You’re selling your Silicon Valley home, and your real estate agent just informed you that you have not one, but several offers coming in. Joy! What should you expect in the way of prices being offered? Today we will discuss what can, and often does, happen.
(1) All in a fairly tight range of pricing: Sometimes, the bids all come in at about the same value or within a small range. For instance, let’s say your house is listed for $900,000 and you get four offers. In this case, the bids could be at $920,000 and $925,000 plus two more at $930,000. These are all pretty close to one another. The terms could be different, though. Perhaps the lowest one is all cash. Maybe the middle one has no contingencies. You get the idea. In any event, when you see that “band” of pricing, it’s a pretty good indicator of where true market value is.
It should be noted that in some markets, multiple offers are not over list price. This can be a factor of the market conditions at the time (such as a declining market) or a reflection that willing and able buyers simply find the list price to be too high. Do not assume that multiple offers will always be over list price (though at this writing, virtually all are). When the offers are similar, the terms or even little things can make a difference (who wrote a letter to the seller? who was a pest at the open house, grumbling about the condition?)
(2) Tight range plus several at best price: More often, especially with larger numbers of contracts, there’s a spread that includes a close range of offers, but a few of them are tied for the highest value or very close to it either within or above that range. Here’s how it could look visually.
With the example above, what I’ve seen happen is that most of the potential buyers are looking at the closed sales and deciding that they reflect current value. The others, though, understand that the closed sales reflect contracts which were most likely accepted at least 30 days ago, and are considering the trajectory of price appreciation. In other words, if home values are rising at the rate of X per month, they are mentally seeing where this price should be now. They are saying “let’s add 10% to the comps to get to today’s value” or some such formula. These multiple highest bidders are the ones who understand the market when it’s moving up fast.
When there are several buyers offering the best price, the acceptance may come down to terms. Or it may be that the seller and listing agent will issue a multiple counter offer to the top bidders to see if the price or terms could be improved a little more.
(3) The spike: And then there’s the spike. A spike in pricing may happen when a buyer either simply must have a particular property (parents live on same block and will help with child care, it’s walking distance to something important, there’s something very unique about that house that is unlikely to be found elsewhere, or other very personal reasons not tied directly to the real estate market’s overall conditions). Just as often, though, a buyer knowingly overpays because he or she is exhausted from house hunting and is tired of losing on one multiple offer after the next, so brings in the winning bid with a large gap between that offer and any potential contenders just to make sure that this property is secured. (Overpaying on purpose doesn’t have to come with a spike or with multiple bids, but usually it does.)
Most of the time, real estate professionals have a sense of the likely range of value and where most buyers will be willing to pay. The spike usually goes past what seems like a reasonable amount. And, of course, sellers are pretty happy with this (as are the neighbors, who see home values improving).
In the example above, there is a pricing band of about $100,000 and then there’s a large gap between the top price in the band and the spike. When there’s a spike, most often the sellers will simply accept it without a counter – and count their blessings!