Shameful Artificial Urgency

I can just about understand the buyer frenzy.  They are losing houses because of tight supply and competing offers.  Competing offers that are stronger than their own.

It seems to me that the way to win the house is to make the highest and best offer.  Period.  But they've put together their own highest and best, and they fear it is not enough.  So they look for other things they can do.  Unnecessary appraisal addenda, dodgy letters to the sellers, poorly crafted escalation clauses, game-playing offer deadlines, and whatever else they can dream up.

Like I said, I can just about understand it.  But I don't think most buyers are getting very good advice as the business is absolutely rife with incompetence.

As for the sellers, it seems to me, what we have going on is various levels of artificial urgency.  The typical home in this market will get a double-digit number of offers, some of them even sight-unseen.  Well over the asking price and with five-figure nonrefundable Due Diligence Fees.

The sellers are clearly in the driver's seat.  There is no rush.  Take your time, let the offers flow in.  Too many showings one day?  Add a day.  Add an open house.  The sellers truly have all the time in the world.  Those buyers are not going anywhere, because there is no where else to go.

But that is not what we see.  Rather, what we see is the house goes active Friday morning and the sellers demand highest and best offers by Sunday evening.  Why?  WHY??

And that is assuming they leave the house on the market for an entire weekend.

Because worse yet, we see houses go active and then pending in hours.  We see houses sold during the Coming Soon period, where the buyer pool is severely limited.  Again, why?

This urgency is entirely artificial.  It is contrived.

And I just do not believe that this is coming from the sellers themselves.  In this market, no sentient being would accept the first offer.  Or even one of the first few offers.

No, this urgency is contrived by the brokers involved.  As a listing broker emailed me a couple of days ago:  Great bird/offer in hand, take it.

As if there will not be another, better offer tomorrow.  Look, I'm not talking maybe a better offer in a few weeks (those are never better).  No, I mean tomorrow.  And if not, that bird in hand remains in hand.  Give it a day or two.  Please.

That same broker went on to make the very astute observation that:  Selling is very stressful for sellers.

Well let's see.  Ten or more offers in hand, all above asking price, five-figure due diligence.  Hmm, that does not seem very stressful to me.  Rather, the sellers are in a most comfortable position.  But to be fair, I think what he meant is that selling is a hassle.  Especially with so much buyer interest.

I have long viewed open houses as a sham.  But in today's market they finally serve a legitimate purpose:  To get as many potential buyers in the door in the shortest time possible.  Yet many brokers still insist on individual viewing appointments creating and insuring more hassle for the seller.  My advice in this market is to have an open house every day, and if the hassle of selling is too much for the sellers, limit viewings to the open houses.  Problem solved.

But my guess is these brokers do not really care about the seller's stress or the seller's hassle.  The brokers have their own agenda.

Last week, I wrote about a couple of intentional reasons that brokers encourage this artificial urgency.  And if not intentional, we're back to incompetent.  I have always been amazed when brokers proudly scream:  Sold in one day!  As if it is something to be proud of.  But they are indeed so very proud of it.

It is incompetent and shameful.

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Bubble Questions

Are we in a bubble or is this the new normal?

How long will the current real estate bubble last?

Buy now and risk overpaying?

Or, wait it out?  Wait for how long?

And if we do wait now, do we not risk that the market will be even worse later?

As John Templeton famously observed, "The four most dangerous words in investing are, This time it's different."  And if we recognize that, we must assume that the bubble will burst...eventually.  Right?  But these things can go on longer than we anticipate.  And longer than some people can afford to wait.

We all know some of the causes, like record low interest rates and easier lending standards.  A record stock market.  Lots of cash sloshing around and an influx of foreign capital.  These are the usual suspects contributing to bubble inducing behaviors.

Less recognized and considered is the influx of millions of illegal immigrants and a government that tolerates and even encourages this.  This is not meant to be a political point.  But no matter what you think about immigration, nationwide our resident immigrants do use a portion of our housing stock.

But there are a few other factors that make me revisit the dangerous question:  Is it different this time?

Note, these are factors for my market, the greater Research Triangle Park area of North Carolina.  I cannot speculate as to what is going on anywhere else.  But here they are:

• Under-built housing stock.  This will take many years to correct.  And that is assuming that there is the political will to correct it, which I do not see.
  
  
• People fleeing high tax and high expense states and metro areas, looking for affordability, more responsible government, and quality of life.
  
  
• The extended lockdowns finally demonstrated that offices are no longer really necessary.  Meaning that people do not have to live within commuting distance of an office.

These are not mere bubble factors.  These are long term and perhaps permanent changes in the real estate sector.  They will certainly affect the real estate market for a generation.

Will the bubble burst?  Well, it always has in the past.

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Brokers and Time and Supply and Demand

Do brokers understand supply and demand?

So today we have extremely low inventory resulting in multiple offers for most residential properties.

And what do the brokers do?  They leave the homes on the market for just a few days.  The median days on market (DOM) count for my area is three days.  But you would be surprised how many houses go under contract in zero days.  That's right, the house is on the market, not for days, but for mere hours.

Why?  And, how?

Demand takes time.  That is, for all potential buyers to see a property, it takes time.  And if a seller wants the highest and best offer, you've got to give buyers an opportunity to see what they are buying.

But here's the thing.  While the seller may very well want the highest and best offer, the broker not so much.  It is not that the broker does not want it, it is rather that the broker does not care.  To the seller, a $10,000 higher offer is a vacation to Hawaii.  To the broker, it's three hundred bucks, tops.  Why wait through the weekend?  Just talk the seller into an acceptable offer and get back to your primary job, prospecting (client acquisition).

And worse, if the broker has lined up a buyer himself, where he makes substantially more money, often double, he has a perverse incentive to limit the access of other buyers.  We call this dual agency, and I would argue that it is impossible to get the highest and best offer in these situations.  I know Mr. Seller, we were going to leave the house on the market for the weekend, but I have this buyer with a solid offer, today.  These days, this often happens because the broker refused to cooperate with other brokers and their buyers.  We call this Coming Soon.

The end result is that brokers work less and/or get paid more.  Either way, the brokers intentionally limit demand.  It is not that brokers do not understand supply and demand.  I think they do.  It is that they are using it to their own advantage rather than to the advantage of their client, the seller.

Now, what is a seller to do?  Well brokers behave this way because you allow it.  Don't!  Tell your broker that you will be leaving the house on the market for a week.  Or at least, through the weekend.

As for dual agency, ask about it before you sign the listing contract.  And disallow it.  If your broker argues in favor of it, you are dealing with someone unethical.  Period.

Find yourself another broker.

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Frightening Inventory Level

The Complete Collapse of Supply

Here is an interesting number to start our Tuesday:  306

I live and work in Wake County, North Carolina.  It is a large county with more than 1.1 million residents.  This morning, just for kicks and grins, I looked up how many homes are actively For Sale through our local MLS, in the entire county.  Of course this is a point-in-time figure, and it will change from day to day, and even from hour to hour.

Let me qualify this.  I looked up the number of re-sale homes, under a million dollars.  I wanted a true active figure, so it does not include any Coming Soon properties.  And I excluded properties with current Contingent or Pending contracts.  I also excluded new construction.  But this number does include all property types:  Detached, Attached, Condo, and even Manufactured.

Let me say, I have absolutely no idea what this number is on a regular basis.  No doubt it's seasonal.  But for mid-March, 306 seems frighteningly low to me.

We've all been discussing low inventory for a few years now.  But after the posts Multiple Over Madness and Four Hours or Four Days, I really wanted to get a handle on the current situation.  Sure, there are any number of ways to dissect the statistics.  But I think this one number pretty much captures the situation.

Update, 7:07 PM, Tuesday, 16 March 2021

As weekend sales are finalized and properties go under contract, our figure drops even further:

288

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Four Hours or Four Days?

The Immutable Laws of Supply and Demand

Yesterday, I ran into my neighbor out walking her dog.  Here's our conversation:

Neighbor  Hey, my daughter just sold her townhouse in Chapel Hill.  It sold in four hours; isn't that great!

Me  Hmm, four hours?  That seems irresponsible to me.

Neighbor  But, she got more than she expected.

Me  Well, I wonder what she could have gotten if she gave it four days instead of four hours?

Neighbor  But she was in a rush.

Me  What's the difference between four hours and four days?

I know the real estate market has gone crazy.  But people seem to have totally forgotten the fundamental laws of supply and demand.  If you limit demand, you simply cannot ensure that you will get the highest and best offer.  This is all the more true given the lowest inventory levels (supply) in recent memory.

The worst part of this is the seller has no idea what she could have gotten for her home.

Sellers:  You won't lose a buyer to another house, because odds are, there are no other houses.  Give it a week.

One point brought up in the Multiple Offer Madness post is that sellers don't want potential buyers traipsing in and out of their homes all day long for days on end.  No problem, make your agent earn their money.  Hold an open house for two hours a day – for seven days.  You might not get all the potential buyers, but you'll get most of them.

And you will have confidence that you really did accept the best possible offer.

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Buyers, Read This: Multiple Offer Madness

An Interesting Email Thread

And vital for today's buyers to understand.

These are actual emails that I received from fellow North Carolina Brokers-in-Charge.

Dates of exchange:  Monday, 22 Feb. 2021 – Thursday, 25 Feb. 2021

Format slightly edited for readability.  And to make it easier to read, I am going to reverse the order.  So you can read top to bottom...

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Monday, 22 February 2021, 8:31 PM

RE:  Multiple Offer Madness

2021 is a bit wild so far. 

The top numbers I've seen this year so far are 60 offers on one property and the most I've seen over list price is $100,000.

What are you seeing out there?  How are you managing?

Cameron Saemann

Second Story Realty

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Monday, 22 February 2021, 8:37 PM

WOW!

 

I thought 37 offers and $56,000 over list was nuts for this area.  When I schedule a hot property, I’m looking at the blackout on Showing time as a gauge of how hot it is showing and the potential of offers that will be submitted.

Carolyn Nelson

Realty One Carolina

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Monday, 22 February 2021, 8:43 PM

Ah, thanks for the reply.  Those numbers I quoted are for the Raleigh market.  I just realized I don't have my main signature on this email to show that. 

We do the same with showing time.  The requirement for non-overlapping showings has been helpful in a way in that it forces the schedule to blackout the appointments already taken, and you can generally see how many showings the property is getting, just like you said.

Cameron Saemann

Second Story Realty

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Monday, 22 February 2021, 11:58 PM

So here's the thing...we have to take some responsibility here for this madness.  Oh sure, we want to get our clients the best price as selling agents, and as buyer's agents we want to ensure that our client gets the house, but what will happen when this crazy bubble burst, when interest rates go up, and people begin to realize that they are locked into a home that they bought in a state of panic.  If home prices and appraisals are not in line with what someone has paid for their home, when and if they are upside down in their mortgage, who are they going to blame?  You know who!!! 

I stood in a home this past weekend that went on the market Saturday with the limit of 15 minutes to show it.  The listing agent provided the wrong lock box information and it took us 10 minutes to straighten it out with Showing Time.  The listing agent noted that all offers had to be in by 8 PM that night.  My clients looked like two deer caught in headlights.  They had literally 5 minutes to decide if they wanted to buy this home for which they would have to overpay, and knowing that it wouldn't appraise.  I looked them in the eye and told them that they should relax and walk away.  "There'll be other homes and more listings in a few days and weeks," I explained.  There was time...the world was not going to end if they didn't make up their minds in just a few short minutes.  I explained that there was always the possibility that a year or two down the road they might be upside down on the home value vs. the amount of the mortgage if things take a turn.  It was like I released the two of them from the middle of a  whirlwind.  They let out audible sighs and thanked me.  Later we sat down and discussed options.  I told them the pros and cons of making  an offer that is considerably higher and how this artificial inflation is actually not in anyone's best interest.  Even the sellers could get burned.  I am seeing that there are more deals that are getting canceled during due diligence.  Sellers might lose the homes they are wanting to move into because of cancellations.  The whole thing is insane.  It's up to us, the professionals to rope our clients in a bit...to calm them down so they aren't in some half-crazed buying frenzy.  Yes, they might miss out on a few homes, but it will give them time to consider their options, to make informed decisions and oh, by the way, if enough of us keep trying to control this situation, it will restore sanity for all of us.  

Am I dreaming here?  Or can we take back some of the control?  No one is enjoying this.  Sellers feel like their agents aren't doing anything to sell their homes and therefore they question why they should pay so much commission?  Buyers are angry because they have to pay so much and they keep losing out on homes so they blame their agents out of frustration.  The whole thing is ridiculous.  We are all feeling helpless but really maybe not.  Maybe we can change things by being the voice of reason.

Okay...I think I am through with my rant.  I'd love to hear from others.

Jessica Bryan

Real Living Carolina Lifestyles Realty

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Tuesday, 23 February 2021, 6:04 AM

Jessica,

You are spot on.  In my opinion the whole process started with our Government printing trillions of dollars with no basis throwing it out on public, bottom line interest rates qualifying lower purchase point clients to jump into 100k more homes, people making short term gains in “no reason stock market gains”, builders increasing the prices crazy with the excuse of increased material cost are the big balloon that is going to burst soon.

People prove again they have short memory forgetting 2000 & 2008.

Shiv Nunna

Nunna Realty

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Tuesday, 23 February 2021, 6:26 AM

Well said, Jessica.  I have felt this way for some time.  I have advised clients exactly the same.

Tim Devinney

New Native Realty

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Tuesday, 23 February 2021, 6:33 AM

I'm in Mooresville.  Same situation here.  I'm very concerned about the overinflated offers and ridiculously high DD  needed, just to ensure your offer stands out!

I'm also seeing an increase in BOM.  Whether it's Appraisals, issues with the home, buyer remorse after making a hasty decision just to be competitive...I don't know.  I also don't like the addendum agents are using stating 'if a property doesn't appraise, the buyer will make up the difference'!  No!

I'm not comfortable with any of it. 

My memory is not short!  I do remember 2000 & 2008!

Ok, now my rant is over!!!

Lucy Jacobs

The Lake Team

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Tuesday, 23 February 2021, 7:01 AM

Good conversation here.  I agree that it has gotten stretched to a point of everyone being uncomfortable.  And we are probably due for a pullback on prices and rising rates will help moderate some of the price growth.  But the money printing and markets can stay irrational a lot longer than we think they should.  And a lot of the growth we are seeing in the Triangle is relocations from large cities, the west coast and the NE.  There are many hot markets in the US due to rates but a large part of our pressure is simply not enough inventory for the number of new buyers coming to our area.   An appraiser friend of mine told me what I think is a record so far...home was listed at $990k in Durham and contract was for $250k over asking and $86k in DD money.  We didn't get it.. as if I had to say that :)

Mark Bonner

New Durham Realty