Purchase offer likely to blame for lost bidding war

REThink Real Estate

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Sep. 6, 2012

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REThink Real Estate

Tara-Nicholle Nelson
Inman News®

Q: I am a first-time buyer and I need all the experienced advice I can get. I lost "the perfect" place due to multiple bids. I panicked and made a second offer of more than I could really afford, but I still didn't get the place.

My broker works hard for me, but I fear that another company has the lion's share of the listings in the market I'm interested in and suspect that I lost that first property because the other broker pushed the seller toward one of their buyers. I can't prove it, it's just a hunch.

I would feel disloyal leaving my broker, but I may in the future, in order to find the right property and to have a real chance of my bid being taken seriously. What do you think?

A: The process of finding and securing the right home in a market climate where multiple offers are the norm can be a crazy-making proposition, causing us to think and act in ways we wouldn't normally. It makes people make offers on homes they don't truly love, offer more than they can really afford and even violate interpersonal relationships that they otherwise wouldn't, all in the name of getting that house. The auction environment that is created in a multiple-offer situation only makes things worse, cranking up the fever pitch.

There is no black and white answer to what the "right" thing to do is, in your situation, vis-à-vis your relationship with your agent. Here are a few things I urge you to consider, though, as you move forward in your house hunt and your agent relationship:

1. Hold your horses. You acknowledge that you offered more money than you can truly afford in an effort to secure a home, which should be a red flag that you are allowing your emotional attachment to getting a home by any means necessary to overrule the logical voice in your head and your budget. This is a danger zone, one that often precedes mortgage distress and even foreclosure, in my experience.

Consider that this same illogic might be underpinning your thoughts about ditching your agent, and commit to making better decisions moving forward about what you offer and about the relationship with your agent.

One easy tweak is to start looking at lower-priced homes so that you can afford to compete more aggressively. Also, get online and start participating in some of the many real estate discussion boards where buyers in your area are trading notes; find out how many offers people are making, on average, before they are successful.

Don't give up on an agent you feel is working hard for you because of one frustrating experience, especially if almost every local agent's average buyer client is making five or six offers before finding success.

2. Understand that your offer, not your agent, is likely what lost you the home. Is it possible that the listing agent steered your dream home's seller toward a buyer who was represented by her company? Sure. But it's highly improbable that this fact alone would have caused another offer to win out over yours. Most sellers don't really give a whit who represents the buyer, so long as the buyer's broker is legitimate and reputable as sufficiently competent to close the transaction.

What sellers give many whits about, on the other hand, are the price and terms of the victorious buyer's offer. In essence, if your offer is truly superior to the rest, your offer is likely to be selected no matter whether you are working with your agent or with another agent from the listing agent's brokerage.

One exception to this rule is where the seller and their broker have a dual-variable commission arrangement, which arises when the listing agent or broker cuts a deal with the seller to charge a lower commission if they represent both buyer and seller. These arrangements are disclosed on the MLS listings for applicable properties, which empowers your agent to know when it's absolutely necessary to ask the listing agent flat out whether she represents any of the buyers making offers, so you can factor that into your offer price.

Even in these cases, the seller is still going to be inclined to accept the offer that is, on net, higher in terms of the proceeds he will collect from the sale.

3. Don't take a loyal agent for granted. Beyond dual-variable commission scenarios, there are exceptional occasions in which the individual listing agent (versus another agent that works for her brokerage) stands to collect a double or increased commission by virtue of also representing the buyer and so might have a stronger incentive to direct the seller in the direction of this offer. This might be the sort of situation you fear the most.

While the most obvious role of your agent is to help you secure the property you want successfully, know that it is also her legal and ethical duty to represent your very best interests throughout the transaction. Not only is this difficult, in some states it is considered legally impossible for agents to do when they represent both the buyer and the seller of the same property, given that buyer's and seller's interests sometimes directly conflict.

Be cautious about the prospect of working with the listing broker or agent of a property because you think that will get you a guaranteed "in" at offer time. It can be tricky (at best) and hazardous (at worst) to work with the seller's agent at inspection time, disclosure time, and beyond.

If you have an agent that you respect and trust who you know is doing a great job on your behalf, give her some time to help guide your homebuying process.

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