The term “feeding frenzy” happens when there is not enough _____________ (fill in the blank) and there is frenzy among those who want it, whatever it is. This is one characterization of the San Francisco market and other hot markets throughout the country. Some properties are garnering three, five, ten, or even 15+ offers. Very often, this results in the property going 10%+ over the list price.
Feeding frenzies happen because there is not enough inventory to satisfy the many buyers in a particular real estate market place. This leads to multiple offers and the sale price over asking. Duh!
Here’s the rub. Most sellers, if they bought in 2004-05 during the run up to the 2007-08 peak, are not able to get out with a whole skin, even if there are multiple offers and the price goes over by 10%!
Making Sense of the Market
I don’t like to see my clients pay one dollar more than they need to. I trust my negotiating skills to get them the best deal. Like other real estate agents, I have been party to multiple offer situations in the last several months. Initially, I thought that buyers making offers at 10% to 20% over list price were crazy. Now, I’m not so sure. Maybe they aren’t so crazy.
Buyers who are paying 10% to 20% over the listing price are often paying prices that we saw at the peak. This is not so bad if they plan to hold for the long-term. I believe that the market will bail them out so long as they don’t NEED to sell in the next several years.
This reminds me of the psychology of Facebook stock buyers who bought when the stock dipped to $25.52 after its IPO ($38.00), a decline of 23%. It is now hovering around $21.00. Facebook buyers on the way down were thinking long term with the hope that it would eventually reach and surpass its IPO price. I think they may be right. After all, Facebook is one of a kind, just like select real estate in select locations.
With mortgage rates at an all-time low and inflation muted, buyers paying 10% over list will probably have the last laugh.
Are you seeing a feeding frenzy in your market? If so, how are you responding to it? Do you agree that those who pay above asking price are making a sound investment?
Look for a follow-up guest blog from another Top Agent Network member about best practices for agents handling multiple offers.