Multiple Offer Premium > Discount?

Where: 30XX 43rd Ave South, in Minneapolis’ Longfellow neighborhood (and just 5 blocks west of the Mississippi)
How much: $17,900
Tax assessed value: $143,000 (land – $44,200; building – $98,000)
On Market: 3/13/09
Off Market: 3/16/09

So what are the chances that the ultimate Buyer is actually going to pay $17,900 for this foreclosed property? Not very high.

Which is the whole point in listing it so low.

While the house is described as a mess, a lot alone in this location is likely worth at least $30k-$40k. By pricing so low, the bank (and Realtor) precipitate a feeding frenzy intended to drive the selling price above market value.

So do I recommend such a strategy to my selling clients? No, for three reasons:

One. If you put blood in the water . . . don’t be surprised if you attract sharks.

More often than not, “giveaway” list prices attract, shall we say, aggressive Buyers who will resort to dubious tactics to win the inevitable bidding war. That’s also why reputable Realtors avoid using language like “must sell,” “make an offer,” and other language designed to convey desperation (real or not).

As a listing agent, the best way to control a three-ring circus is not to create one in the first place.

Two. Not only do such circuses attract the kind of Buyer you likely don’t want, they can repel the type of Buyer you do want.

In his current letter to shareholders, Warren Buffett makes a point of saying he will never participate in a bidding war to buy a company. Similarly, many disciplined, well-qualified home Buyers will simply walk away rather than get caught up in a bidding war where their pocket books can become hostage to their emotions.

Three. Feeding frenzies like this have a high “wash-out factor.”

Once the excitement and frenzy subside, more than one winning bidder has been known to experience buyer’s remorse and reconsider. They belatedly realize they made a hasty decision (they did) and/or are unhappy with the price they agreed to pay.

So, they (mis)use the Inspection Contingency to get out.

Or, to win the bidding war, the Buyer overstated their financial wherewithal (surprise, surprise) and can’t perform.

Either way, the deal falls through, and the whole process starts over.

I’ve found that the best way to sell homes is fairly, openly, and in an atmosphere of (professional) trust to Buyers who have the same expectations.

Creating feeding frenzies is at odds with those values.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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