What you need to know before you bid over list price. Episode #199
Hello! Welcome to Todd Miller TV. There’s a popular strategy going around, that agents are telling their clients in getting a property and I will explain to you how this particular strategy is probably really bad or can be really bad for you. So here’s the strategy: If multiple offers on a property, you wanna be the one to guarantee to get the property. So what you do is you play this game and the game you play is you bid a really high price, weigh over what you even think other people were bidding knowing that at some point it’s gonna have to have an appraisal for a loan. And when the appraiser comes back, the appraisals gonna be less and the seller’s gonna renegotiate the deal which happens a lot. But let me show you a scenario where that can be bad for you. Okay, so here’s the scenario: we have a house with a list price. Okay? Now we’ll say the list price is, list price is a $160,000. Now, with $160,000 our list price, there are multiple offers, you don’t know how many. Could be 2, could be 3, could be 20. So your client really wants the house, you’ve looked at the comps. Houses that are worth 160,000 maybe 165,000. Okay? So the value of the house is between 160,000 and 165,000. And you just go big and you offer $180,000. $180,000 , you’re $20,000 over that amount. You know it’s never gonna appraise. There’s no comps to support this. Your goal is to tie up the property and then later on when your down the road closing spring the appraisal on them go “Look, we can’t close we need a price reduction. Also you ask for 6,000 closing cost for your client. So, you’re net is $174,000. Now, this is what happens: You get an appraisal at $170,000. Okay? So your list price is $160,000 you offer $180,000 asking for $6,000 closing cost, appraisal comes in at $170,000, you go back to the bank and say “We want the price drop. We want $10,000 knocked off the price.” And the bank comes back and says “Well do that but, you’re gonna have to give up the $6,000.” So we’ll give you $170,000 but the $6,000 is gone. Right? Its gone. $6,000 you should take it out and we’re not paying that anymore. If we’re gonna give up $10,000 you’re gonna give up $6,000. So the buyer like “well, what if we don’t?” Well, we’re gonna cancel the dea, put it back on the market and get some other buyers. So they go “Okay. We’ll do it, we’ll go down to $170,000” Well here’s the problem with this strategy: Problem with this strategy is, in this scenario, all the other offers is at the list price. So you didn’t have to go up to $180,000. The problem with this is if they’d offered $170,000, they offered $165,000 or $170,000, they bid fine. If they offered $170,00 with 6,000, they’ve still would have got it. $170,00 with 6,000, 165,000 it still would have been above everybody else. And you’re appraisal would have been fine. You would have got the $6,000 closing cost. So what happened here is the over bidding coast the buyer $6,000 in closing cost that they didn’t have to give up. They didn’t have to give those up because they over bid it. They were just trying to seal the deal. But remember this, when you get a property and it doesn’t appraise, The seller’s probably gonna ask you for some thing to comeback off your side. And in this case if that’s what they did, the buyer ends up losing out, the seller is pretty happy because they sold it for weigh above list price. They sold it for more that the other offers and they’re only netting $4,000 less that they thought they would but, Anyway, I wanted to point this strategy out to you because if/you need to be realistic with your offers and make sure your offering what you think the house is worth and not playing a game with offering you the really low for sort reason, the really high for sort reason because in the end, it can end up hurting you like it did here. Because the bottomline is, if they cancel this deal now, they’re out. They pay for an appraisal, they pay for an inspection cost, they’re gonna have to go through the process of multiple offers on another property to get it. And it cost them $6,000 to play that game because the agent didn’t do a very good job with this outrageous. In this scenario, the agent even told me “we knew it wouldn’t appraise. we thought maw it would appraise for $165,000. We offered that because we wanted to make sure we got the property.” And their clients now are out $6,000 in closing cost they have to pay, they wouldn’t had to have. Anyway, that is my update for today and hope to see you on another video. Thanks!