Back in the “good ‘ol days” of 2003, 2004, 2005, we here in North Carolina would hear about the bidding wars that went on between Buyers in California, Washington State, and other real estate hot spots in the country. Many of you will remember those days of greed, affluence, and buyers trying to outbid each other.
The Buyer’s first offer would come in at full price – and then it was “Katy bar the door!” Each succeeding Buyer raised the ante, and then, when the original Buyer got wind of it, that first offer was raised to exceed the previous one. Homes were selling at a breakneck pace, and Sellers were thrilled at the premiums their properties were bringing. It was a no-holds-barred period.
Then came the “Great Recession”! In the land business it lasted for at least 5-6 years, depending on what region of the country you were in at the time. Buyers began to disappear. Sales slowed. Prices inched down at first, then decreased by thousands of dollars. Appraisals became more conservative. Buyers continually said “I’m going to wait until the market hits bottom” – and then it did.
As Buyers began making low offers, Sellers balked at first – and the offers died. Then Sellers began negotiating – and finally they began accepting those low offers. Now, consider for a moment the process that was occurring:
A single Buyer contacts a broker asking to see several properties (remember- there are now fewer buyers out there in the land business). The buyer looks at several of the properties, then makes a low offer on one of them. After some negotiation, the Buyer says “No” and moves on to another property. This process continues until a suitable property is purchased at a suitable price.
In the “normal” progression of events – a single Buyer makes a single offer to a single Seller. It either works or it doesn’t. My point is that you have only one Buyer and only one Seller doing the negotiating. The days of having two or three buyers chasing the same property are gone for the most part.
Then – just when you think you understand the process – Voila! – a new approach occurs. Actually the first time we witnessed this new approach, it was not planned – just came together that way. Here’s what happened.
A Buyer (only one) approaches “Broker A”, asking to see “Property X”- priced at $499,900. The broker shows the property, and the Buyer retreats for a few days to discuss its features and amenities with other family members. During that time, one of the family members Googles for similar parcels, and identifies “Property Y” – priced at $450,000 – as also being of interest, and that property is listed with “Broker B”.
The Buyer contacts “Broker B” and asks to be shown “Property Y”. After several more days, the Buyer makes contact with “Broker A” and mentions to “Broker A” that they are also looking at a another, similar property priced $25,000 lower that “Property X”.
Then the fun begins. “Broker A”, not wanting to lose a sale, contacts the Seller and explains that the Buyer is considering “Property Y”, priced $25,000 lower than “Property X”. “Broker A” also sends a link to the other property so the owner of “Property X” can see its features/amenities. Also not wanting to lose the sale of “Property X”, the owner tells the broker that a price of $425,000 will be acceptable.
When notified of this second price reduction, the Buyer mentions it to “Broker B” (who also doesn’t want to lose a sale). “Broker B” tells the owner of “Property Y” about the additional price reduction, at which point “Owner B” offers the Buyer another price reduction. At that point the Buyer accepts, and signs a contract with “Owner B”.
Here’s what’s new about this transaction: a total of three price concessions were gained by the Buyer – without ever having made an offer in writing! The Buyer simply played one Broker’s listing against the other. – and succeeded in getting a $100,000 concession.
Instead of the two buyers, one seller scenario. This unusual transaction took advantage of the reverse – with one buyer and two different sellers and their two different brokers. The Buyer played a winning hand, and there were no ethics violations by the brokers. Each broker used the information at hand to provide factual details to the respective Property Owner in an effort to provide a Buyer ready, willing and able to make the purchase.
If you are a broker, representing the property owner, there is really no way to defend against this type of approach, if and when it is presented. On the other hand, if you represent a buyer, this strategy could become a “new normal” in your approach to representing buyers, whether for land – or homes.
Keep in mind that in some states, including North Carolina, listing brokers are not allowed to play one seller against another. For example, in North Carolina provided the property owner authorizes the broker to do so, the broker may disclose the existence of other offers on the property. They are prohibited, however, from disclosing the offered price or other material facts regarding other offers.
Because most brokers subscribe to the REALTOR® Code of Ethics, brokers who find themselves in a questionable situation should consult their broker-in-charge, in order to avoid any ethics or licensing law violations.
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