I have a story to tell that might be painful to some readers. The pain may be to some home buyers that over paid junk fees, a buyer that didn’t get their dream home, or to one of the many agents that would prefer that I didn’t disclose industry secrets. But the truth is, I feel that transparency and education are the keys to helping home buyers and sellers to successful transactions.
A few weeks ago I listed a home for sale in Sacramento. As a diligent real estate agent, I inspected the home and evaluated the comparable sales within a reasonable radius. It was clear to me that the objective value of the home was close to $250,000. In other words, this is the value an appraiser would give the home. I educated my seller on the state of the market; which is currently a shortage of affordable homes and discussed the probability that the subjective value would be over the $250,000 appraised value. The decision was made to list the home on Thursday at $250,000. By Monday morning we had over 50 showings and 16 offers! The offers ranged in price from $245,000 to $278,000. You would think the seller simply picked the $278,000 offer, but you would be wrong.
The job of a listing agent is to balance the likelihood of closing with the highest and best offer. That means that we are looking for a strong offer with good terms while trying to get the most for the house. As a buyer, you always want to get the house for the least amount of money (because your taxes are based on the purchase price) while giving the seller the highest net. To achieve this goal, you need the best offer possible which means avoiding certain pitfalls.
Kevin’s Top 5 ways to get your offer thrown in the trash by a listing agent.
#1 – Submitting a blind offer. A blind offer is an offer from a buyer that has not seen the house. An offer from a buyer that has yet to see the house is an offer that will likely not work out. Make sure your agent can prove he / she was at the house by either accessing the lockbox or by leaving a business card.
#2 – Submitting an incomplete offer. Of the 16 offers I received on this listing, there were 5 offers that were not complete. Names were missing, loan terms were not filled out, real estate licenses were missing. This just screams that you are dealing with an incompetent agent and that there will be many more problems over the next 30 days and possible even after escrow closes.
#3 – Treating the seller like an unlimited ATM. You can ask the seller for anything you want on a contract. Do you like their car? You can request it. How about that big TV, refrigerator, or the furniture? Everything is negotiable. However, every time you ask for something, you offer looks a little bit less attractive. JUST BECAUSE YOU CAN ASK FOR SOMETHING DOESN’T MEAN YOU SHOULD! I had 6 offers at the exact same price. Every offer that asked the seller for a home warranty went to the bottom and the ones that didn’t went to the top. In this case, just asking the seller to buy a home warranty was enough to get the offer rejected.
#4 – Asking the seller for closing cost credits. I have seen way too many buyers with adequate money for closing costs request the seller give a cash credit. This is foolish on multiple levels. 1, You are cheapening your offer. 2, You are increasing your property tax bill. 3, You are technically financing your closing costs over the life of the loan. Yes, there are some buyers that don’t have the money for a down payment and closing costs. If this is your situation, then by all means, ask for the credit but make sure you consider that fact that the seller will get less money.
#5 – Offering a ridiculous price for the house (low or high). In a multiple offer situation, low offers are just thrown out. Buyers are often surprised by this and the comment is usually, “We would have paid way more but our offer was just a starting point.” The lesson here is that in a seller’s market, don’t play games. It can be equally bad to write an offer that is substantially over the market value. Agents that have experience will remember the last bubble when home buyers would offer $50,000 or more over the asking price with the intention of renegotiating the price once the appraisal came back well under the contract terms. If your offer is too good to be true, a smart listing agent will know the game.
I could easily write another 20 pages on how to get your offer noticed without necessarily being the highest bidder. The key is to hire an agent that educates you on the process and helps you make decisions. I have to laugh at the offers I received on this house with agent comment like, “Hi Kevin, even though I told my buyer you had offers over $270,000, they still insisted on me sending you this offer $5,000 under the asking price.” Hire an agent you trust and listen to their advice. If you don’t trust them, why did you hire them?
Lastly, as a buyer, be aware of what fees you should be paying. Your agent is getting paid 2.5% to 3% of the purchase price to help you. Some of the bigger brokerages are now charging a “transaction coordinating fee” to the buyer of $300 – $400. This fee is going to an assistant to do the job of your agent. You should not have to pay this fee. If your agent can’t or won’t do their job, why are you paying for that?