Understanding the art of the preemptive offer
The personal stories of one Realtor’s battles and triumphs in the highly-competitive Bay Area Real Estate Market, seeking to illuminate and humanize the very real ups-and-downs of homeownership.
Last month, Sarah and I represented a property that was part of a modest estate. That being said “modest” is a relative term. Here in the Bay Area, even small homes trade for more than a million dollars, which, frankly speaking, ain’t chump change. (Sadly, neither Cliff nor I are in line for an inheritance – modest or otherwise – although we wish we were.)
Although the house had been somewhat neglected through the years, it had a million-dollar view and loads of upside potential, which is why it attracted MEGA interest in the space of just one week and received 13 offers come the offer date. In short, it was in high demand.
To complicate matters slightly, this property was held in trust, with only one trustee signing on behalf of both heirs. In such cases, a Trustee’s fiduciary duty includes – among many other things – getting the most money for the property on behalf of all parties involved, AND our fiduciary duty as Agents to the Trustee includes the same. Consequently, the instructions in the MLS (Multiple Listing Service) were explicit: “This property is held in trust and as such, the Seller will not accept preemptive offers. Please submit offers on . . . “
However, that didn’t stop one very eager Agent from ignoring our directive and dropping a “preemptive offer” in our email (and in our laps) within three hours of the house going live on the MLS.
“What’s a preemptive offer?” you say. (I’m glad you asked.)
Preemptive offers are those for which a date has been set and patently ignored. Buyer’s Agents understand that, by law, any offer received by a Seller’s representative MUST be presented within 24 hours, and most of these offers (if the Agent has a brain), will have small windows that are closer to 4-8 hours to avoid having the offer “shopped.” If an offer date has NOT been set, such early offers aren’t ‘preemptive,” they’re just aggressive offers from a quick thinking and proactive Agent. (Booyah!)
Buyer beware the risks of the preemptive offer
There’s nothing inherently wrong or illegal with being aggressive in a real estate world where supply is well short of demand, In fact, I successfully employed this strategy last week on a beautiful house in Berkeley for a well-heeled Buyer who knew what he wanted and was willing to pay for it (all’s fair in love and war), but it does come with risks that may work against the Buyer, including tipping one’s hand prior to the offer date. That’s a real consideration and it’s not minor by any means. On the reward side, the successful Buyer may shut down the competition and get into contract on a highly sought after home before anyone else can get their act together.
BTW, it’s more common than not that the Seller WILL reject a preemptive offer on the assumption that the Buyer WILL return on the published date (they may or may not), as nearly all Sellers make the mistake of thinking the first offer can be improved upon and the Buyers will wait (not always.). In the meantime, the Buyer has now revealed the price they are willing to pay for the property . . . . If a Non-Disclosure Form doesn’t accompany the preemptive bid, the Agent can leverage this information when other Buyers’ Agents reach out to ask about the level of interest.
“What’s the Seller looking for?” (Hint: they are ALL looking for MORE.)
“I don’t know what the Seller will accept, but he has already turned down X…” (Follow the breadcrumbs.)
Finally, if you’re intent on writing preemptively (and many Agents are employing this as an ongoing practice), there’s a right and wrong way to go about it. The immediate offer we received in the opening story above was actually $200,000 BELOW the list price – with several contingencies attached, including a loan, appraisal and inspection! (Huh?) That’s decidedly, the WRONG way to write preemptively. Rejecting the offer was a no-brainer, followed by a polite “no thank you.” (They resubmitted the same offer a week later where it landed in last place. No learning curve and no surprise.)
Preemptive offers should be bold, aspirational and blow the competition away
Let’s understand that a “preemptive offer” – by its very nature – must be strong enough to assure the Sellers that they won’t receive more by waiting; that they might, in fact, receive less. Preemptive offers must be clean, clearly defined, fully executed, AND they must blow the competition out of the water! The goal is to appeal to the Sellers’ aspirations, mixed in with a little fear. (A preemptive offer has more impact if the Buyer is willing to walk away . . . ).
Moreover, preemptive offers rarely have ANY contingencies, and like all offers that are contingency-free, there’s no second-guessing, there’s no escape route, there’s no safety net, and there’s no do-overs. A non-contingent purchase offer is a legally binding agreement and it commits you fully to the transaction, preemptive or otherwise! So if you are intent on jumping in early, beware the fall.
Finally, I’ve never understood the logic of asking an Agent if the Buyer will accept a “preemptive offer,” especially when a date has been published. If you ask the Realtors. we will invariably say “no” because we’ve already put our colleagues on notice. However, if you present unexpectedly, we’re required to pass the offer along before it expires – irrespective of what we’ve published. In other words, when it comes to a preemptive offer, it’s often easier to ask for forgiveness than permission.
It’s important to remember that whatever road a well-intentioned offer travels, a home-selling transaction is ultimately between a Buyer and a Seller (not the Seller and Agent) so it’s the Seller that ultimately decides what to do with the unexpected bird in the hand (no matter what his/her Agent thinks or advises).
How can we help you?
Julie Gardner & Sarah Abel | Compass Realty
Not just Realtors, but consultants in all things house and home, we’re here to educate, explore, examine and refer . . . In short, you may count on us to take care of your home as if it were our own and anyone who knows us, knows we take pretty darn good care of our homes.