Multiple offers are common - sellers and listing agent discussing the open house and biddingMultiple offers are common right now in the Silicon Valley real estate market. With them typically come overbids and sky high sales prices. Clair and I have shown several homes that our buyers did not bid on but which got many offer contracts and which sold for 15 – 20% over list price just over the last 30 days or so.

The hottest part of the market seems to be properties under $2 or $3 million, depending on the area.

When there are tons of buyers lining up to purchase a home, the sellers have usually put a substantial amount of time, energy, and money into making their property look fantastic, and they also take a risk in pricing it low to attract a large number of home buyers.

Multiple offers are common when property sells fast – but it doesn’t always!

When there aren’t multiple offers, it could be location issues, condition of the property (or neighborhood), overpricing (the most common culprit), difficulty in viewing the home, or other missteps on the selling side.  Buyers today want a turnkey home in a superior location that’s in great shape – not remodeled 20 years ago or more – and they will pay a premium price for it.

When homes have been on the market for 3 weeks or more, this may be a great opportunity for buyers to be the lone bidder on it. Does it have the right things wrong? Can what is off be fixed? Is it only overpriced? I would suggest buyers focusing on all of the inventory and not just the hot new inventory.

Why is it that multiple offers are common now?

There are a couple of reasons why homes that are in great shape, priced low, and given good exposure to the market are selling so strongly now.

  • First, there is a dire shortage of inventory, or lack of supply.  This is a chronic problem, but it’s acutely so now due to the higher interest rates and home owners not wanting to sell. It’s unlikely for this to change anytime soon, unfortunately.
  • Second, because Silicon Valley residential real estate has a long track record with good appreciation, those who can buy want to do so. Many are empowered by the rising stock market. If they are here for the long haul, buying makes more sense than renting.
    • Many are purchasing with more than 20% down, and they will watch for an opportunity to refinance.
    • Others are buying all cash. Those buyers may be anywhere from 15% to 35 % of the successful home buyers.

The inventory crisis will likely improve a little as the year goes on because inventory normally rises with the peak being somewhere in the summer most years.  No guarantee – sometimes it doesn’t behave “as usual”.

How can you tell if a home is going to get multiple offers or what the selling price will be?

These are really two different, but related, questions.

Assessing the number of competing bids

  1. If you visit the home during an open house, make note of how empty or packed it is. When you see no one there, it’s possible that the home won’t get multiple offers. If the house is absolutely packed, you can be pretty sure that there will be a lot of offers. Multiple offers are common when the open house is packed.
  2. Look at the disclosures. Most  homes need work (pest, roof, electrical, plumbing, HVAC) and these repairs may run 1% or even 1.5% of the value of the property in many cases. That is typical in my experience – it can add up fast! If that property has almost nothing wrong, the number of bids will rise. If the home has 2% or 3% or more of the value in needed repairs (not remodeling), that number will fall. Most people cannot throw $50,000 at repairs and “tune up” work.
  3. Your buyer’s agent should talk with the listing agent and ask what is anticipated and also ask how many disclosure packages have been pulled. Often about 30-35% of the number of disclosures pulled will turn into offers. If you hear that there are 21 disclosure packages out, there may be 7-8 offer for a property in typical condition, less if it’s in need of costly repairs, and more if the home appears to be worry free.

We never really know, either as buyer’s agents or listing agents, the actual number of bids until they are turned in. I’ve had times where I expected 4 offers and was surprised by 8, and other times where I expected 4 and got 0. Buyers can and do sometimes change their mind at the last minute. BTW, that’s not great if you say you aren’t bidding and then submit an offer at the last minute – you look uncertain, and most sellers want buyers who are extremely certain that they want the home.

Multiple offers are common, so don’t let them catch you by surprise. In fact, if a home sells in a week or ten days, you should expect that to be the case.

Assessing the probable buyer’s value or sale price

Sometimes we’ll show a home and in the driveway the buyer asks us how much it will sell for. My standard response is that I need to research it and get back to them. There are multiple steps in figuring out the likely sale price. Because multiple offers are common, we have to project not just what has sold in the past, but the trajectory of the market today.

Here are a few key points:

  • As we’ve written elsewhere, it’s easier to figure out the floor of pricing than it is the ceiling. After looking at nearby, recent sales on the MLS, we often have a pretty good sense that it should sell for at least X dollars. That’s step # 1.
  • Factoring in the disclosures and reports is helpful. If the inspections are relatively clean, and the sellers were detail oriented in their disclosures, buyers will feel more confident. Confident buyers will pay more. The same is true in reverse – some buyers may not step us as much if there are lots of “unknown further inspections” or unaddressed major issues. The quality of the inspections and disclosures can swing the ultimate price higher or lower in most cases, unless the home is being sold for land value or is clearly a fixer.
  • It’s harder to know how much beyond that a super driven, possibly cash rich buyer, may offer for that home.
    • Sometimes buyers spike the price because they’ve lost out multiple times and they see prices rising at the rate of $50,000 per month or whatever it may be at that time, and after 5 months and 10 offers they are DONE. They will WIN.
    • Other times there is a personal reason for wanting a home so badly that they pay a price that makes no sense to anyone else. I’ve seen this when a buyer would pay almost any price since the back fence was shared with a sibling, or parents were a block away and they were providing childcare, or some other similarly unknowable personal motivator.
    • And they do if they are going to pay a price that is so high that they get certainty of a successful bid. What is the high end of the likely range? We cannot know other buyers’ motivations, or personal reasons for purchasing a given home. Here we are flying a little blind.
    • An OLD rule of thumb is that for each offer after the first one, the price may get bid up by 1%. If this holds true, 2 offers is 2% over and so on. The problem is that super focused buyers will go past that in many cases, and the other problem is we are only guessing at the total number of offers.
    • Last week I heard of a house that got 12 offers and sold 17% over list price, as an example.
    • If it looks like the home is going to get 10 offers, getting a sale at 15% over is not unheard of, and sometimes we hear 20% over. It varies.
  • For more on pricing, please see our post on this topic, Estimating the Probable Buyer’s Value.

If you are planning to bid on a home with an offer due date, or one inviting pre-emptive offers, keep firmly in mind that multiple offers are common and they are likely to be present when you bid on a new listing.

Looking to sell or buy in Silicon Valley? Please reach out to us, we would love to have the opportunity of a phone call or video chat with you. Over that conversation we can answer some of your questions and see if we might be a fit working together. Email is the best point of contact – mary@popehandy.com

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