Can You Win An Offer Even If You Are Not The Highest Price?
Most people assume the offer with the highest price wins. In Bay Area real estate nothing could be further from the truth. Why you ask? This is because there are two basic parts to a real estate contract, price and terms. If you win an offer based on terms then you may not have offered the highest price.
Let’s take a quick and simplified look at why the terms of a contract are often more important then the price. Hypothetically let’s say that two contracts are submitted on a single property. Offer #1 is submitted at $1,025,000 with a 3 day inspection contingency and a 3% deposit. Offer #2 is submitted at $1,000,000 with no inspection contingency and a 3% deposit.
An inspection contingency protects a buyer’s deposit and makes the California Association of Realtors Residential Purchase Agreement an option to buy. The seller now has a dilemma. Offer #1 allows for the buyer to drop out of the contract or negotiate price and terms for 3 days with no risk to the buyer’s deposit. Offer #2 is $25,000 less, but if accepted immediately puts the buyer’s deposit at risk. In this situation the seller is confronted with assessing what an inspection contingency is worth.
At this point in the negotiation a Seller has only 3 options. The seller can decline all offers, counter 1 or both of the offers, or accept one of the offers. First, if a seller really does want to sell, then they probably will not decline all offers. Second, all good real estate agents know that you should not counter a buyer’s inspection contingency. It is legally too dangerous to deny a buyer their right to investigate a property (this is one of the reasons why an offer that is submitted with no inspection contingency is powerful). The seller could counter offer #2 up to the $1,025,000 price, but they could also risk alienating this buyer and losing them all together. I have witnessed sellers that have lost great offers by making aggressive counter offers. So we are left with 2 options… Take offer #1 or take offer #2. Ultimately many sellers are willing to take a lesser offer that is more likely to close. For if offer #1 backs out of the contract then offer #2 may be gone and the seller may be faced with no alternatives.
The reality of our hypothetical example above is that the situation is rarely this simple. In the Bay Area there are often many more then just 2 contracts (I just witnessed a property in El Cerrito, California that had 31 offers) on a single home. The example above also simplified the contract to 3 terms. In reality there are many more terms to consider when writing an offer.
Ultimately, finding an exceptional real estate agent and consulting with them on how to approach writing a powerful offer, can save you money. It is always important to make sure your agent is adequately protecting your interests when writing an offer. Please note that this article does not advocate writing offers with out inspection contingencies. It is always important for buyers to have adequate time to perform any and all inspections deemed necessary before purchasing a home. This hypothetical example is solely used to demonstrate that terms are an extremely important part of an offer.
