Multiple Offer Situations - The Good and Bad

Back in the beginning of January this year I was making my real estate predictions for my Patch.com blog which included, “MULTIPLE OFFERS ARE BACK. That’s right, if you are a seller in the Marin market in 2012 and you price your house well you can reasonably expect to see more than one offer, especially in the first quarter of 2012 when inventories are expected to remain low and demand high.”

The multiple offer sales have persisted deep into the summer, and they have seemed more common than homes just attracting one offer. Getting three or four offers on a well-priced property in Marin has not been unusual in the 2012 market.  What are the implications of this ridiculously skewed seller’s market?

The Good

Property values seem to be rising in the short term. When a property in a given neighborhood is priced around fair market value and the sales price gets bumped up from multiple offers, the next property to come on the market is likely to be priced higher than it would have been a few months prior. This appreciation has been a great thing for sellers, who have for the past several years watched their property values decline.

The Bad

For every house that comes on the market and attracts four offers, three buyers walk away with nothing. Some of the buyers drop out because they get discouraged. There’s only so much rejection a buyer can take before either giving up or getting priced out of the market. For those that stay in the game, they often get hungrier and when another property comes on the market they overbid, sometimes greatly in order to get a property. They find themselves jumping at properties that a year ago they wouldn’t have even sniffed at, and they can end up in houses that aren’t the best fit for them. For instance, somebody who is simply ‘handy’ shouldn’t buy a major fixer unless they plan on hiring a crew to do the work.

The Lessons

What do we learn from multiple offer situations? The market is not in equilibrium.  There is too much demand and not enough inventory which is leading to price pressure upward. Theoretically as prices rise we will see more inventory as sellers who have been waiting for higher prices are able and more inclined to sell. We should also see less demand as prices rise. People who think that homes are a great deal right now might not be as motivated with 10 percent appreciation or more.  These are movements along the supply and demand curves.

The wildcards in all this are the macro-economic factors that can shift the curves, particularly the demand curve. Watch out, when interest rates start to rise the demand curve will shift inward. It did in 2008 and 2009, absolutely crushing demand when the rates were approaching 7 percent. Interest rates can’t stay this low forever, and in the meantime their historic lows have shifted the curve outward and increased demand.

The multiple offer scenarios playing out across our county and beyond are not only due to the low inventory levels, but the low interest rates that have shifted the demand curve outward and brought more qualified buyers into the market.