There is another buyer…
Competition increases value. Agents know it, and they use it to achieve a better price. That’s their job after all.
What is harrowing as a buyer is trying to work out the legitimacy of the agents often made claim that “there is another buyer”.
As a buyer, if you swallow the “we have another buyer” message hook, line and sinker, it can cause you to react irrationally and potentially overpay. To dismiss the threat entirely can cause you to miss out on your dream home.
In a strong market, buyer competition is expected. There is little doubt that you will need to produce the goods in a timely fashion to secure your new abode. The reverse is often expected in a soft market.
The lack of multiple buyers per property is essentially why the auction system is failing at the moment. It sends the loudest possible message to genuine buyers that the property is uncontested.
However, when a property is on the market for 3 months prior to you making an offer on it, the claim that there is now suddenly another buyer can seem dubious. Some may say it’s Murphy’s Law conspiring against you.
There are a few simple rules of negotiation to keep in mind when you are faced with the “other buyer” situation.
Bluff and bluster
Remain open to all possibilities. There may not be another buyer, but there may be. Just don’t form a strong opinion either way, lest you increase the risk of being blind-sided.
Focus on what the home means to you and what it is worth to you. Disregard what other buyers may or may not do and what they do or don’t think the home is worth. Like all competitive scenarios, if you focus on the opposition, you are prone to mistakes.
When making the offer, don’t play games with what you think the home is worth. What is more important? Buying the right home in the right location or risking the home to try and save $10,000 or $20,000? Offer your best price for the home and walk away if it is not accepted by the vendor.
Submit your offer on a contract. Give the owner and the agent an offer that can be banked. Many buyers claim they will pay a certain amount for a property, but when they are called upon to do so, they vanish. If you turn your offer from verbal interest to legally binding, you up the ante on the competition. Sometimes, the lower offer secures the property because it’s a deal on the table as opposed to well meaning intent that is non-binding.
Remain calm. Panic and emotion are your enemy in a competitive situation. This can be hard if you feel you are being lied to or deceived. If another buyer is prepared to pay more than you are willing or able to, emotionally let go of the property. The other buyer may not complete on the deal or you may even find another home….
If you are confused by the sudden interest in the home, aim to identify circuit breakers that may have caused the renewed interest. Has there been a recent price reduction or interest rate cut? Did a recent sale suddenly justify the vendor’s price? Have the owners done some minor renovations or repairs that enhance the presentation. Has the market had a slight upturn in confidence? Economists will tell you that it takes 2 to 3 months for the positive effects of a interest rate cut to flow through to the market. The rate cuts of May and June are only flowing through to buyer confidence now.
Some buyers will only act when they know that the property is in play. Many buyers will say to the agent, “we are interested, call us if someone makes an offer”. Handling this type of buyer is tricky, because they are simply waiting for other buyers in the market to make a move and justify the vendor’s price expectations. The agent handling the sale needs to be totally aware of this tactic that some savvy buyers employ.
The first acceptable offer is the hardest to get onto the negotiating table. Once the agent is in possession of an acceptable offer and working toward closing the sale, the interested buyers on the sideline can be induced to making their move. This is when a seemingly sluggish campaign can come to life, blind siding the buyer whom thinks the agent is all bluff and bluster.
When a property languishes on the market, it is usually because the owner is looking to sell above market price. To date, no buyers are prepared to pay above market price. If the market should rise by a percentage point or two, suddenly the overpriced home is well priced.
Alternatively, where the owner is overpriced and unsold, should they adjust their price expectations down to the current market price, they will often attract multiple buyers. As a seller, you know you have hit market price when multiple buyers try and buy your home.
When a property sits on the market for a period of time, buyers and neighbours will often ask themselves, “I wonder what’s wrong with it?”
This question can cause buyers to form harsh and incorrect assessment of the respective property. For example, unique homes require buyers with the same unique criteria. This can take time to find a match. To question the merits of a stunning home because it has not sold in 60 days can be a mistake.
It can seem doubtful to watch a property flounder on the market only to be told there is another interested buyer, just as you make an offer. But that is often how it goes. Such examples are usually the result of a price drop, a slight increase in the market confidence or an improvement to the property.
Lies, truths and half truths
Yes, some agents will lie. They will say there is another buyer when there isn’t. In nearly all circumstances, the agent’s lie will come to the surface in time. Creating a non-existent buyer is the most incompetent negotiation tactic an agent can use. Just ask yourself, is what the agent telling you making sense? A fibbing agent will become obvious the more you engage with them. Don’t email back and forth with the agent, talk directly with them. Ask lots of questions. The truth whatever it may be will become apparent.
Agents will tell half truths, such as, another buyer offered more than what you have offered. The half truth being that the other buyer made the higher offer 6 weeks ago and has since bought elsewhere. Yes, welcome to real estate poker!
Surprisingly, some agents will tell you the truth. Even though the home has been on the market for 3 months, there are now 3 buyers interested in buying it. Yes, it’s enough to warm ole Murphy’s heart, for it can be said Murphy was a wise man.