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While it is natural for people to think that the highest priced offer will almost guarantee to be accepted by the seller, this is not always the case. It is important to note a seller’s decision is a result of several factors.
First of all, sellers will want to know how buyers will be paying. Is it an all-cash offer or do buyers need financing? Obviously sellers prefer all cash as there are less risks of buyers canceling the transaction than if there is a loan approval involved. If the buyers need financing, how much of the buyer’s own funds are they putting down? The bigger the down payment, the more comfortable the sellers will be. Finally, whether the buyers are paying all cash or coming in with a down payment with a mortgage, sellers will want to know whether there are contingencies to those funds. For example, sometimes buyers will have the cash only upon successful closing of selling their own home, obtaining gift funds from family, or pending successful borrowing of funds from retirement accounts.
Next, there are various contingencies within the purchase contract at play when an offer is submitted. Here in Hawaii, some the contingencies include – home inspection, survey (for single family homes), cleaning, condo documents, etc. How sellers will respond to the offers depend on how those contingencies are written.
In this brisk market, it is not uncommon to see buyers waiving termite inspection and their rights to ask for repairs or seller credits for any deficiencies, as well as buyers offer to pay, on behalf of the sellers, for various reports involving survey, termite inspection, etc. Granted, in this recent market you will find buyers competing for properties offering large above-asking prices. Ultimately, it’s the buyers with the accommodating offers that usually gets the deal. It is buyer agent’s responsibility to advise buyers on the current state of the market, explore seller motivations, and devise an offer strategy.
On the seller side, it is the listing agent’s responsibility to explain the pros and cons of each offer, go back to the buyer’s agents and negotiate a better offer, helping the seller ultimately select an offer best suited to the seller’s situation.
Recently I’ve had a transaction in which multiple offers were received and the highest offer was way more than the asking price. However, while going over the offers with my clients, we have reached a consensus that even though the highest offer was attractive, the appraisal protection clause didn’t offer enough cash that the sellers were going to match, in case the appraisal value falls short of the agreed upon sales price. Since the offer price was so much higher than our asking, we felt the risk of the appraised value falling short was too high. In the end, we chose another offer that had a slightly lower price but the buyers had strong cash reserves and attractive contingencies.
In the end, it turned out to be a good decision as the buyers with the highest offer abruptly rescinded their offer. Had we chosen it in the first place, the sellers would then need to go back to the other buyers with a weakened negotiating position and exposed to uncertainties.
This is why you need an experienced agent to help you understand the market, the contract, and decide on the best strategic paths forward.
Please contact me at esds55@gmail.com or 808.728.1691 for more info.
