When is the Lower Offer the Better Offer?

By
Real Estate Broker/Owner with J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY
http://actvra.in/mBb

You Never Know what will happen if you switchIn Westchester and the surrounding counties of New York, quite a bit can happen between the acceptance of an offer and contracts being signed. Once an offer is accepted, the buyers still have to do their home inspection and settle those matters before memos go out and contracts are drawn. Even then, there is still the back and forth between attorneys on verbiage and pet riders before signatures and deposit. It can take weeks. And in those weeks, another offer can come in and change the game. 

But if a higher offer comes in, is the seller obligated to take it? Should a seller switch horses to an unknown quantity when they have already been through inspections with buyer number 1? And isn't there a risk in switching, because if the new deal dies and the old deal is alienated, isn't that a great way to go from 2 offers to zero? These are things we face frequently in Westchester that seldom happen elsewhere. 

First, the seller does NOT have to switch to a higher offer when an accepted offer is on the table. They often do, and it can screw things up if it doesn't work out, but there are many reasons why a seller might choose to stay with their first accepted offer, even if a higher offer comes in. The key is not simply price. It is also terms. 

  • The higher offer might be caught up in the competition. 11th hour high bids often get remorse once they leapfrog over other offers and stall or back out. People want what they can't have. When they get it, they sometimes lose their inspiration and flake out. We have observed that people who don't ante up by the deadline are a reversion risk after it passes. 
  • The higher offer might be monopoly money. Simply put, they might not qualify for the higher number. I have seen bids that were not accepted in favor of another come in a week later and assure us that they could in fact qualify for full price or close to it. Some do. But some don't. It was wishful thinking, borne of competition and wanting to "win." 
  • The higher offer might still be selling something. This is especially a concern when the buyer is selling a co op, which is common in New York. Co ops can take 3 months to close, and there are instances where the buyer gets their mortgage but is turned down by the board, killing the deal after a long wait. But deals on other properties also die. I often hear buyer agents, when they present an offer, make it clear that their client "has nothing to sell." That is wise to emphasize.
  • The high offer might take longer to close. The end of the year is coming, and some people want to close before the end of December. Time is money. A buyer with a higher offer might not want to close that soon- their lease might not be up until March. They are planning a wedding. It can be anything. Long waits tempt fate. 

What matters to sellers, sometimes more than mere price, is certainty. More money might not be worth it if it is riskier, or if it adds to the stress of the transaction because of a longer wait. Certainty has value. This is why some believe that a cash offer might be more attractive than a bid with a mortgage contingency. Time is indeed money, and sometimes there is a premium for cash. Certainty has value. Even if offers come in simultaneously, the higher offer may not be the right one. 

Price does not occur in a vacuum. There are other factors, such as timeframe, terms, certainty and plenty of other variables that might make a lower offer the better choice for some sellers. Sellers and their agents would be well advised to evaluate context and the Big Picture before making a judgment based on raw numbers alone. 

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Rainmaker
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Robin Rogers
Robin Rogers, Silverbridge Realty, San Antonio, Texas - San Antonio, TX
ABR, CRS - Real Estate Broker & Investment Adviser

It can be pretty hard to get a seller to go for the lower offer. Explaining about the net and terms can be exhausting, but if it avoids a contract falling out and the house sitting on the market, it is worth it.

Cheers,

Robin

Nov 07, 2011 09:04 AM #32
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Bryan Robertson
Catarra Real Estate, Inc - Los Altos, CA
Broker, Author, Speaker

In California, once a seller is in contract, they're stuck.  The only option they have with a buyer is to force performance of the contract.  If the buyer is doing what they're supposed to do, the seller is forced to sell.  That said, having backup offers is a good thing because you never know when the buyer will back out.

With 7-14 days of contingencies, it's possible a buyer could back out at the last minute (sooner possibly) and I have had times when I actually got more for my seller than the original offer.  The whole "the grass is greener" mindset some sellers have is, as you point out, full of possible pitfalls.  If something better comes after going into contract, I tell the seller to wait because the lure of a few thousand dollars isn't worth the headache that could come with it.

Nov 07, 2011 09:27 AM #33
Rainmaker
662,550
Eileen Hsu
Douglas Elliman Real Estate - Manhattan, NY
LICENSED REAL ESTATE SALESPERSON

The price AND term is what makes a better offer. Your points are excellent, each offer have to be review with all the terms, contingencies and etc before the seller decide what is the best offer.

Nov 07, 2011 09:37 AM #34
Rainmaker
733,432
Chuck Carstensen
RE/MAX Results - Elk River, MN
Minnesota Real Estate Expert

I would think most sellers would opt for the cash offer if it was close enough especially in this type of market.

Nov 07, 2011 09:42 AM #35
Rainmaker
682,641
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Its the offer and the TERMS...You can't get away from that.  When I have a buyer who puts in a competing offer after an accepted offer I tell them it has to be a STRONG offer - both in price and in terms.  Very often - with so many homes on the market they move on.  But in this market - it appears that the cherry picking has taken on a life of its own.  A few select homes are in demand and the rest gather cobwebs. 

Nov 07, 2011 10:00 AM #36
Rainmaker
574,485
Hella Mitschke Rothwell
(808) 226-1095 or (831) 626-4000
Hawaii & California Real Estate Broker

Philip: Bryan #35 says what I had to say. Add to that in California, if a cash offer comes in with no contingencies, even if lower, it might be the best offer because it gives CERTAINTY.

Nov 07, 2011 10:15 AM #37
Rainmaker
515,397
Patricia Aulson
BERKSHIRE HATHAWAY HOME SERVICES Verani Realty NH Real Estate - Exeter, NH
Realtor - Portsmouth NH Homes-Hampton NH Homes

Great blog today, thanks for posting.  I have bookmarked it to reblog at some time. 

 

Patricia Aulson/ Seacoast NH & ME REALTOR

Nov 07, 2011 10:23 AM #38
Rainer
415,630
Bill Reddington
Re/max Southern Realty - Destin, FL
Destin Florida Real Estate

Your post reminds me that I am pretty happy it is different in Florida. Once an offer is accepted the seller can certainly accept a back up but until the first contact is is either cancelled or closed the seller is bound unless there are tems in the contract stating differently. More to it but much easire here.

Nov 07, 2011 10:38 AM #39
Rainmaker
180,227
Paul Campbell Realtor Lexington
Rector Hayden, Lexington, Ky - Lexington, KY
Kentucky Homes for Sale

I am glad I help people buy and sell in Lexington.  We have complications with short sells and the basic human problems created by greed and ignorance but once a deal is signed by all parties it is pretty much legal.  It sounds much more complicated there in New York.  I am sure you earn every penny.

Nov 07, 2011 10:53 AM #40
Rainer
269,467
Richard Bazinet /MBA
Realty ONE Group - Scottsdale, AZ
Phoenix Scottsdale Real Estate

Good point and post Philip. There are indeed disparities in between states, but the principles are the same -  the highest offer is not always the best offer. It has to all add up together.

Nov 07, 2011 10:55 AM #41
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Chris Ann Cleland
Long & Foster REALTORS®, Manassas, VA - Bristow, VA
Associate Broker, Northern VA

Interesting timing on this post.  I have a buyer who wanted to make an offer this weekend, but another buyer got there first.  Now the listing agent is essentially dropping hints about what would make a good back up offer.  As a listing agent, I know first hand that the first offer is usually the best.  Higher dollar amount is not always better.  That said, I would love for my buyer to end up with the home of his choice.

Nov 07, 2011 11:00 AM #42
Rainer
157,536
Anthony Daniels
Coldwell Banker - San Francisco, CA
SF Bay Area REO Specialist

The highest is not always the best, especially when it comes to an REO with multiple offers.

Too bad so many agents still don't "get it".

Nov 07, 2011 11:31 AM #43
Rainmaker
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Gabe Sanders
the BlueWater Realty team specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Very true J. Philip.  There are many, many reasons sellers will take lower offers.  I especially liked one where my buyer was a polite, really nice guy, the other buyer was rude and inconsiderate.  Our offer was lower, but it was the one the seller accepted!

Nov 07, 2011 12:07 PM #44
Rainer
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Stefan C. Jezycki
Pacific Union International - Christie's Great Estates - Napa, CA

HIghest and Best, the best part seems to fall through the cracks, the actions of the buyers and buyers agent should lead you to a better understanding of how the escrow and contingency process may go. As noted earlier, In California, Napa Valley more specifically - we see multiple offers quite often with homes priced under $400,000, many of these are bank owned and short sales. The highest and best gets lost in these situations, the bank or the listing agent on a short sale see the highest and best as "all Cash". As noted earlier, Monopoly Money...this is where we professionals really earn and show our value. Navigating with our sellers and buyers is a skilled process

The art of the back up offer is also something is not dicussed enough either especially on short sales. The contract is with the seller not the bank.

Stefan Jezycki, in the Napa Valley, CA

Nov 07, 2011 01:46 PM #45
Rainmaker
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Donna Harris
Donna Homes, PLR - Austin, TX
Realtor, CDPE & ASP - Hill Country Lakeway Austin

You keep saying "Accepted offer" so doesn't that mean "contract"? How can you terminate an executed "contract", that is legally binding, to accept a different "offer"?

Nov 07, 2011 03:24 PM #46
Rainmaker
1,110,039
Ginny Gorman
Phillips Post Road Realty ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

Phil, interesting post which would have huge ramifications in RI...accepted offer stays...no fooling around entertaining other offers when a contract is signed...boy those legal eagles certainly have mixed your pot up!

Nov 07, 2011 03:34 PM #47
Rainmaker
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J. Philip Faranda
J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY - Briarcliff Manor, NY
Broker-Owner

Donna, in New York lawyers do the contracts after megotiations and inspections. There is a lag of a couple weeks before everything is put in binding form. 

Nov 07, 2011 04:29 PM #48
Rainmaker
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Michelle Francis
Tim Francis Realty LLC - Atlanta, GA
Realtor, Buckhead Atlanta Homes for Sale & Lease

J Philip, 

Price is one component of an offer.  Terms can make a huge difference.  We have had a number of sellers go for terms over price.

All the best, Michelle

Nov 07, 2011 09:30 PM #49
Rainmaker
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Donna Harris
Donna Homes, PLR - Austin, TX
Realtor, CDPE & ASP - Hill Country Lakeway Austin

Sorry, no offense, but that sounds messed up!  A buyer can spend their money running inspections to potentially get screwed out of actually being able to buy the house?  That doesn't sound "fair"...

Nov 08, 2011 09:56 AM #50
Rainmaker
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Cara Marcelle Mancuso
Long Realty - Dove Mountain, Marana AZ - Tucson, AZ
Call a Marana neighbor, I'm THERE!

Time is definitely money.  Round here, closings take typically 30-35 days and when it gets into the 6 week range, you start wondering what's going wrong...  Great job of bringing up some of the points to consider when viewing the big picture.

Nov 08, 2011 10:46 AM #51
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