Making an Offer in a Sellers Market

July 18, 2018

In today’s seller dominated marketplace buyers will often encounter a situation where sellers, usually at the advice of their agent, will choose a date to review and respond to offers. If implemented correctly this tactic is usually beneficial to sellers for a few reasons.

  1. It sets a timeline controlled by the seller and their agent.
  2. It can give the agent time to market the property via MLS meetings/open houses/online advertising etc. in a systematic way, thus ensuring the property is exposed to the right people and to as many of them as possible.
  3. It creates a competitive environment because it gives potential buyers the impression that the sellers expect multiple offers. “We are waiting to review all offers until Sunday evening.”
  4. It prevents a situation in which a seller takes the first offer they see, and instead allows time for multiple buyers to look at the property, which ideally leads to multiple offers.

Unfortunately, this presents the potential buyer with a dilemma. Knowing that multiple offers are likely, the buyers and their agents are put in a position where the best strategy is often unclear. Does the buyer make the first offer? The last offer? Not to mention, what price?

I’ll discuss two possible strategies and the merits/drawbacks of each. Finally, I’ll advocate for the “Hold…Hold” approach to making an offer.

 

Strategy 1: Early Bird

This is when a buyer attempts to lock up a property by making an early and strong offer, ideally the first. The goal is to present a buyer with an offer to good to refuse in hopes that they take it before other offers come in. This approach is best implemented in a situation where the realtor believes that other offers are likely, but not imminent. Hopefully, you catch a seller who thinks they may get other offers but isn’t willing to risk losing out on a strong one. The early bird offer is a bold play and should have an expiration date at least a few days before the seller’s review period. The idea is to force the seller to respond quickly and accept for fear of losing the offer.

The risk is that the seller holds firm to their review period and calls a bluff on the expiration of the offer. Now your offer is the first and the seller and their agent can dangle it in front of other potential buyers and use it to leverage stronger offers. Your bold play can quickly turn into the stepping stool that subsequent buyers must stand on. Not great. One way to avoid this is to submit a non-disclosure agreement prior to submitting the offer, stating that the agent and seller cannot discuss the terms or purchase price. When making the early bird offer, make it strong, have it expire quickly, but be willing to suffer the result. I’ve seen buyers make full price offers and not even receive a response because other buyers, knowing what their offer was, outbid to such a degree that the seller didn’t even counter.

 

Strategy 2: Hold…Hold

This approach is fairly self-explanatory. The buyer waits to make an offer until the last possible moment in an effort to gauge the interest in a property and the strength of the other offers. With the luxury of seeing the whole field, the buyer and their agent can make an informed decision as to what they need to offer in order to get the property, or at the very least, remain in contention and receive a counter.  In the best cases, a buyer may even avoid paying a higher price than they would have if they made an early offer. Usually, a good sellers agent will be more than willing to tout the strength of good offers but will remain tight-lipped about poor ones.

One of the potential downfalls is that a buyer may end up paying more than they would have if they had gone with the “Early Bird” approach because they are now competing with other offers. There’s also the risk that a competing buyer comes in and locks up the deal before the review deadline and before you can make an offer. This is why, when taking the “Hold….Hold” approach it’s crucial that the buyers’ agent stays in close correspondence with the sellers’ agent in order to keep tabs on other offers and gage their relative strength.

There you have it, two approaches to making an offer when a seller is holding off on reviewing. Now get out there and buy something!

Remember, if you ever have any real estate questions or needs give me a call!!