Buyer / Seller Information

Taking a Gamble with Preemptive Offers

September 30, 2013

Author: Joanne Wondolowski, Vice President and Manager of Alain Pinel Realtors Burlingame

In a normal market, listings are generally exposed to the open market and offers are presented as they are received. However, in a fast paced market, with limited inventory, it is not uncommon for sellers to set dates for when offers will be accepted.
In the Bay Area, where the market has been on fire the past year, it is actually pretty common for sellers to have these offer-hearing dates on new listings. We are also seeing a lot of discouraged buyers – who after putting in offer after offer, reviewing disclosure packet after disclosure packet, are still losing out in multiple offer situations. So what do these buyers do? They go on to the next house, find out when offers are set to be heard, and decide they do not want to wait. Instead, they submit an aggressive offer and have it dropped off to the listing agent immediately. This is known as a preemptive offer.
If the seller accepts, it is a win for both parties, right? The seller ends up with a strong offer and a short selling process, and the buyer ends up finally getting an offer accepted. While it sometimes works this way, there are also many scenarios which can complicate this. Consider these examples:

  • A preemptive offer comes in $75,000 over asking price and the seller accepts it. The property gets much more interest than expected and when offers were supposed to be heard – multiple offers are received, including one $100,000 over asking. The seller has left money on the table.
  • A seller decides to play by the rules and does not want to hear offers until Sunday. An aggressive buyer still submits a preemptive offer for $100,000 over asking. The seller rejects it and says to wait until Sunday. Come Sunday, the buyer having noticed not as much interest, submits a less aggressive offer. The seller is discontent knowing that the buyer was willing to pay more.
  • A buyer submits a very aggressive preemptive offer that the seller accepts. When the due date comes around it has only piqued the interest of 1 or 2 other buyers and neither offer is near the preemptive offer. The buyer has not only overpaid, but in making their aggressive offer, also conceded some contingencies they rather would not have.
  • A buyer submits a modest preemptive offer only $60,000 over asking price. The seller, having said they would not hear offers before the due date, rejects it and has a negative impression of the buyer in future offers. Having felt they already revealed their hand, the buyer does not resubmit an offer and walks.

Preemptive offers are risky propositions for sellers and buyers. For sellers, they never know if they are leaving money on the table by not having the full, planned exposure to the market and seeing all offers. However, rejecting a preemptive offer might make you lose the best offer you could have gotten. For buyers, coming in too low may prompt an immediate no from a seller. Trying to create an offer a seller cannot refuse may also result in overpaying or too many concessions. On the other hand, not submitting a preemptive offer may mean you never get a chance to submit an offer.
The truth is there are risks no matter how preemptive offers are handled, but the most important thing is to fully understand the different scenarios that can occur. It is important whether you are a seller or a buyer that your agent explains the market, details and walks you through the possible outcomes, and is upfront about various approaches. Communication between client and agent about different situations before they occur is crucial. While we cannot stop the reality of preemptive offers – we can prepare ourselves for them.

This article is featured in the Sept. 20, 2013 Palo Alto Daily News publication Premier Homes Page 10.


About Author:

Joanne Wondolowski serves as Vice President and Manager of the Alain Pinel Realtors Burlingame. Joanne has been working in real estate on the Peninsula for more than 25 years. She worked for 6 years as an agent and then moved into management. Joanne has built and managed 3 offices in the Burlingame /San Mateo area. For more information call Alain Pinel Realtors Burlingame at 650.375.1111 or email joanne@apr.com
 
 

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