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Saturday, May 9, 2020

Bidding War gone bad

Sold a house yesterday - Ranch 36

Great house.  Was a fully complete 'spec' home when sold, which is a rarity for us.  Typically homes get snatched up before, but I always have a love/hate relationship with homes without prearranged buyers - even after of 20 years of selling everything I touch, it still makes me nervous and dents my confidence to have one hanging around, plus the bank hates it, plus it ties up my credit lines.  On the other hand, it's so much easier on me and my staff to build a home without a buyer since it relieves us of the concerted coordination effort, which is fun, but has risk and takes a lot of time.  So we typically see our specs sell at a bit of a discount because of the lack of 'collaboration and personalization', but that discount is probably also reflected and evened out on the cost side, though hard to measure too directly.

Had the craziest situation last week and if I wouldn't be at this for a long time it might actually piss me off more than it did, though it did greatly raise my temperature for a few days.

We have this new home going up, the last one in our 4 lot project in Kerhonkson.

It's a little smaller than Ranch 36 so sells for a little less, and has been a big hit for us in the Sullivan and Ulster county real estate landscape.  So we get an offer, and the offer comes in slow and low, both are uncommon for us.   Typically, most people like our prices, and act quickly, but in the end we worked it out, and signed an offer to purchase, with no money changing hands and contracts weren't out.   There was also a realtor involved, so I always calculate that in my final cost analysis, since $16k to sell a house is a big chunk, one of the biggest on our costing sheet.

I spend about $120k a year in various marketing media - print, google ppc, and other stuff - and we sell a lot of our stuff directly, which makes sense since we are paying for the exposure.

So, anyways we put this deal together, then this couple from the 516 area code (an area code I've been wary of for a decade plus since they aren't quite my client and prove it over and over) come out of nowhere and have to have it.  I explain I have an offer and if they are interested they must come on Saturday, make an offer on Sunday, and send a good faith deposit directly to me on Monday first thing.  My parameters were clear, and from my experience, I was setting the bar very high, thus showing respect for the first client while maximizing my profit and deal potential.  From my experience, the chances of someone coming up and doing what I demanded to 'get in the action' was extremely unlikely.  

Then, out of nowhere even more, on Friday or Saturday Dylan Taft from Taft Realty writes me an email in all caps 'VERY INTERESTED BUYER' which I hear all the time, including with a client he brought me a month earlier that disappeared as quick as they came onto the scene.  Since this whole deal with his client was even more unlikely than the 516 area code people, I laid out the same deal as above.  If they want it, full price, cash, with a deposit first thing to Catskill Farms monday.

So, as the weekend plays out, the 516 people make a full price offer and promise the deposit (worth $525k), Dylan Taft's client makes an offer, $530k (worth $513k) and I still have the original deal at $506k (worth $480k).

So Dylan Taft's client is dying for the house, but 1, they were 2nd in line, and 2, their offer was $17k less than what I was promised by 516 folks.  She raises her price to $545k, and Dylan lowers his commission to a rate based at $500k, which makes it just a little bit better than the 516 people but not enough for me to reconsider the promise I made to the 516 folks.  The original people i'm not feeling that bad for since they took forever to put in an offer and then they really lowballed me - eventually coming up to something just barely tolerable.

So, I accept the 516 offer, which the understanding - a very clear understanding - that on Monday morning $20k will be coming to be for good faith, 'won't flake' skin in the game.  as anyone who has every built for us - all 250 families - taking direct deposits is common for us.  Don't trust us to care for your money? Don't build with us.

Multiple offers are always tricky, since you are bound to hurt some feelings.  I've done several, though, where the 2nd and 3rd bidders end up building with us for a different house.   The difference here though is that most of the other multiple bid situations I have been able to communicate directly with the buyers, meaning 'no misunderstands or misconstrued intentions'.

So, what happens?  The very small red flags of the 516 folks - I've been at this a long time so I hear things even when buyers don't know they are saying it - come home to roost and they write me an email or phone call or something saying they aren't comfortable with the deposit after talking to their attorney - these are grown people, not kids, and are now reneging on the most elemental part of any deal I was offering.

Thing was though, I had already told the original buyers it's off, and I told Dylan that it wasn't going to work out since his client was always in 2nd position and first position came through and met my deal demands.

So original buyers are pissed, and out since why would they want to do with a me after pulling a stunt like that, and Dylan's person is pissed because she really did everything I asked and it still didn't work out. though the only way she was ever going to get the house was if 516 people didn't work out, which I have no way of knowing if he communicated that or not.

So the dominoes start to fall - 516 people refuse to put down the deposit until contract, and why would I want to spend the next 2 months collaborating with people who can't keep their word on the very first deal detail we put together, out of principal if not actual concern.  The original people are out 1, because i realize the house is worth more than $485k net to me, and 2, because they don't like how it played out, and 3, Taft's person is out because i guess she felt entitled to the house, and possibly was never told she was in 2nd position and would never make it to first unless 516 people didn't pan out.  

So, 2 great offers, and 1 ok one, gone.  In the blink of an eye.

What makes me good at what I do is I am a huge self-examiner when things go wrong, especially if my 'behavior' or reaction caused it - so, that said, I have a ton of opportunity to self-examine since my actions and reactions have been a source of public and private debate for years.

So, I don't think I did much wrong except 2 things - 1, don't ever forget why history has taught me to be extremely wary of 516 buyers, 2, don't rush to communicate with other parties until the deal really is, 'in the bag'.  

The one fact that is true about the current marketplace is that it is very bi-polar.  People want to act quick, but they aren't quite sure, they want a house, but maybe they are actually still deciding while making offers.  So, the market has a completely different personality than it did before, and some of the assumptions that have always been true are less true right now about buyer behavior.

Admirably, as many long term readers of this blog can attest - I haven't called the 516 buyers out by name, even though they literally not only screwed up this deal for me and wasted a weekend of negotiations, they also screwed up the plans of the other people.  People have been named by this highly SEO accredited blog for a lot less.

But as a realtor friend said to me - "Shame on all them.  They should grow up- inventory is horrible, they don't have a house, and you still have something to sell in a crazy good market'.

Truer words have never been spoken.  Touché.

These folks, who did live up to their word, are buying and moving in next Friday.

postscript - not really serious about denigrating an entire area code - 516- but the dead ends and wasted time has been a truism over the last 2 decades.  

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