Whenever the residential market heats up, buyers start being creative. In this, they are often prompted by their agents. An agent’s creativity can be a great asset; however, the advisability of some techniques is open to question.

Frustration leads to desperation

You are a serious, qualified buyer who has been in the market to buy a home for what seems like forever. Every Sunday you go to open houses and see hordes of other, well qualified buyers who are interested in the same types of homes.

It has even reached the point where you recognize and chat with some of the familiar faces, commiserating on the insanity of the current market. You may have made one or more offers and been beaten out in a multiple offer presentation for a home you liked.

Timing the offer

On Thursday, as soon as it came on the market, your Realtor called and showed you the house. Attracted to it, you tell him you want to write a contract, but when should you do it? The seller will not look at offers until the following Tuesday. 

If you write immediately, won’t your offer be too low if other buyers join the fray? Probably. Trying to be logical, you decide to wait until right before the presentation of the offers to write yours. By then you should know how many other buyers you are competing against, right?

Unfortunately, there is still a problem. The listing (seller’s) agent has told your agent that one or two additional offers may still be coming. She will not know until the last minute if these contracts will materialize. What to do?

More than one front page

Disappointed and frustrated, you have decided not to lose again.  You ask your Realtor how you can gain an edge. He tells you that “everyone” is writing offers with one or more front pages when they are in multiple offer situations. 

The first page contains the information on purchase price and financing and can easily be substituted with another you have already signed. You simply sign a “best case”, i.e., lowest price, front page and another with a higher offer. Some agents even have their buyers sign more than two first pages. They submit the one they feel is appropriate based on how many others are actually in competition.

What ensues may not be exactly what you anticipated. In one scenario, the Realtor tells the seller and listing agent he has more than one offer, while pulling out the highest one. I know of a number of cases where the seller was uncomfortable with this procedure, even though it might have helped him get a higher price.

On the other hand, what if the buyer’s agent doesn’t tell the seller about the existence of more than one front page and the highest one is not presented?  Is this fair and honest dealing? Wouldn’t most sellers feel they were entitled to the best offer? What about the other buyers who played by the rules and gave it their best shot?

If he finds out, the seller may wonder how much discretion the buyer’s agent has and what specific directions, if any, the buyer gave him. Were they given verbally, or does he have specific, detailed written instructions signed and dated by the buyer? 

The difference between these two positions is important. Very few agents get written instructions from their buyer. This puts the buyer’s agent in a possibly vulnerable position with both the buyer and seller. Although common in certain areas, this approach can cause majors upsets. Even if handled in writing by the buyer, it could be considered a violation of the Realtor code of ethics.

Something to keep in mind: the question of trust arises in such a situation and a seller may be suspicious about how many other items within the contract are not what they seem. He may opt for another buyer’s offer because he feels more secure with a straightforward approach. I have seen this happen.

Relative offers

The script is the same as above. You are a buyer in competition and are determined to win. A friend tells you about this other technique: just offer higher than the highest bid. You can’t lose, right? It depends.

You attach a letter to your contract stating you will pay $1000 more than the highest offer, not to exceed a specific price. This is called a relative offer. The amount you agree to is related to the highest offer from any other buyer.

To protect yourself, you ask for a copy of the contract of the highest bidder. If you don’t get it, how will you be sure what the highest offer was? If, however, you do get the contract, the seller and his agent will be breaching the confidentiality of that buyer’s offer.

What would happen if every buyer did this? One says $1000 more than the highest offer; others say $3000 more, $7000 more and so on? There would not be any actual offers, would there? A relative offer is another case where buyers playing by one set of rules would be unfairly taken advantage of by those operating under different guidelines.

In a recent newspaper article, an experienced Bay Area real estate attorney recommended that sellers not accept relative bids and that buyers not make them. He indicated that these offers may not be valid, which makes them risky. 

Beyond that, it makes sense for a seller to give equal dignity to all offers and have all buyers on a level playing field.

Learning from history

A number of buyers who win in an auction atmosphere now may find themselves having to sell during a market downturn. They will find that today’s reality is just temporary. 

Learn from the past. Thousands of buyers in this area who bought at the height of the last real estate bull market had negative equity not long after. They lost a lot of money when they sold. Instead of receiving a check, they had to write one to close the escrow. 

Make sure you are not caught in this trap. Do your homework. Understand neighborhoods and values before entering a bidding war. 

Final thoughts

Ask yourself if it is worth it to win at all costs. Ponder the importance of ethics and how much you can trust an agent who bends the rules, even if it is ostensibly on your behalf. Integrity is one thing that should never be for sale.

Related Articles: Hot Market Tips: Buyers and Hot Market Tips: Sellers.
Emotional Ping-Pong, Mutiple Offers, Part 1 and Part 2, Going the Extra Mile.