Lies, damned lies, and real estate agents’ phaffery

Competition hot in first-home property market

Apparently there are lots of buyers in the first home market, and not so many sellers, which is leading to competition for houses. In some cases, several offers are received on a property, so the potential buyers are in a competitive bidding situation. In these cases, rather than conducting a silent auction, each buyer is asked to submit an offer, and the seller chooses which offer she or he likes best. In effect, the purchase offer becomes a closed tender.

So what’s a buyer to do?

Kiri Barfoot, of Barfoot and Thompson, said prospective buyers needed to realise there was no room for negotiation after envelopes were sealed and buyers had to put their best offer forward.

Actually, that’s not true. There is more room for negotiation after the envelope is sealed, provided that the vendor chooses you as the people to talk to first.

Buyers need to do something a little more complicated than just putting in their best possible offer. They need to think about who else might be making an offer, and think about what the property is worth, and think about what they can afford, and put in an offer that puts them at the top of the list, so that they will be the person that the seller elects to negotiate with.

We have been in competitive offer situations several times, and each time, we have put in an offer. It’s never a final price. The vendor is still free to negotiate, and in some cases, she or he has elected to do so. A couple of times we were able to come to an agreement, but a couple of times, we walked away, because the vendor wanted more than we thought the property was worth. And at that stage, the vendor went back to the second highest offer.

So exactly why would real estate agents want to advise potential purchasers to make their *best* offer? Well, duh. Because they want to get the best possible price for the property, because then they earn more. Not necessarily a lot more, but once word gets round that they sell properties for outrageous prices, then they get more listings, and then they get more sales and they earn more again.

To be fair to real estate agents, they are supposed to work for the vendors. The people selling properties pay the agents’ fees, not the purchasers. But that should surely tell purchasers that it is not a good idea to take real estate agents’ advice about the best strategy for purchasing.

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3 comments on “Lies, damned lies, and real estate agents’ phaffery

  1. Mindy says:

    In my day this used to be called common sense. What happened to critical thinking. Why are those kids on my lawn? Who is Boy & Bear and why did they win five arias? It’s cold and there are wolves.

    In other news, used car salespeople and politicians – are they really as trustworthy as they say?

  2. Mindy says:

    Further to my last comment – did you see we have claimed Kimbra now too? kthanxbai

  3. Denny says:

    Sorry about the long post
    You offer some good advice. However, here are two recent house buying experiences, both of which would suggest that right now a negotiated offer rather than a fixed price offer won’t put you on the top of the list.

    My son and daughter in law have just purchased their first home in Wellington. It was the second house they put an offer on, but they had looked at many. My daughter in law is a lawyer who cut her teeth on conveyancing. They had a valuation and builders report done, and as you suggest their aim was to be top of the list. Their were six competing offers. In the current environment that means having as close as possible to unconditional offer. Competing with first home buyers usually means that your competing bidders don’t have homes to sell, so providing they have bank approval, which most do now, the number you put on paper is, right now, key to your success. Their dilemma was how much to put in above valuation, having calculated that it would sell for a minimum of valuation given the excellent builders report (a builder she worked with in issues re waterproof homes). An offer subject to lim report and a few thousand over valuation secured the house. (the first house sold for about 8pc above valuation).

    My daughter and her fiancé bought their first home in Auckland in June. They had builders reports and valuations done on seven houses ($4000)! Six houses were sold either at auction or negotiated after auction. Despite being top bidder on one house, they lost it because it didn’t meet reserve and another offer topped their best offer at valuation by about fivepc. Other houses sold for five to ten pc and more above valuation. My daughter had decided not to offer more than valuation. She eventually bought a house referred to her by the valuer she had used and who was valuing this particular house for a seller. She offered valuation and the offer was accepted only because it saved time and provided certainty for the seller who had already purchased. The valuer later told my daughter that the seller could have probably got twenty or thirty thousand more (about 8pc more than they paid), the top end of the valuation range.

    An aside – houses in Wellington are being sold by what is effectively a closed tender, houses in Auckland by auction. (if not sold at auction it becomes a closed tender as buyers that can’t bid at auction for whatever reason, join in.)

    I suspect that in the present environment an offer that is not fixed may not get you to the top of the list, and if it does you’ve still got to commit a number to paper not knowing where the next offer sits …

    It’s very difficult being a first home buyer right now, especially in Auckland.

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