The Truth about Bidding Wars [What Your Agent Isn't Telling You]

by Osman Parvez

Note: This post is part the series, What Your Agent Isn't Telling You.
How's the market? 

Ask most Realtors and you may get an educated guess.   Most of the time, they'll talk about their own business activity which can be highly volatile.  

I could tell you what the Boulder market "feels like," but I prefer to analyze the data before sharing my opinion.   So I spent a little time this morning crunching numbers.   It reveals a few surprising facts about bidding wars.   

Take a look. 

The chart above shows the relationship between days to offer (DTO) and sold price as a percentage of asking for the Boulder real estate market from January through today.    

116 properties have sold so far this year.  The chart shows 94 sales which occurred within the first 100 days of listing.   The red circle represents the most intense area of market activity,  the ones most likely to have experienced bidding wars.   These are properties that were under contract within a week of hitting the MLS.   I'll discuss that red circle in more detail below.

FACT: The median sale occurred in 26 days at 98% of asking, closing at $623,500. This suggests less than one month of inventory currently on the MLS (six months of inventory is considered a healthy balance between buyers and sellers).  

Now let's take a closer look of properties that went under contract quickly.   The chart below is the same data as above, just constrained to twenty days.


FACT:  A whopping 32% of sold property in Boulder went under contract during the first five days of the listing period (year to date).   

This is astounding.   Note the density of activity. 

Although it's risky to accept an offer the very first weekend the property hits the market, nearly a third of sellers did so most likely under advice of their listing agent.   

Why is this risky?   Because a number of potential buyers haven't actually seen the property.    Buyers under intense pressure to write an offer, submitting their "highest and best," are also prone to experience remorse down the road. There is also little time for a listing agent to play one offer against another to drive up the price and/or remove contingencies.  Accepting an offer in the first few days of a listing is not a smart negotiation strategy.
FACT: 43% of closings that went under contract within the first five days eventually closed at a price below asking.  

The standard contract is full of contingencies for a buyer to flippantly change their mind with little recourse.     Cold feet is a common outcome.    As a seller, once you're under contract, a huge amount of negotiation leverage shifts to the buyer. 

As you can see from the chart, there were many properties that sold substantially over asking but also many which did not - including ones that went under contract quickly.   Remember, a full or above asking price offer doesn't always equal a closing.   Buyers who feel they gave in on the original offer are more likely to play hardball when it comes to negotiation over inspection items. 

So, How's the Market?   

The answer is that for most buyers it remains intense.    At the current pace, a third of listings will no longer be available within 5 days of hitting the MLS.  This rabid pace is not necessarily the case in certain locations and price ranges.   You should talk to your agent about market conditions specific to your situation.

In practice, agents are slow to update the MLS.   We're not talking about five days on market. The reality is that many listings are gone within 48 hours.     Although it has risk to sellers, this practice remains common. 

For sellers, bragging rights about the number of offers received doesn't translate to a high closing price or low hassle.   Multiple offers are an opportunity for listing agents to strengthen offers and remove contingencies but the evidence clearly shows a surprising number are unable to even hold onto the full price.    And that, my friend, is What Your Agent Isn't Telling You.

Like this analysis?    Subscribe to my research.       Want to meet me in person?    Attend a Boulder Real Estate Meetup.    Ready to buy or sell?  Call me at 303.746.6896.  

image:   Refracted Moments

Please Note

This document contains forward-looking statements. You are strongly cautioned that investment results are subject to business, economic and other uncertainties. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time. Always consult your financial advisor before making an investment decision.