Recently, I received a full price offer from a Realtor who was representing a buyer. I was representing the seller. Surprisingly, my client declined the full price offer. He gave the buyer a written counteroffer that was higher than his asking price.
Let’s just say that my client had his reasons.
The Realtor representing the buyer went absolutely ballistic! She threw a tantrum and sent me several flaming e-mails. She implied there was some conspiracy afoot.
I listened politely. I mean, gosh.
So while that other Realtor is taking a time-out in the naughty-girl corner, let’s talk, just you and I. From this experience, it became clear to me that not all buyers, and perhaps not all agents, understand that it’s acceptable for sellers to decline full price offers. Buyers and their agents may not grasp the reasons why a seller might do that. Further, sellers may not realize the drama that they unleash when they counter over the asking price.
Does The Seller Have To Accept A Full Price Offer?
The short answer is “No.”
Real estate is not like shopping at the supermarket. When you go to the grocery store and an item is marked $1.29 you can be confident that when you take it up to the cash register you will be allowed to purchase it for $1.29. Even if the computer register makes a mistake and shows it at $1.50, for example, you can still talk to a manager and he will likely give it to you for $1.29 because that’s the price marked on the item.
Real estate doesn’t work that way.
Does the Seller Have to Explain Their Reason for Declining A Full Price Offer?
No. In fact, the seller does not even have to reply to the buyer’s offer at all, even a full price offer. The seller can remain entirely silent.
Of course the listing agent may well explain the seller’s reasons to the buyer’s agent if she feels it is in her client’s best interest. For example, if the seller wants the buyer to re-submit a revised offer, the listing agent might explain to the buyer’s agent the reasons that justify the higher price. However, there are times when the listing agent, acting as the seller’s fiduciary, will feel that it’s in seller’s best interest to say nothing. In that event, she will remain silent.
Why Would a Seller Decline A Full Price Offer?
First, rest assured that the vast majority of sellers will accept a full price offers. Or, they may give a buyer a counteroffer on a couple of details but accept the full price.
However, there are reasons why some sellers may not accept full price. Here are a few of those reasons:
1. The seller may have received another written offer
In fact, the seller may have not just one additional offer – he may have two or more. The other offer(s) may be higher than your offer, lower than your offer, or the same as your offer. Regardless, the seller is free to accept one offer, counter one offer, counter multiple offers, or decline all offers. There is no “first come first served” in real estate.
In practice, the way it usually works is that when a seller receives two or more offers, the seller will either 1) accept the best offer, or 2) counter one offer on a couple of details, or 3) counter two or more offers. In the event of a bidding war, the parcel is likely to sell for over the asking price.
2. The seller may have received another verbal offer
Even if the seller does not have another written offer, he may have received another verbal offer via his agent. He may be hoping to get more from the competing buyer. It could be that the other buyer is planning to put their verbal offer in writing any day now, but has not gotten around to doing that yet.
3. The seller may be unhappy with the terms
Offers are not all about price. Offers consist of price and terms. Sure you may have offered full price, but did you ask for a 120-day escrow period so that you would have time to come up with the money? Is your offer contingent on selling your house in another state? Did you ask the seller to pay for all of the closing costs including your portion? Did you say you were going to get a bank loan on vacant land with 5% down when the seller knows that no such loans exist? Did you ask the seller to pay for a perc test for septic, a well inspection, and a survey? If you answered “yes” to any of these questions, the seller may be saying to himself “Give me a break. I’m not even going to reply to this frivolous offer” even if it is full price. Sure, the price is fine. But the seller doesn’t like the terms.
4. The buyer’s agent may have “shown her hand” to the listing agent
The agent representing the buyer may have inadvertently or deliberately disclosed to the listing agent the buyer’s extreme motivation to purchase or even the buyer’s willingness to pay more if necessary. The buyer’s agent may have said that she thinks the parcel is a “good deal” or “very well priced”. She may have called the listing agent incessantly asking if there are competing offers, or pressuring the listing agent for a response. This is a “tell” that the buyer is very interested and is pushing her agent to get a response from the listing agent and seller.
The listing agent (who is the seller’s fiduciary) may advise the seller that she believes the buyer may be willing to pay more than the asking price. This advice may cause a seller to decline or counter a full price offer even when the seller has no other offers.
5. The listing agent’s phone may be ringing off the hook
If you think a parcel is so awesome that you are motivated to offer full price, then it stands to reason there are other buyers just like you. The listing agent may be receiving considerable interest – a high volume of phone calls and lots of e-mails. The listing agent has likely shared this information with the seller. The seller may take this as a sign that he can get more than his initial asking price for the parcel.
6. The seller may have had a change of heart on list price based on reliable or unreliable new information from outside sources
After signing the listing agreement at a particular price, the seller may discuss the price with his “financial advisor” Spike, his neighbor Mary Sue, or his favorite uncle Herb who used to sell real estate back in 1958. New advice (reliable or unreliable) may cause him to change his willingness to sell at his original list price. Wisely or unwisely, this may cause him to decline your full price offer.
7. The seller’s confidence in the economy may have improved since he listed the parcel
The actual economy for land sales typically does not change in 3-6 months, the timeframe of a typical real estate listing. However, the seller’s psychological confidence in the economy based on news reports could easily change in a period that short. The seller may be thinking “sure I listed my property at $X five months ago, but now the economy has improved so I want more money for my land”.
8. The buyer or the buyer’s agent may be acting like a jerk
Sellers do not want to sell their land to buyers who are acting like jerks or who are represented by agents who are acting like jerks. An example of a jerky thing to do would be to submit a full price offer and then get angry, threatening litigation if the seller doesn’t immediately accept the offer (like the agent who inspired this blog post did). Any mention of the L-word for any reason is naturally a huge turnoff to sellers. Sellers do not want to do business with buyers who seem litigious or who might create a complicated unhappy escrow experience. As a pure business decision, a seller is unlikely to accept a full price offer from someone who is acting like a jerk.
Advice to Sellers
Yes, technically you can ask a buyer to pay more than the listing price. But let’s face it – you will create an unhappy melodrama between the buyer, buyer’s agent and listing agent. More importantly for you, a move like this is unlikely to be successful.
Countering over the asking price may cause the buyer to disappear. There are some buyers who, upon receiving such a counteroffer, will think you’re an unfair meanie and will walk away just on principle.
As a seller, it’s far better to list the property at a price you are actually willing to accept. If the price you are willing to accept changes, then talk with your Realtor immediately about modifying the advertised listing price.
Also listen to your Realtor. Ask your Realtor to do some updated research. Maybe the higher price you think you can fetch is ill-considered and you should keep the list price the way it is. After all, it hasn’t sold at current listing price yet, now has it?
As a strategy, countering over the asking price should be reserved for only the rarest of circumstances. And only when you’re mentally prepared for the buyer to say “no thanks”.
Advice to Buyers
If you think a parcel is an awesome deal, it is likely you’re not alone in that opinion. When you find a fabulous real estate opportunity, be aware that multiple offers and counteroffers over the asking price are a possibility. The best way to avoid a bidding war is to write a “clean” offer. That means you should offer full price and, in addition, offer 50% of all closing costs including title insurance. To increase the odds of acceptance, write into your offer that the seller can choose the escrow and title company. Finally, submit your offer quickly before anyone else sees the listing!
Advice to Agents
If you are a buyer’s agent and you submit a full price offer and get no response please don’t jump to the conclusion that there’s some conspiracy afoot against your buyer like the agent who inspired this blog post did. There are many reasons why a seller would decline a full price offer that have nothing to do with you and your buyer. Even if you get no reply, remember, a non-reply, while no fun, is legal.
Further, the buyer’s agent should remember that the listing agent has a fiduciary responsibility to the seller, not to you or to your client. The listing agent has no ethical responsibility to tell you what the seller is thinking. A seller could be declining your full price offer for any number of reasons and the listing agent has no duty to tell you the reason. She may. She may not.
Just politely contact the listing agent to inquire about the status of your buyer’s offer. Be careful about seeming too desperate and “showing your hand” because the wily listing agent may use that to her client’s advantage. Monitor the MLS listing daily to see if the seller might have increased the listing price. If you get the news that your full price offer is declined just ask your buyer if they want to submit a better offer.
As the economy improves, you will see more and more bidding wars, declined full price offers, and counteroffers over asking price. Just take a deep breath and take it in stride.
When you are acting as a listing agent, make sure your sellers know that they should list at a price they are actually prepared to accept. If the price they are willing to accept changes, encourage them to contact you immediately to discuss whether it makes sense to officially change the listing price.
