On today’s show we are talking about how to win in a super competitive environment. There is no question that today’s environment resembles more of an auction than a true market place.
We see it consistently in the single family home market and even in the market for multi family apartments. Last week a colleague of mine was shaking his head at the sale of a rural single family home with no municipal services that sold for $500,000 above its fair market value. The buyer was so frustrated with attempting to buy in the core of the city that they overpaid simply to buy some acreage.
I’ve observed sales of apartment complexes that frankly make no sense. Some sellers are demanding that buyers deliver a firm offer with no conditions, or a conditional offer with $200,000 non refundable deposit in order to be eligible to bid on the purchase. Offers without these conditions will not be considered in the words of the listing agent. The apartment complex in question is an older property with obvious deferred maintenance in a lower income area of Dallas.
I personally would never make a purchase under those conditions. Yet it appears that some buyers are willing to go there. So if you are a sane rational buyer, how do you win in this environment?
Do you lower your standards and succumb to the insanity?
The best deals are done off market so that you stay out of the auction environment. But what if you can’t seem to find these off market deals?
The auction buyers are obsessed with speed. They want to see a new listing. They will offer on a listing that is hours old. If a listing has been on the market for 30 days or longer, the auction buyer automatically assumes that there is something wrong with the property, that the property has been rejected by the the competitive buyers. It can’t possibly be a deal if it’s still on the market after all this time.
What if the assumption is incorrect?
You have the entire auction marketplace looking with anticipation at new listings. They want listings that show 1 day on market. They are not focused on the listings that show 25 days or 35 days on market, or 60 days on market . Those listings are stale. In truth, some of those 25 day old listings were on the market for one day, they were conditionally sold for several weeks and then reverted back to being an active listing. In truth they’ve been on the market for two days, but the listing shows 25 days because they were conditionally sold for 23 of those 25 days.
The number of buyers for the stale listing is reduced dramatically. You might be the only bidder for a property that just came back to active listing.
So how do you ensure that you get a good shot at these properties? You track the properties that show as being under contract. You let the broker know that you are a patient buyer and that you are interested if the property goes back on the market. You are in a different category than the other offers that were ultimately rejected 25 or 30 days ago. Those buyers have moved on to other properties. You are at the front of the line to buy a cancelled contract.
In an environment where properties are selling above asking price, some relative bargains are possible.
If you want to get out of the auction environment, then your first choice will certainly be the off market property. A close second could be the cancelled contract that is unfairly labeled as a stale listing.