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Problem for Home Sellers: The Curse Of The First Offer

May 4th, 2017

Sometimes when everything goes right we have trouble accepting that fact. Perhaps nowhere is this phenomenon more clearly illustrated than in the case where a seller receives a good offer right away.

The annals of real estate are well stocked with stories of sellers who refused to take a good, but not perfect, first offer, and who then waited a long, long time before finally accepting something else at a considerably lower price. And most agents who have been around for a while know to shudder when a good strong offer is made almost at the outset of a listing; for the seller’s reservations are almost inevitable. “Did we list it too low?” “If someone will offer this much so soon, maybe we should wait a while and see if we can get more.” Etc.

When we read of Silicon Valley listings routinely selling at 15% above list price, and when we’ve just recently come through a period when multiple-offer situations were commonplace, it is understandable that such thoughts come to mind. Nonetheless, they are generally unfounded, especially if the market is anywhere near “normal”, as ours is today.

As an antidote to the ill effects of the “curse of the first offer”, a couple of observations might be kept in mind.

First, the fact that an offer is received early in the listing period — even in the first few days — doesn’t mean that the property has been listed too low.

It is easy to overlook how very efficient the residential real estate marketplace has become. Modern multiple listing systems (MLS) provide agents, and thus their buyer clients, with virtually instant access to information about existing inventory and about what has newly come on the market. In the old, old days a buyer’s agent did not become aware of new listings until “the book” (i.e. the compilation of MLS listings) was published. There might have been a lag time of ten days or more from the time the listing was taken.

Today, a good buyer’s agent will have electronically entered a “profile” of his client’s needs and price range into the system. Then, whenever he logs on to the MLS, he will be notified if a listing has been entered that matches that profile. In a low-inventory market such as we have had recently, buyers’ agents will log on a half-dozen times a day, or more, to see if an appropriate new listing has been entered. Moreover, in most systems the buyer’s agent is able to place the buyer himself on a similar notification.

The point is that potential buyers learn quickly of the existence of an appropriate new listing. Thus a flurry of activity at the outset of the listing does not necessarily imply a too-low price; rather, it reflects the efficiency of the system.

Secondly, an early first offer does not imply that the seller should hold out for full price.

We all know that there is typically a bit of a dance in the pricing and negotiating for a property. Sellers, with the concurrence of their agents, will usually list their property for an amount that is both higher than what they believe its value to be and higher than what they would be satisfied to receive. Why? Because they know that buyers almost always want and expect to pay less than the listed price

However, when an otherwise acceptable offer comes in near the outset of a listing period, sellers are frequently tempted to hold out for full price, or much closer to it than would normally be expected. Caution should be exercised in this regard.

For one thing, as we have noted, exposure of the property to buyers occurs pretty quickly nowadays, and sellers shouldn’t assume that there are going to be more, much less higher, offers as the listing period progresses.

Secondly, there often can be a transactional benefit to “leaving something on the table.” A real estate transaction is a process. These days, with inspections and disclosures, there are almost always “second negotiations” during the course of escrow. A buyer who feels ground down in the purchase negotiation may well be more difficult to deal with as other issues arise.

Written by Bob Hunt

Sunbelt Lending Services

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