My buyer visited a new listing the very next day after it came on market. The home went pending that same afternoon. Less than one day, and gone! I called the agent to ask if we could present a backup offer (in case the sale with the current buyer fell apart). The agent said yes, but that there were two, possibly three other back up offers that we would be competing with. Oh brother…competing for backup position?
So, there I was, writing a backup offer above list price and with several other bells and whistles that we hoped would make our offer the best of them all.
It was interesting how good it felt when the seller selected our offer over the others. HOORAY, we had won! I felt great… for about two or three seconds. Then I remembered that we didn’t actually get the house yet. We still had to wait and pray that the first position buyers changed their minds, chickened out, lost their financing, got arrested and sent to jail (etc., etc.). Of course, we’re not wishing for harm to come to those buyers, but we are definitely hoping SOMETHING happens that will move us into first position. Sigh…I also can’t help but wonder if our backup offer is actually even better than their offer.
For sellers, a signed and accepted backup offer is a powerful tool to have in place. It offers peace of mind knowing they will not have to go back on market should the first buyer bail out. It can also add leverage during negotiation of repairs with the first buyer. Sellers don’t feel as much pressure to agree to expensive repairs requested by the buyer. They just need to have their agent inform them that they have secured a contract with a strong backup buyer who would LOVE to take their place.
Supply and demand folks….supply and demand………
Kevin G. Kevin@KevinGormanSells.com
When I complete a market analysis for my sellers, it shows a suggested price range for listing their home. This range is based upon a detailed comparison of the homes that have sold in the past 3-6 months and within a one-mile radius.
Lately, I have been suggesting that my clients list their home at the high end of my analysis. Then I watch them stare off into space with a big silly grin and dollar signs rolling through their eyes.
At that point, I gently remind them that if they accept an offer from a buyer who is obtaining a loan, the property must appraise at or above the final purchase price or the lender will not approve the loan.
It is common in our current market that multiple offers are pushing prices above list. Sellers should discuss all offers carefully with their Realtor. The price offered by a buyer with a loan can realistically only go “so high” until there is a risk of the home not appraising at purchase price. If that happens, the transaction can fail.
The solution for sellers?…Before accepting a questionably high offer from a buyer who is obtaining a loan, the seller should negotiate that the buyer will agree to move forward with the purchase regardless of appraisal result. That way, if the appraisal is low, the buyer will have to move forward anyway and pay the difference between a low appraisal and the agreed upon purchase price. In addition, seller should require buyer to immediately provide proof that the buyer has the ability (additional cash beyond their down payment and loan closing costs) to do so. All of this, in writing right up front and upon acceptance of the offer.
On the other hand, if given the choice, a cash offer could be a seller’s dream. In this case there will likely not even be an appraisal to worry about… JACKPOT!
Happy selling 🙂
Kevin G. www.KevinGormanSells.com