When to decline and when to accept.
Deciding whether to accept or decline an offer can be the most challenging of times for owners. There is no rule book to follow on how to play the offer scenario when it arises. Receiving an offer is good news when selling as it means there is interest in your home. But no one wants to undersell either.
It leads back to a simple question with a complicated answer – how do we extract the best price without losing the buyer?
Whilst there are no certainties in a real estate negotiation, there are some principles that will help guide you through the process.
Market Price
What does the recent sales evidence suggest? As the seller, you may have a target number in mind, however how does that number compare with comparable recent sales? Does the offer seem fair, high or low?
Once you have established this very simple rating on the offer at hand, you will have a clearer view on how to handle the negotiation. Never base your response to an offer on the asking prices/price guides of other unsold listings. Always use recent comparable sales on which to base your response to an offer.
The most painful offer to accept is the one that is lower than the offer you previously rejected. Remaining calm, logical and unemotional during a negotiation is crucial to making the right call.
Context
Many sellers ask hypothetical questions prior to the home going on the market. Questions such as ‘What should we do if someone offers $1,000,000?’ or ‘What do we do if we get an offer in the first week?’
It’s natural that the seller poses these questions, but they can only be answered in context of the campaign.
An offer should rarely be judged against time on market. The digital age has made marketing real estate an almost instant process. An offer should be judged against the feedback of other potential buyer’s feedback and interest. If the first buyer on the first day makes an offer on your home, yes, this can be a very tricky situation. Make no mistake, it quite often happens this way.
The bottom line is, you cannot plan in advance on how to play the actual offer. The offer needs to be handled in the context of the campaign. This is where the success of the campaign will often rise or fall on the agent’s negotiation ability.
Format
There are three basic formats in which an offer can be made. Verbal, written and contractural. By law, real estate agents must disclose all offers to the sellers. Whenever an offer is made, it’s worth remembering that verbal and written offers are non-binding. Only a signed contract with a deposit cheque can be considered truly genuine.
If you accept a verbal or written offer that crashes, it’s best to consider it a non-offer going forward to avoid making mistakes when assessing future offers. Be wary of the high verbal offer – easy come, easy go!
Competition
If you are fortunate enough to have multiple buyers for your property, the whole equation becomes easier. Before you become complacent about having multiple buyers though, you must satisfy yourself that they are genuine buyers. To decline a contract offer in favour of non-binding verbal offer can put your campaign into a tailspin, quite literally.
Once a contract offer has been made, it’s best that all competing offers are submitted on a contract as a sign of genuineness. Any buyer that promises to pay more without signing a contract should be played cautiously.
Competition makes getting the sale easier, however, if you make the bidding process transparent such as a public auction or Dutch auction, you can easily undersell. Competing bids must never be disclosed as the buyers then focus on trying to beat the competition by $1,000. Use competition and confidentiality to extract every genuine buyers highest offer in a rapid time frame.
Non-price Agreements
Value for both parties can be created away from price. These potential agreements that add value for both parties are worth exploring if the offer is close to being acceptable. Issues such as delayed (or early) settlement, release of deposit, lease back, reduced deposit, inclusions or even some vendor finance on the difference can bring a negotiation together.
The more a real estate negotiation becomes about price, the less goodwill remains in place. If you are horse trading on such matters, always remember to take a concession if you give one.
Pre or Post Due Diligence
The pre-due diligence offer catches many sellers unaware. They accept the verbal or written offer and mistakenly think the property has sold. Suddenly, the building inspection brings up a raft of issues that causes the buyer to reconsider, or the buyer’s bank values the property for 10% lower than the agreed amount, scuttling the deal. Any offer that is made pre-due diligence must be considered an expression of interest rather than a formal offer. Take offers pre-due diligence seriously, but cautiously.
There Are No Rules
There are no rules around the governance of making, accepting and/or rejecting an offer. The property is not sold or purchased until contracts have exchanged unconditionally. It’s common for the seller to ask the agent ‘How long do we have to consider the offer?’ An offer is an offer until the owner countersigns a buyer’s unconditional contract or the buyer withdraws from the negotiation.
It’s a mistake to think that a buyer will leave the offer on the table for a prolonged period whilst the owner chases a better offer. Complacency can bite during a negotiation, even in a boom.
If you do reject an offer, it’s worth noting that declining an offer does not guarantee a higher offer being made in the future. If you accept an offer, you will never know if your Alan Bond was going to turn up next week, so don’t think about it.
Peter O’Malley