A few weeks ago, in the context of an update about bonkers Bernal Heights real estate trends, Neighbor Sarah posed a question about the behavior of home sellers, and the role they play in pushing prices upward.
There are two parties involved in any sale, and there’s no rule that says you have to sell to the highest, all-cash buyer, but it seems that even many idealists become hard-core capitalists in that moment. Idea for Bernalwood: get data from real-estate agents in the area about how often the seller chooses a buyer who is offering materially less than the highest bidder (which, mind you, would still likely be a high price by normal standards). Sales to relatives would not count.
Put another way (and in the way we often hear this question posed), if a seller accepts the highest offer, is that greed? Or, if a Bernal seller declines an offer from an existing Bernal neighbor whose bid for a home was not the highest, is that greed too? What if the existing Bernal neighbor is going through a hard time, or is an artist? Or a teacher? What is it when the seller nevertheless takes a higher offer?
Bernalwood turned to Neighbor Danielle Lazier and Neighbor Michael Minson, both of whom are realtors, to provide some perspective. Neighbor Danielle writes:
In my experience, it’s quite rare for the seller NOT to take the highest-priced offer. For most of our seller-clients, their home is their retirement, their nest egg, their ability to go and pursue the next chapter of their lives, and they want to make every dollar possible. Occasionally, if offers are very close in price and terms (contingencies, length of closing, etc), they may then choose the buyer whose “story” they feel more akin to, but it’s just as likely that they’ll ask us about issuing a multiple counter offer to drive the price higher. This is the nature of the sale. The seller typically wants the most money for their home.
Prices (sales and rentals) have gone up in Bernal Heights because more people want to live here than we have housing for. I don’t think the buyers want to drive up prices and pay more than they have to. They just want to live here and are trying to figure out what it’ll take to make that happen.
Neighbor Michael adds some particulars:
The largest amount I’ve seen a seller leave on the table because of goodwill was $15,000 and that was mostly because the accepted offer had better terms (the buyer was more likely to close than their competitors). A little bit had to do with the fact that both the buyer and seller were “cat people”.
IMAGE: Bernal home sales price trend, by Neighbors Danielle Lazier and Michael Minson
Bernalwood 
When you brought up the idea of sellers choosing to sell to someone other than the highest bidder, I thought you were envisioning prospective buyers who had, say, gone through hard times (perhaps being evicted) and needed a hand or were doing something artistic or noble but not high-paying with their lives. So I was surprised to see you describe selling to “existing Bernal neighbors” is the high road. Giving someone a discount simply because they happen to already live in the neighborhood (absent those other considerations I mentioned) seems strange.
Actually, those are the kinds of scenarios I often hear about, and they were implied. But to your point, I edited the article to include those more explicitly. Given what Danielle and Michael said, however, does that change anything in your mind?
We sold our house on Moultrie Street about 3 and half years ago to a very nice couple who rented down the street. They made the first overture, asking if we were moving one day when I was putting out a box of free books. They came in, looked around, brought back their agent, and made an offer. The house never got listed and I believe we left at least mid 5 figures on the table by not doing so. We felt good about it then and still feel good about it. Anyway… it happens.
interesting. I just googled our place and it seems to be 1400 sqft (?) x 1100 is just over 1.5 million but that is the average price for bernal, pr sq ft and i think our place is above average. >
We sold this past May 775 sq ft for 1.1 million. Asking price was $850k. As everyone told us “Bernal Heights is still the Hottest neighborhood”.
I think the key here is to introduce some new rules of thumb for the intangibles. If everyone gets on the same page, we can really move the needle. Here are a couple of back-of-the-napkin ideas:
cat person (worth an additional 10k), unless, of course…
cat person (-10k) * [I’m just being realistic here. some people are “glass half empty.” you know who you are.]
dog person (+5k)
ferret person (+2k)
person who likes ferrets (varies by breed)
artist (+5k)
local artist (+10k)
starving local artist (+15k)
starving local performance artist (+20k)
comedian (-10k)
poet (+100k)
this is just a rough draft. feel free to pile on.
If you watched Silicon Valley this season you would know that ferrets are illegal in California. If the seller is aware that the buyer is a ferret person I would expect much more than +2k.
I’m far from a libertarian capitalist, but I think it’s odd to suggest that sellers should consider these sorts of “soft” factors. IMHO, it would just add to (1) straight-up lying; (2) a cottage industry of consultants paid to puff up a “buyers’ resume” to seem more desirable; or (3) existing homeowners choosing buyers they “like,” which tends to mean people who are “like them” — a condition that disfavors potential buyers who are already in the minority due to race or other factors. As a person who is currently in escrow, I’d love it if my partner and I had gotten a discount due to us being thoughtful, community-oriented California natives with an sweet, elderly dog, who have lived in the neighborhood we’re buying into for 7 years… but on a larger scale, I don’t think it’s the right way for the system to operate.
It _is_ absurd to say it’s people’s moral duty to leave $100K or more behind in the name of ensuring their house is in the hands of the “right” kind of person. Certainly they _can_, but it’s never their duty.
But it’s also absurd to expect people to have a moral duty to bid less than they can for houses – and thus effectively lose out on ever finding a place to live in SF – simply because they might price other people out of them. Yet San Franciscans routinely complain about this as though it were a sin of the highest order.
I actually wrote a long essay about this on my blog — the guilt over having to bid enough to beat out multiple offers, because it was the only way we’d be able to buy a place — while realizing that, by bidding more than our new house would be worth to any reasonable person, this also made us part of the problem. It’s such a complicated and frustrating situation.
Yes, that was my (Sarah’s) original point – there’s a lot of complaining about “buyers driving up prices” with no mention of the seller. I wouldn’t expect anyone to take a materially lower offer unless they really had a bunch of flexibility (and as a previous commenter mentioned, if this were a widespread practice, it would leave lots of room for fraud). So I guess my point is either to stop complaining about buyers, or to add sellers to the complaint as well. 🙂
In the middle of the lending crisis, I had the highest bid (by $33k) on a foreclosed fixer in Bernal. The seller, Wells Fargo, accepted the lower offer from a flipper. The flipped house sold for more than 3x the purchase price.
why? because you had financing and the flipper was cash?
We had a similar thing happen to us – a flipper actually bid slightly _less_ than we did for a place and still won. I can only assume this was either because (1) they were _really_ desperate to get cash fast (the flipper could close in a couple days instead of a month), (2) the house was actually in such terrible shape they were afraid the mortgage inspection would’ve caused it to fall through.
In this case “as is, cash, close in 2 days” from the other party vs. “30 days, contingent on mortgage inspection” sounds like a plausible reason to take a lower offer, especially if it’s a foreclosed property where a lender wants to get it off the books.
Yes, probably more 1 than 2 in my case, but you don’t exactly get an official explanation from the seller. I completely understood the business decision at the time, but it was still frustrating to lose out (though I ended up finding a better house). As bad as it was, I have to say I’d feel much worse if they passed on my offer because they couldn’t relate to me or something like that. I agree with bldxyz about the prejudice concern.
Pretty naive to expect people to sell to the NOT highest bidder. Or maybe idealistic? Or a fantasy. But I cannot see anyone doing it just out of the goodness of their heart. The ONLY time I know of anything like that happening was when a customer of mine passed away, his estate sold his house for less than market as he requested it go to a family making their first home purchase.
I would argue it can be far from idealistic. Think about the implications with regard to segregation and exclusion. I’ll take 50-60k less to keep the neighborhood white. Feel good can mean a lot of different things to different people.
The last two people who sold the house next door to us told us in advance that they didn’t want to sell to a flipper or an absentee investor because they were committed to Bernal and our street. After selling, both told us that they’d left money on the table — but they’d also made tidy profits because of our hot neighborhood. As a result we’ve had lovely neighbors who are also committed to the ‘hood and the street. I guess we lucked out.
I get the feeling that anyone that sold on the way to the peak (as identified by hindsight) has left money on the table (albeit having made tidy profits).
I’m a cynic: it’s easier to position yourself being generous and caring for the neighborhood when you’ve already made money.
I’m not a cynic: that’s really awesome that people overlook money they could have made in order to preserve the character of the neighborhood.
There was a higher offer on my house when I bought it, but it had contingencies, while my offer had none.
Just because someone can afford to pay top dollar has no bearing on how they will fit the neighborhood, versus someone just scraping buy. There’s a lot of truth to the aphorism “No good deed goes unpunished.”
I’m skeptical about sellers using soft factors instead of economic ones due to the possibility of prejudice creeping in. It starts to resemble the local laws that prohibited selling to African Americans prior to the Fair Housing Act of 1968.
See what I did there? Damned if you do, damned if you don’t!
Yep, if feel good means keeping the neighborhood a certain demographic one should also factor the negative side of it.
Because the Federal Reserve has kept interest rates extremely how (they say because we have no inflation), rich people who would normally lend out their money can’t make any money. So, where do they park their money? Real estate and stocks. And many new owners are setting the rental prices SO high because they really don’t want tenants — too much hassle. But yet they want to APPEAR to be landlords because they get all kinds of tax deductions for upkeep while they’re waiting to sell off the property. Does anybody here know of anyone who is actually paying $8,000 for a 1 bedroom? I don’t.
I don’t think you can make use of tax deduction when you have no income.
You can show losses against other income for 3 years and then the IRS considers it a hobby.
I don’t appreciate you removing my comment here. I had a valid pov. If you didn’t like a word or two, you can always edit. Removing entire comment is not cool.
SFrant-er: go somewhere else if you want to rant
Why? And who ru to be a dictator around here?
Sellers have a duty to accept the highest offer – obviously it’s in their best interest – but as a buyer you’re not doing yourself or any other buyers a favor by paying more than what would be reasonably be expected for a place. I guess people have extremely short term memories regarding all the underwater mortgages from a few years ago…
If you’re paying over a million bucks for a dump, I’d say it’s time to start looking at other neighborhoods. We probably have about 3 years left of this craziness before the next downturn hits.
Curious as to your opinion, 3 years more, based upon what?
http://www.paragon-re.com/san_francisco_market_dynamics/
The first graph shows the median sales prices in SF since the 80’s. Growth periods typically have lasted 5-7 years while declines last around 4 years.
That’s interesting, thanks. The first chart with its disappearing line is rather annoying. But scrolling down, the third chart with its charting of SF, CA, and US medians is interesting. If one were to subtract the credit boom bubble that roiled the whole country by 30+ percent 2007 -2012 , and SF’s metro area by 20 percent 2008- 2011 or so? It would look like a slow, steady ascent. That was the global bubble. The other bubbles, tech and tech 2.0 were more local. So I don’t know. That was interesting but I don’t see 5-7 on, 4 down from it.
also, that first tech downturn looks like it lasted all of 18 months, real estate wise?
Well, initiation of financial games in the post Y2K crunch had something to do with keeping that recession short. Remember that Greenspan was famously aggressive about beating back recessions, too.
Cool. So the idea is if the housing market goes sky high people motivated to sell their home due to the high prices (and perhaps accumulated debt from fixing and maintaining their house)… those people should sell for lower than the highest bidder to keep the neighborhood more affordable. Then, of course, when the prices tank the buyers should pay more than the highest offer to the seller… to perhaps help compensate for the loss the seller is taking on the property. I feel warm and fuzzy all over!