers plan to take the home “AS IS” (if it’s not written in the contract, don’t assume it is so), some agents will say their buyers have mom and dad on speed dial if the property doesn’t appraise, and so on, and so on, and so on. 

It is a good listing agent’s job to verify all of it.  Verify the down payment funds, verify who the lender is, verify the buyers’ story, verify the agent’s production history, verify where the money is coming from if it’s a cash deal. 

Here’s what I know, based on 20 years of doing this:  when the agent wants the deal more than the client, you are in trouble. 

If you are planning to buy or sell a home, I think you need to pay attention to this. 

Does my agent have the integrity and resources to look out for my interests, or is my agent simply desperate for a deal – any deal - so he can make his next car payment.

I’ve thought about this a lot, and I really believe if your agent doesn’t have six months of cash reserves in the bank, you may want to consider walking.  Seriously.

Now I don’t know how easily you are going to be able to verify this, or if your agent is going to be willing to drive over to Wells Fargo with you this afternoon and have the teller print out a balance receipt in your presence, but I am not kidding around.  Agents/people with no money do desperate things.  Agents who don’t sell houses do desperate things.  People living beyond their means do desperate things.

A license doesn’t guarantee ethics.  A lack of ethics increases that odds you eventually won’t have a license, but a license itself simply means you are clear of felony convictions and you passed a test.  That’s not the same thing as ethics. 

“Does this agent want the deal more than I do?”

That’s the question you need to ask yourself.  If you can’t answer it or aren’t sure, you need to back away, fast. 

Buying or selling a house is a big deal with serious financial consequences.  If your agent can’t afford to think about your needs first, you are in a bad spot. 

If asking for a bank statement is too uncomfortable, then simply ask the question:  Do you have six months of cash reserves in the bank to get you through the down times in the market? 

Maybe you want to require 12 months.  Heck, maybe 24 is your number.  Go crazy.  See what your agent does with the question. 

But take it seriously, and don’t automatically count on others to have your back.  However you choose to do it, make sure the people who say they are on your team are actually on your team.