If you’ve been out there trying to buy a home lately anywhere outside of central Seattle, Kirkland, Bellevue, and Redmond, chances are pretty high that you’ve encountered more than a few bank-owned (REO) homes in your search. Many of the best deals out there today can be found in REOs, especially if the buyer is willing to put in a little effort to clean up a home that needs some work.
Unfortunately, the enticingly low prices on many of the REOs being listed today also means that it’s not uncommon for buyers to encounter the dreaded “multiple offer situation.” Even more unfortunately, most of the banks listing homes today seem to be employing a procedure in multiple offer situations that I’ve taken to calling Multiple Offer Sudden Death.
In Multiple Offer Sudden Death, as soon as the seller (in this case a bank) has more than one offer on the table, they send a message to all the interested buyers instructing them to submit their “best and final offer” by some deadline a day or two in the future. No escalation clauses are permitted.
What this means is that the buyers get one chance only to beat out everyone else, without knowing who their opponents are or what their bid will be. This scenario is great for the banks, but obviously quite terrible for the buyers. Allow me to explain by way of a real-world example.
- House X has been on the market for three months when the bank decides to drop the price from $210,000 to $190,000.
- This attracts an offer from Buyer A, who hopes to get the home for $185,000.
- After a few rounds of negotiation, the bank and Buyer A are close to an agreement at $185,000.
- Buyer B comes along and submits an offer of their own, not knowing that the bank is nearing agreement with Buyer A.
- The bank initiates Multiple Offer Sudden Death, giving both parties two days to submit their “best and final offer.”
- Buyer A begrudgingly goes up to the full list price, offering $190,000 to the bank.
- Buyer B shoots all the way up to $197,000.
- The bank accepts Buyer B’s offer.
photo by Flickr user miikkahoo
In this scenario, Buyer B not only paid $12,000 more than Buyer A was about to pay, but they also paid $6,000 more than they needed to pay to beat out Buyer A’s maximum price.
Once a buyer has decided to make an offer on a home, they’re probably already emotionally attached, so when faced with Multiple Offer Sudden Death, the natural response will be to submit an offer all the way up to the maximum they are able to pay for the home. In order to avoid overpaying if you end up facing Multiple Offer Sudden Death, I suggest deciding on a hard maximum you believe the home is worth before you even make your first offer. Then stick to it.
Have you encountered Multiple Offer Sudden Death? What was your experience?