Recently, a home seller who lived in the Montclair area of Oakland, Calif., was getting his home ready to go on the market. In the process, his dog ran away. While searching for the dog, he met a neighbor and told him that his home would be for sale shortly.
The neighbor told friends about the upcoming listing. The friends had recently sold their home and were having a hard time finding a suitable home to buy. Delighted to have the tip, they contacted the seller who agreed to show them the house before it hit the open market. It was love at first sight. In order to avoid competition from other buyers, they made a pre-emptive offer.
Pre-emptive offers have become popular in low-inventory markets where multiple-offer competitions are common. A pre-emptive offer is one that is made early – either before a property is on the market or before the date the sellers have set to accept offers.
HOUSE HUNTING TIP: A pre-emptive offer poses a dilemma for sellers. If they accept the offer, they’ll save themselves the hassle of the marketing process. But price-wise, it’s a gamble. They might sell for a higher price with an aggressive marketing campaign. However, buyers who make pre-emptive offers are usually aware of this. So their offers tend to be strong. Otherwise, why would a seller agree to forego the chance of selling for a good price?
On the other hand, they could sell for less on the open market. And, there’s no guarantee that a buyer whose pre-emptive offer was refused will be around when the sellers do decide to accept offers. If he is, and he makes an offer, it could be for a lower price than he initially offered if there are no competing offers at that time.
In the above example, the pre-emptive offer was for $75,000 over the asking price. The seller was tempted. But he decided to stick to his original game plan, which was to expose the house to the market before accepting offers.
It turned out that the listing was a hot property. It attracted nine offers and sold for $285,000 over the asking price. If the seller had accepted the pre-emptive offer, he would have left $210,000 on the table.
Another Montclair seller who sold around the same time had a different experience with a pre-emptive offer. His property also received a lot of interest. It was a cosmetic fixer-upper on a good lot in a desirable location.
After the property was listed, but before the designated offer date, several real estate agents who represented interested buyers called the listing agent to find out if the seller would entertain a pre-emptive offer. The seller said he wanted to wait to hear offers.
However, one persistent buyer insisted on writing a pre-emptive offer, which his agent delivered to the listing agent. Although the seller was pleased with the offer for $150,000 over the list price, he turned it down. He felt it would be unfair to the other buyers who had wanted to make pre-emptive offers but who were told they had to wait.
On offer date, the seller received eight offers. The accepted offer was for $5,000 less than the price offered by the pre-emptive buyer. The buyer who made the initial pre-emptive offer did not re-submit his offer.
THE CLOSING: Pre-emptive offers are risky for both buyers and sellers. Sellers who accept pre-emptive offers will never know if they could have sold for more on the open market. Buyers will never know if they could have paid less.
Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.
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