Tuesday, July 22, 2008 at 08:12PM
Contest on Arthur
Here's the wrap-up on the Arthur REO contest. The 4 br/2 ba, 1,279 sf house was listed for $169,900 on , and there were nine offers. The bank did the usual, and asked each offeree to submit their highest and best offer. Some people feel like they are getting worked over when that happens to them, but it is the fairest way to make sure everyone has an equal shot to buy a house.
The period given to submit offers has closed, and here are the three highest contenders:
1. $202,000, all-cash
2. $209,000 net, FHA ($219,000 with a $10,000 credit for costs) B of A lender
3. $213,000 net, FHA ($220,000 with a $7,000 credit for costs) mortgage bkr
Tomorrow morning the bank will decide which deal to take.
To assist with the decision-making, I called the B of A lender who I've known for years, and discussed the appraisal concerns. The house is in disrepair, and on a FHA deal the appraiser has the ability to require repairs he deems necessary, which then fall on the seller to complete. In our purchase contracts it has a blank to fill in the limit on the amount of repairs to the seller, but neither agent put in an amount.
If you are the asset manager, do you take a chance on a higher sales price, even though the FHA appraisal could set you back? Or do you take the sure bet, the cash deal that doesn't need an appraisal? We don't fear the appraisal not coming in at the right value, the last two sales were $234,000 and $250,000 in the last sixty days for the same floor plan. It is the possible-repair issue that has the potential to turn into a blank check from the seller.
Here are the contest entrants - price, name, and # of offers:
$149,000 - No_Such_Reality, 1
$150,000 - JE, 1
$174,000 - doughboy, 1
$180,000 - Simone, 7
$184,000 - ericabiz, multiple
$184,000 - mybleachhouse, 7
$189,000 - Merc Mont, 5
$190,000 - Chuck Ponzi, 3
$190,100 - First Time Renter, 11
$191,500 - money market, 5
$193,000 - SMC, 5
$195,000 - GLG, 10
$197,500 - Don, 7
$199,900 - CVman, 5
$200,750 - Al in IC, 7
$206,500 - FreedomCM, 7
$210,000 - Mojo, 7
$210,000 - Mr. T, 14
$210,000 - loharp, 20
$212,000 - Neil Diamond, 27
$215,000 - Steph in RB, 5
$219,500 - CVBidder, 10
$224,500 - Rob Dawg, 5
$237,000 - Stephen Watts, 14
$240,000 - Coconuts, 11
It looks like the winner will be either Al in IC, or Neil Diamond, unless B of A gets favored as the company lender - then it'll be Mojo!
The all-cash offer had gone up to $208,000, but the buyer and agent went back to the property this morning and found that the neighbor across the street was sitting in his car, on his lawn, blaring the music at full volume. They lowered their price back to $202,000 - sorry FreedomCM.
This is a bank decision - what would a regular home-seller do? If this were a typical seller, and not a bank, most would go for the higher offer, or want to counter-offer the cash deal at $209,000. I'm not kidding - most sellers would pass on the cash deal, or at least try to get them up higher.
Jim the Realtor
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Reader Comments (14)
Should have stopped thinking and gone with my first reaction.
If I was the bank, I'd go with the all-cash, not alot can go wrong with that.
What will the appraiser say about the kitchen counter top and sink?
Nice work on the sale!
Thanks Mercutio.Mont.
I probably had an affect on the number of offers. For the last 48 hours I've been telling callers that they'd have to offer over $200,000 to be in the game. There must have been close to 100 calls from both buyers and agents.
There were plenty who expected to lowball a bank deal, and I want to cut those off at the pass - it causes too much work for the pay. One offer did slip in at $150,000 with a $10,000 credit.
I added pics of the two concerns for an appraiser, the sink area which is presswood formica held together with nails, and a broken window.
The first question from the asset manager will be, "Can we fix those things?", which is code for, "Can YOU fix those things?"
Don't be surprised if the cash deal prevails.
For a house in this condition with only an $11k spread between lowest and highest offer, if I was the seller I'd take the cash and run.
OTOH, if I was the buyer, the neighbor's car on the lawn and blaring music probably would have been reason to take advantage of the bank's request for offer revision to drop the offer down low enough to kill it altogether.
Agree with Gene. I'd take the all-cash offer -- especially if they accepted it "as is" and offered a short escrow period.
Great job, Jim!
I've heard way TOO MANY sell-side Realtors conclude the "fairest" way to get the best price for a seller is a blind auction & I'm at a loss as to the reasoning behind it. Here's your statement:
"The bank did the usual, and asked each offeree to submit their highest and best offer. Some people feel like they are getting worked over when that happens to them, but it is the fairest way to make sure everyone has an equal shot to buy a house."
The sell-side Realtor's ONLY responsibility (beyond ethical) is to his seller. I'm blown away when I hear sell-side realtors establishing bidding parameters favoring Bidders over Sellers. I don't know anyone who believes blind auctions bring the best price to the seller. If they did, wouldn't this be the favored choice for public auctions?
Clearly, the "fairest" way to get the seller the best offer is to allow all the Bidders to see their competitors' current best Bid, and then give each Bidder the opportunity to best it (either in price or terms) until the bidding ends.
Then, when the Bidders have "truely" submitted their best bids, let the seller choose.
I thought it was interesting that most people who guessed at the price were too low, (14) guesses, and that only (5) guesses were too high.
I wouldn't feel that I was getting "worked over" by this practice. I would just interpret the fact that the response to my offer was not an acceptance or a counteroffer as meaning we had no deal, let my original offer expire and move on to the next house. At this point, the old saw about "just like streetcars, there'll be another one along in 10 minutes" is an understatement; it's more like watching a lumbering herd of dying elephants on their way to the graveyard and trying to pick one to shoot.
Take the cash. IMHO.
Funny about the guy dropping his bid $6k for the annoying neighbor. How does the mental process arriving at the valuation work? But maybe that bidder wouldn't find it as annoying as I would.
Damn that neighbor! So much for the prize...
That said, if I were planning to occupy, rather than rent, I would have lowered my offer from $202 to $102, so that I could rent the place, as I could be certain that it would cashflow at $102!
Doug S. I agree the blind auction format makes no sense from the seller's point of view. Ask Christie's what kind of auction works best. Clearly an open auction gets a higher price.
I think the blind auction format is favored by Realtors because it is much faster than having multiple bidding rounds. A bird in the hand. A Realtor's commission won't change that much to be worth their extra time.
Even at the top of a seller's market, we entertained only three possible responses to an offer: acceptance, rejection or a specific counter-offer. Anything else meant our participation in negotiations was at an end. I can't see any good reason why we would consider changing that in a buyer's market.
Agreed on the open auction format, and how it helps all sides. I was telling buyer agents that they'd have to get into the $200,000s to be a player - it helps because if you give a buyer a number to shoot at, they'll at least be able to say yes or no. To keep it vague makes them want to go away.
I recently had my first experience with blind auctions trying to buy crown assets up her in Canaja, and of course was uncomfortable to start, but in this format where there's clear information about what IS going to work there's less risk. I think it was fair for the buyers, maybe more than. The place has potential.The evidence is in the bids - they're essentially at par. If Jim wasn't trusted to get the best price he wouldn't be allowed to liquidiate the property quickly - it would have been with someone else.