This is a story about a buyer who was too greedy for his own good, and how his underestimating of the situation left him with terrible regret when he lost out on the offer for his “dream home.”
About a month ago this buyer went looking at new construction in a outer suburb of the Twin Cities. This neighborhood, while all built in the last 5 years, has a lot of dynamics currently going on:
- There is still a lot of development going on in the area: several developments within a mile (and this development as well) are partially filled out with many empty lots and vacant builder “spec” homes.
- WIth the age of the developments, a large number of homes in the area are either in the process of foreclosure or are already bank owned. By some numbers I’ve heard floating around, 20%+ of what has been built there is or will be repossessed by the bank in the next year or so.
- A wide variety of pricing exists in the general area with homes starting in the low $300k’s and up to $800k.
- Prices have fallen substantially from their highs 2 years ago.
This buyer is very familiar with the area, having seen it start from almost all dirt a few years ago to what it is today. He’s seen many of the homes up there and saw the peak of the market, as well as it’s quick fall from glory.
After the buyer walked through about 10 homes he had short-listed from what he had seen online, he had made the final decision that he only was interested in one story homes. This narrowed the field dramatically. He was further able to eliminate some as having poor layouts, too small a floor plan, or bad lot or location.
Finally, he was left with one house that really met his needs. It was a bank-owned home but was in excellent condition, needing only a little paint, some carpet cleaning, and minor cosmetic repairs. It had phenomenal curb appeal (even in the snow) and was in arguably the best development in the area. When it was originally built, it was the builder’s model and was now on the market for only 70% of what it originally sold for. It the house he’d been waiting for since he started looking in earnest 14 months ago.
Though it was 97% of what he was looking for in a home (his words) and clearly the best home and best value he had seen in years, he was still very hesitant step forward with an offer. The house was priced at the absolute top of what he was willing to pay for a home and he was a little nervous about paying more than he should and the timing of a purchase… he was hoping to wait until this fall to make a move.
A couple weeks went by and the listing agent got the bank to do a price reduction of about 3%… not bad, but not a huge drop by any means. When this happened, the buyer got a little more excited and a week later went back out to see the house with his agent. He decided to come forward with an offer and learned that another offer had just been submitted. Knowing how these banks operated, he knew he had only a day or two to get his offer submitted if he was to have a chance on the house.
After much discussion with his agent and his other friends in the real estate industry, he submitted an offer about 2% lower than the current asking price. This was still a very strong offer given the market conditions today and most buyers’ intent to low-ball everyone, regardless of how well it is priced. He, his agent, and his friends all felt this was a no-brainer, slam-dunk offer. He waited nervously for 4 business days while the bank reviewed the offers.
The phone rings and his agent tells him the news: the bank had accepted the other offer. His heart sinks. The rest of the day he has to go about his work but is so distraught over the loss of the house. It was his house, he tells himself. He should have offered a little above asking price instead of 2% below… it would have only been around $75 more per month and it would have been worth every penny for that house. In fact, he admits it was a great deal when he saw it the first time, before the most recent price reduction. In a nervous last-ditch effort, he raises his offer to $1,000 above asking price and asks his agent to resubmit it to the listing agent, even though he is told the other offer was accepted. Another day passes and he learns that his last-ditch effort has also failed.
This is a story being played out by some buyers throughout the market today. The prices have come down to a point on some homes that they are truly under priced for the current market conditions and consequently receive multiple interested buyers.
This story is not about one of my buyers, it is about ME. I was the buyer! I did what I thought was all the right things… I sought outside guidance (friends & fellow agents, plus “my” agent to give me some insulation between the personal interest and the mechanics of a purchase) and came forward with a strong offer… if no one else was bidding. I failed to follow my own rule: “if it is multiple offers and you do not want to lose the house, you must be willing to pay at or above asking price.” Instead, I was more concerned about “not paying more than I had to” and “getting a good deal” than I was about the only thing that really mattered: “What is the absolute maximum I’m willing to pay for this house?” The house has not closed yet, so I have no way to know what it sold for until it does but my gut tells me that I wasn’t very far off.
This market is slower than past years: inventory is still at record highs, and buyer activity is still down substantially over last year. The difference today: prices on many houses have come down so far that they are truly good value, and buyers who are attuned to that are snapping them up quickly.
I’ve personally learned the lesson I try to teach my own clients but that education came at a high price. As I’ve told clients that have experienced the same thing, there will be others, but the sting of having psychologically “moved in” to a house I cannot buy is very difficult to swallow at this time.
We are all human and we all make mistakes… hopefully next time I will remember to heed my own advice!
