Being Cautious With Multiple Offers
The San Carlos real estate market is red hot. Multiple offers are common in San Carlos when the market heats up. However, sellers would be wise to be on the lookout for some increasingly used shenanigans in the multiple offer process. Many buyers in San Carlos are floating from house to house after being on the losing end of previous multiple offer situations. Some buyers grow irritated after losing a few multiple offer situations in a row and can use more aggressive tactics. Agents sometimes feed off of the angst of their clients and will also employ more aggressive maneuvers with subsequent properties.
The Latest Tactic
The latest tactic seems to have migrated to San Carlos from nearby towns where the wealth is more substantial and the market is even hotter. Because the wealth involved in transactions in those two towns is considerably more than San Carlos, many of their multiple offer situations center around having “all cash” offers. Traditionally, all cash offers are considered the trump card in multiple offer situations. They represent a much lower form of risk to the seller. Not having a bank involved increases the odds, substantially, for a successful close of escrow.
Here’s what has been happening: an offer is presented to the seller stating that the buyer will pay cash for the property. When measured against other offers, the fact that the one offer is all cash is usually enough to sway the seller in favor of the all cash offer (all other terms being somewhat similar). Most agents in San Carlos will know enough to ask the buyer’s agent for a proof of funds statement. The fact that a buyer’s agent would think that any listing agent would take an all cash offer without a proof of funds, is utterly ridiculous….but it is happening more and more. In both of the recent instances I am thinking of, the listing agents asked for a proof of funds and in both cases the buyers were outraged and withdrew from the contract. The buyers did not withdraw because they were outraged, they withdrew because they did not really have all cash. Nonetheless, some are still accepting all cash offers with either not enough proof or from buyers who have no intent of actually using all cash to purchase the property.
If They Didn’t Have All Cash, How Would They Expect To Close It?
Good question. Here’s how they are doing it:
One week after the contract has been ratified
Buyer’s Agent to Listing Agent: “My buyers have decided that it would make more sense for them to get a small mortgage. Their financial advisor told them they should keep a small mortgage for tax purposes.”
Listing Agent: “Well I can understand that, but we accepted your offer on the condition that it was to be all cash. My clients found less risk with your offer when compared against the others and it was the primary reason you got the deal.”
Buyer’s Agent: “We are not going to close the deal without the financing. So you can risk going back on the market, after losing all of your momentum and try and recapture something close to what we have agreed to pay, or you can allow us to put an appraiser in your client’s house and close this deal right on time.”
…and at that point, the Buyer’s agent has them. Putting the property back on at that time could result in a much lower purchase price. The sellers may be entitled to keep the buyer’s deposit (depending on the other terms of the deal), but overall it represents a tremendous risk for the seller. The buyer’s agent knows that the seller will acquiesce to the buyer’s demand because it will still be the option with the least amount of risk.
In the end, it’s not the buyer or seller who get the short end of the stick, although the seller may feel like he or she was taken for a ride. Those who truly lose out are the other bidders who submitted their offers in good faith. It’s dirty pool in the world of multiple offers. In the legal world, it’s called fraud. Unfortunately, there is really no way to prove intent.
It Will Get Worse
With the market tightening around inventory levels at historic lows, the pressure in multiple offers will increase as well. The tactic discussed in this post is just one of many aggressive tactics that are being used. Be absolutely certain that you and your agent have discussed all possibilities surrounding a multiple offer situation, both on the buy and sell side.
I generally do not enjoy writing posts that reflect negatively on the happenings in our market, but in order for this to be a continued, balanced assessment of the San Carlos real estate market, I feel compelled to write about both the good…and the not so good. More to come on multiple offer situations in the weeks ahead.
So it sounds like even if the prospective buyer provides a proof of funds statement, their agent can still come back and say that the buyer decided to take a out a mortgage. Is there an opportunity here for a new clause in a contract that would require the buyer not to change the original terms of the offer? As you point out, they hold the cards, so there should be a way to even the balance of power (not to mix metaphors).