Handling Offers — You Need an Expert Part 1: From the Buyer’s Perspective
Originally appeared in Hills Publications, Aug. 29, 2003 and ANG Newspapers, Aug. 30, 2003
Few buyers or sellers are involved frequently enough in real estate transactions to understand what is truly important in choosing an agent. Even those who are diligent in their selection often miss one of the critical functions of their real estate representative — how he or she handles the offer process. This oversight could cost more than you will ever realize.
Your agent’s approach
As the market changes, so does the strategy for writing and presenting bids on residential property. In a buyer’s market, a savvy agent can negotiate substantial concessions in price and terms from a seller.
In a seller’s market, such as we have experienced in this area since 1997, it is the seller who has the leverage. Despite the duration of this market and
rising interest rates, we continue to see multiple offers on a large percentage of properties.
Before you commit to an agent, make sure you are clear on, and agree with, how he will represent you and your offer. The problem, however, may be that you do not know what to ask to make the right decision. An illustration of a typical transaction may help fill in some gaps for you.
You found the right house
Let’s suppose you have seen a home you find appealing and it is in your price range. The asking price is $549,000 and the seller will be reviewing offers in three days. Your Realtor has obtained all the available reports and disclosures and has made an appointment to have you sign a purchase contract the night before offers are due.
You are nervous because you love this house and do not want to “lose” it. Like most buyers, you are willing to bid more than asking if there are multiple offers, but you have a limit you can, or would be, willing to pay.
Your agent tells you the listing agent “thinks” there will be at least three other offers, but is not sure. To compound matters, the presentation will be handled as a “drop off,” meaning offers will be either faxed or delivered to the listing agent by a specified time. As there will be no personal meeting with the seller to explain each offer, the listing agent will not know how many offers will be made until the appointed day and time.
You feel your blood pressure rising as you ask, “How much do you think I need to offer to get this house?” Not sure of the degree of competition and how much you are willing to bid, your agent says, “It is your call. If this is the house, give it your best shot.” Your mind is racing. Would that be $589,000? $600,000? 625,000? More? And at what amount would it be a mistake?
By the way, what about the $20,000 termite report, the old roof and the drainage issues? Who will pay for those? Your Realtor says it will be hard to get your contract accepted in competition if you ask for too much. As a matter of fact, he remarks that if you waive your loan contingency (you have a pre-approval letter) and have a short inspection contingency, you will have a better chance.
You are fighting off a migraine as you contemplate all these variables. What to do? Sadly, many buyers do not have the presence of mind to get a grip on their emotions and pointedly ask their agent the relevant questions. Instead, they pick a number that is the highest they are willing to offer and sign the contract.
Now it is the day of the offers. If your bid was accepted, you are initially happy, then a bit scared. Did you overpay? By how much? If you did not get the house, could you, with better representation, have written an offer that would have been ratified?
If the above sounds like fantasy, think again. I see and hear variations of this scenario daily. There is another way.
Pros work differently
Multiple offers follow a generally predictable pattern. How well or poorly they are handled is a function of the experience, professionalism and caring of your agent.
The most competent Realtors, during your initial interview, explain the market and how they will work in your best interests. They also discuss what they will do in the case of multiple offers. For example, you need to know that, in competition, most properties sell “As Is,” even those with serious, expensive problems (assuming appropriate pricing). Simply put, this means you are paying your offering price plus the cost of repairs.
You need an agent who has the knowledge and skill to explain how issues with condition could negatively impact value. Although you may be able to do the work for less than the seller’s bids, unanticipated surprises could raise the cost well beyond your plans or expectations.
Look for a local agent who will put the home’s asking price in perspective with the market in that neighborhood, as well as the larger area. Given its location, style, condition, etc, what offering price would be too high?
How can you limit your risk of a price that is too high or too low? Give your agent written instructions on how much you are willing to offer, based on the number of competing bids. This is totally logical, but not commonly done.
Final Thoughts
There is a tremendous variance in the abilities of real estate practitioners, particularly when it comes to writing, presenting and negotiating contracts. Despite years in the business, some people never become adept at the process. To avoid a sad story later, make sure to pick an expert at handling your offer.
Related Articles:
Handling Offers: You Need an Expert, Part 2
How to Interview Agents, Part 1
How to Interview Agents, Part 2
How to Interview Agents, Part 3
How to Interview Agents, Part 4
Multiple Offers, Part 1
Multiple Offers, Part 2
Confirm Competing Offers
Unwritten Contingencies