Multiple offers and fair market value

"Multiple offers" - artwork

“Multiple offers”

Over the years I have been in quite a few multiple offer situations with my Silicon Valley home buyers and it seems that we are again in that kind of market in many parts of Santa Clara and San Mateo Counties. Understandably, home buyers do not want to pay more than a home “is worth”. With several buyers all vying for the same property, though, the price is driven up. That’s a seller’s dream and a buyer’s nightmare. Is it possible to pay fair market value, and not more, with multiple offers?

What is fair market value?

With a little research, you may find a few slightly different definitions of fair market value. Most, though, include these elements:

  • Both buyer and seller are reasonably motivated (but not under any undue pressure)
  • Both buyer and seller are well informed and acting in their own best interests
  • The home or property has been given enough exposure such that the market has been tested
  • There are no special concessions that would impact the sale price (such as a year long free rent back, including all the furniture or personal property, the seller carrying the mortgage at a very high or very low rate of interest). Likewise, no other special terms that would increase or decrease the sale price.

In other words, fair market value is usually achieved when the buyer and seller have a normal sale, with normal time frames, normal contingencies, normal relationships to one another. Most of the time, this is the result of one offer on the house after two or three weeks on the open market. (Sooner than that, there may be pressure and other bids.)

If a seller or buyer is desperate to sell or buy, you probably won’t see fair market value. Similarly, if a parent sells the family home to a son or daughter, there’s a good chance it will never be a matter of exposing it to the pool of buyers, and the price is likely to be soft. Off market sales may be on the low side, though recently we’re seeing buyers in those circumstances paying more just to secure the property. A buyer who writes an offer subject to the sale of her or his home will be at a negotiating disadvantage, but a seller may accept that bid if the home has been on the market awhile, there is no other competition, and if the sale price is higher than it otherwise would be. (They’ll accept more risk for a higher sale price.)

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