REAL ESTATE “OFFERS ABOVE”

What buyers and sellers need to know.

by Neil Jenman

Reading time: Apx 7.5 mins

It’s one of the most infuriating aspects of today’s real estate world.

It’s called “bait pricing”.

But, because bait pricing is illegal, agents change its name to “offers above” or “offers around” or “best offer above”.

If you are trying to understand the reason for this now ubiquitous method, please understand an important point: Just because a practice is illegal, it doesn’t mean it doesn’t happen.

In truth, most agents break the law – wantonly and brazenly – every day. They know that most consumers can’t be bothered complaining. They also know that regulatory bodies can’t investigate most complaints.

Real estate is a lawless land.

The best protection you can have is a good knowledge of what goes on and why it goes on.

So, what’s the real story behind this “offers above” nonsense.

WHAT BUYERS NEED TO KNOW

Here are four points to help buyers understand “offers above”.

Point 1: RARELY TRUE

Inexperienced buyers are often incredulous. They cannot believe what happens to them.

For example, buyers see a property advertised at, say, “Offers above $800,000.” They inspect the property and like it.

Now, as the agent advertised “offers above $800,000”, the buyers decide to offer $820,000.

The response from agents shocks buyers. They are told not to be “ridiculous” and/or, “You’ll have to do better.”

But hang on, the ad said, “offers above $800,000” and the buyers did exactly what the ad told them to do – they offered $820,000.

Surely that meets the criteria of “above $800,000”.

No, no, no.

The lowest price you see in an advertisement is not the lowest price at which you can usually buy a property. This is not retail shopping for, say, electrical goods. This is real estate.

Indeed, the word “lowest” in front of the word “price” needs to be changed.

It’s not the lowest price. It’s the entice price.

If inexperienced buyers complain, the agents have a rehearsed answer (in case they get investigated).

Here it is: “But other buyers offered more.”

So that becomes their justification for sneering at an offer of $820,000 for a property advertised at “offers above $800,000”.

Point 2: YOU ARE BEING USED

The bigger the bait, the bigger the response.

And the more response, the more easily the agents can convince sellers to lower their prices. Buyers attracted by bait prices are used by the agents condition sellers.

“Look at these buyers,” sellers are told. “They all want your home for a low price. This is what the market is saying so this is what your home is really worth. You need to listen to the market.”

So hang in there, buyers. If you wait long enough, the agents will torture (sorry “condition”) the sellers down in price.

However, don’t be surprised – especially if the market is booming – if the property sells for much closer (even above) to $900,000 than the advertised $800,000.

Many experienced buyers – those who’ve been looking for weeks – develop a safety habit. To figure out the price the owners really want, the buyers simply add at least ten per cent (often as much as 20 per cent) to the lowest price quoted by the agents.

Therefore, a property advertised at $800,000, is likely have a real price tag of at least $880,000 – or even above $900,000.

If the market is hot and you love the place, then offer your best price up front. Ask yourself a question all buyers should ask: What’s more important – your money or your happiness?

Of course, make sure that you can comfortably afford the price you offer.

If the market is not hot, you may be able to buy the property at the low price offered – even lower.

Keep in touch with the agent (as most won’t keep in touch with you) and remind them constantly, that, before the property is sold, you’d like the chance to make a firm offer.

Point 3: THE “OTHER BUYER/S” PLOY

A common line from common agents is: “We have another buyer interested.”

Don’t get obsessed or distressed over this “other buyers” ploy.

Why do you need to know? Why do you care?

If you offer the best you are willing to pay (your ‘walk-away’ price), what does it matter if another buyer pays more? That’s the reality of any market. The person prepared to pay the most buys the product – in this case, the property.

If, however, you want to save money and risk losing the property, then it will help to know about the other buyer.

The first thing you’ll want to know is whether there really is another buyer. So just ask the agent if they really do have another buyer. You should ask: “Are you sure you’re not just trying to make me hurry up and decide?”

If they say no, there really is another buyer, then shoot back with a simple question, such as: “Oh really, what are their first names?” Or “What do they do for a living?”

If the agent immediately gives you a straight answer, that means the buyers are likely genuine.

But any hesitation or obfuscation and you can be almost sure that the “other buyer” is just a ruse.

Point 4: THE TRUE VALUE

One of the biggest concerns facing buyers is the true value of a property. The question that haunts them is: “What’s it really worth?”

Well, these days, it’s not nearly as hard to discover the true value of a property. A few keystrokes and you can find several estimates of the likely value of a property.

You can also discover the sale price of similar properties in the same area. Be careful, however, because most properties are under-sold (due to the ignorance or dishonesty of agents). In general, you can look at the price at which a property has sold, then add another ten per cent to discover the price at which it should have sold (the BHP – Buyers’ Highest Price).

If you love a property, the best way to secure it at a good price (for you) is to make an offer above its true value yet below the highest you are willing to pay.

Recently, a couple found their dream home. They adored it. The home was worth around a million dollars. But the buyers were willing to pay up to $1.5 million. And so they asked the agent, one simple seven-word question: “What price will buy this home today?”

Two hours later, the agent called the buyers and said: “If you want to buy this home today, you’ll have to pay $1.1 million.”

The buyers quickly signed the contract.

The agent surely told the sellers, “I got you $100,000 above the value.”

But no, as happens with most sales, the home was sold below the best price the buyers were willing to pay. The buyers saved $400,000.

Always remember: The value of any property is not it’s market value, it’s the value to the buyers. When buyers love a home, they often pay more than ‘market value’.

The happiest home buyers are those who buy a home they love.

In a few years, the “overs” they paid today will seem like a pittance.

And every day, when they come home and put the key in the door, they will get one of the best feelings of home ownership: Coming home to a home you love.

WHAT SELLERS NEED TO KNOW

Here are three powerful points that sellers need to know about “offers above”.

Point 1: REJECT THE “OFFERS ABOVE” PITCH

One of the golden rules when selling a property is: ‘Never reveal the lowest price you will accept’. If you do, it will soon become the highest price you will ever get.

Here’s the problem with the “offers above” pitch. Most buyers offer the minimum they feel they can get away with rather than the maximum they will pay.

There’s a true saying: “You get what you focus on”.

So, instead of making your lowest price the focus, make the focus the buyers’ highest price.

Simply advertise your home for the “best available offer”. Of course, the first thing that agents and buyers – especially agents will demand to know is what’s your lowest price.

Don’t tell them.

Or, instead, you can simply say, “The price we want is the best we can get.”

Be warned, however: You will face enormous pressure to mention a minimum figure or even a price that will “make you happy”.

There was once a cigarette ad which said, “When only the best will do – and isn’t that all the time?”

That slogan probably killed millions of people.

Yet, it’s a slogan that will prevent home sellers from killing their price.

Point 2: REJECT AGENTS WHO PUSH BAIT PRICES

The agents lean forward and in a conspiratorial whisper say something such as: “Hey, if we promote a lower price, it will attract more buyers.”

And yes, a lower price attracts more buyers. AT A LOWER PRICE!

If you want the best price, do not advertise a low price.

Any agent who tries to persuade you to condone a bait price is an agent you cannot trust. If they will deceive buyers, what do you think they will do to sellers?

Agents who push bait prices are ignorant or crooked. There are no other reasons.

Think about this “more buyers” rubbish. Ask yourself how many buyers can buy your home.

One, right?

Make sure it’s the best one.

Point 3: BETTER HOMES BETTER PRICES

It’s common sense: The better a home is presented, the better the price.

But here’s what’s not commonly known: The better you treat people, the more they will do business with you.

Few things ruin the chance of selling for the best price than treating potential buyers badly. Getting buyers off-side causes them to either avoid a home or, worse, offer a lower price for the home.

Harmony is an important part of negotiation. Bait pricing kills harmony.

Incredibly, despite their erroneous claims, most agents know nothing about negotiation.

The true skill of most agents – indeed the skill they learn and practice – is the skill of getting sellers down in price.

Bait pricing is one of the most effective ways that agents persuade sellers to lower prices. Of course, as all agents know, the lower the price, the faster the sale. The quicker they get paid.

If you want to sell for the best, keep buyers happy with you – as well as your home.

Reject bait prices which includes any phrases such as “offers above”.

Finally be sure to find yourself a decent agent. As we often say at Jenman Support: It’s better to take three or four weeks to find (or educate/convince) the right agent, than to spend three or four months with the wrong agent.

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FOOTNOTE: If you need help to find a decent agent, please let us know. In many areas of Australia, we have found agents who are willing to work hard to get you the best price – with no upfront costs until you sell.

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