Real Estate: The Role Of Optimists In The Pre-Emptive Bid Process

Real estate sellers and real estate buyers go crazy in San Francisco real estate market

Real estate gets crazy when not enough inventory on the market

When the real estate market is hot, with an overflow of buyers chasing a small number of select properties, prices can sometimes enter the realm of insanity.  

Real estate sellers, and those representing their sought-after properties, will often begin to make demands that can seem ridiculous to an outsider observer. Anyone with a working knowledge of San Francisco real estate knows that this is just par for the course in a real estate market in its biggest boom ever!

As demand spikes, real estate listing agents create a competitive atmosphere by setting up a specific time for all offers to be presented.

To try and get around this feeding frenzy, assertive buyers’ agents will then attempt to present a real estate offer ahead of that specified time. Their hope is that this will result in their buyer’s offer being accepted before anyone else has a chance to throw their hat in the ring. This is called a preemptive real estate offer.

If a real estate client desperately wants a property, and we have several days before the offer date, I ask if they want me to try to present a preemptive offer. They usually say yes. I explain that this may be a far-reaching goal, but also tell them that we have nothing to lose. The seller may refuse, but we can still bid on presentation day. More often than not, the listing agent declines the offer, but at times they do accept. Even if this causes us to lose this particular property, I always know there will be better property to be found. One time it took me writing nine offers, but in the end we found a home that my clients absolutely loved above all others! “Short term pessimism, long term optimism” is one of the rules I live by. In fact, I abide by it so dutifully that I included it in my new book, Getting the Property SOUL’D – A Breakthrough System for Successful Stress-Free Buying and Selling.

Let me give you an example of an actual real estate business situation in which this idea can play out.My clients –Terrence and Linda– were both pharmacists who had bought from me in the past. They have two children and are very close with their parents, so they had come back to me with their desire to purchase an apartment as a future investment. They found a dated but very clean and spacious duplex with a great view. It was located on Potrero Hill, one of the warmer neighborhoods in San Francisco. This is a desirable location for people unaccustomed to San Francisco’s blistery weather.  Plus there was a lower unit which was vacant and had no stairs—perfect for older in-laws.

To sweeten things from the investment side, neither of the two units were under real estate rent control and could provide immediate income.

An ideal situation, except for the fact that this was going to be a competitive battle—neither client realized how the favorable rent control situation had the potential to skyrocket prices. I knew we were likely to be outbid, but I stayed optimistic and upbeat when I showed them the duplex, pointing out all the property’s many possibilities.

I knew that Terrence had some background in construction, and used this to my advantage when managing expectations about the features that were dated; I also knew that the contractor in him could see the potential in this particular property. Terrance and Linda had also done their homework, were already pre-approved for a real estate loan, and felt comfortable moving forward without a contractor’s inspection. 

As is usually the case in life everything hinged on the price. I asked the listing agent, Alfred Cummings, when offers were to be presented. His response: “We haven’t decided yet.” Being the eternal optimist, that was just the opening I needed to suggest that my clients submit a pre-emptive offer. “But for the seller to agree to forgo creating a competitive environment for offers, we need to give them everything they want plus a bit more,” I said, to my clients. “The offer would have to be exceptionally strong – no conditions and a significantly higher price. You have to create a situation where it would be very hard for the seller to refuse.”

I suggested offering $100,000 over the asking price. Once the offer was written with the 3% deposit check, pre-approval letter and buyer’s introductory letter to the seller, I called Alfred Cummings and told him the good news– that I had an offer well above the asking price. His response was quick, and so loud that I had to hold the phone away from my ear: “I am not presenting any preemptive offers to my seller!”  I was taken aback, but determined to move forward. “You cannot make that decision for a seller,” I said in a collected tone.

Alfred ’s anger was practically seeping through the phone. “I told you I am not presenting any preemptive offers! We will accept offers next Thursday at noon.” “Again, Alfred, you cannot make that decision for your seller. I think this is probably a situation for our managers to discuss,” I insisted.

He agreed, but shortly thereafter I received an email, stating that Alfred had discussed the preemptive possibility with the seller and she had instructed Alfred to wait until next Thursday to review all offers. I smiled. Well, I tried. Meanwhile we could take the following week to look at other properties. After a week, Terrence and Linda still wanted the duplex on Potrero Hill.

I did my homework and called on a similar Pending Sale to find out the particulars. Wow, was I surprised when the listing agent told me their duplex, also with no rent control in the same neighborhood, went $350,000 over asking! If Terrence and Linda want to compete on Thursday, they would have to come with their checkbook at the ready. I broke the news as gently as I could. And you know what–after reviewing what the potential rent they could charge, they agreed to pay this huge price. My relentless optimism had us moving forward once again.

I called Alfred to let him know we were submitting a new offer, and apologized for last week’s sales push. “You need to understand,” I said, “my clients just love this property and want to do whatever it takes to get it.” Alfred was gracious, polite and professional, telling me there were seven other offers on the table. “Just let us know if you need us to sweeten the deal,” I said, not letting myself get disappointed. “Terrence and Linda are super qualified and just got to have this property. Please make sure you keep us in the loop, before taking any other offers.”

Alfred called back a few hours later and wanted a few favors. “Could we use the seller’s choice of a title company and could we close sooner?” Terrence and Linda agreed to both conditions. The deal went through. As you can see from this example, cheerful optimism works great in sales! It is vital to remember that you can do little to change circumstances that the market dictates. Sometime sellers will have the power, sometimes buyers. Prices will rise and fall; different real estate brokerages will become fashionable and then fall out of favor. None of this has anything to do with the optimism with which you should approach every potential sale. That way, when the wind turns in your direction, you will be ready to seize the moment!

For more on how optimism helps sales success, I invite you to read Chapter 7 in my new book, Getting the Property SOUL’D – A Breakthrough System for Successful, Stress-Free Buying. You fill out the form next to this Blog or order on April 7th on Amazon  

Be aware that any clients’ names have been changed to protect their privacy. Furthermore, Paula Pagano does not accept any liability for the content of any Blogs and this Website or for any actions you take or resultant consequences of actions taken based on the information provided in this communication. Any advice is my opinion after being a 35 year experienced real estate agent in San Francisco.

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