When markets are tight, people will resort to all sort of tactics to get an advantage over the competition. In this case, available inventory of homes for sale have been in short supply for a long time. That means some homes get snapped up immediately and with multiple offers pushing up the asking price to a premium.
Before I get into the whether it makes sense to make a pre-emptive offer, perhaps I should explain exactly what a pre-emptive offer is.
When someone lists a home for sale, he will discuss with the agent how to review offers. Basically, there are two different ways to proceed once the home goes on the market. The first is to say that offers will be received on a first-come basis so there’s an advantage in moving quickly. And to make your offer stand out, the offer could be above the asking price.
The other approach is to set a date to review offers. Usually in this scenario, the home will be on the market for a week or two with several open houses (which are currently not allowed) and then look at offers. This is often done to stimulate demand with the hopes of creating a bidding war among buyers thereby driving the price up.
One of the ways a pre-emptive offer could be used is when the buyer’s agent or buyer asks the listing agent if the seller would consider taking an offer now instead of waiting for the published bid date. To get the seller’s attention and early response, the offer is very attractive in price and terms.
Another way pre-emptive offers come about is when an agent or his client hears of a new property coming on the market soon and try and get it before anyone knows about it. Here the seller’s agent will be asked exactly what the seller wants in terms of price and any special terms that make the transition easy for them. So, if things are agreeable, the seller gets his price and terms and the buyer gets the home with no competition.
Why would a seller do this? The answer is pretty simple. If you get the price you want or maybe even more, why wouldn’t you take it? Maybe you are leaving some potential money on the table by not seeing if there are other potential bidders. Or maybe there’s only one bidder and then you’ll be lucky to get full price. That’s a risk you’ll have to take and you will never know how the alternative would have turned out.
Why would a buyer do this? Perhaps after getting beat out on a few previous homes, potential buyers may feel they have to resort to more competitive methods to get their home. Perhaps they are overpaying on their offer to beat out any competition. Had the buyer waited to the actual offer date, they may have gotten the home for less as the competition was less than expected. Again, that’s a risk the buyer is willing to take.
What are the downsides to a pre-emptive offer? You may over pay. And in the case of homes not listed yet, the agents may not have had an opportunity to complete all the inspections and disclosures at the time of the offer. So, the buyer is making an offer on partial or little information about the property. As the inspections become available, there may be more problems revealed than were anticipated when the early offer was presented. This can easily lead to potential renegotiations on price or terms to deal with these issues. This isn’t unusual as the seller hasn’t had the time to do everything upfront. This is less of a problem with homes already on the market as most of this was done prior to entering the home into the listing service.
Is this fair to everyone? Probably not. Many buyers will be annoyed that they didn’t get an opportunity to bid on this home, especially if the listing sets a bid date and then takes an early offer. I doubt the buyer and seller really care as they are getting what they want. You know the expression: “All’s fair in love and war.” Guess it applies to buying and selling homes too!
Steven Hyman is the broker and owner of Century 21 Sunset Properties. He can be reached at 726-6346 or at century21sunset.com