Recently I received a full price offer from a Realtor representing a buyer. I was representing the seller. My client declined the full price offer and gave the buyer a counteroffer that was higher than his asking price.
The reasons the seller made this decision are several: 1) He knew he owed substantial back taxes, but after receiving the offer he discovered the amount; 2) Land22 Real Estate had received considerable interest in the parcel and he felt he might have under-priced it in light of the response we received from our marketing; 3) After submitting the offer, the buyer’s agent called repeatedly and even said that the buyer might be willing to pay more, if we had a competing offer, for example. The buyer’s agent had essentially “shown her hand” to me, the seller’s fiduciary.
So the seller countered over the asking price.
The Realtor representing the buyer went absolutely ballistic! She threw a tantrum, sent me several flaming e-mails, and was generally very rude. She implied there was some conspiracy afoot.
So while that Realtor is over there pouting, taking a time-out in the naughty girl corner, let’s talk, just you and I. From this experience, it became clear to me that not all buyers, and perhaps not all agents, understand that it’s acceptable for sellers to decline full price offers. Buyers and their agents may not grasp the reasons why a seller might do that. Further, sellers may not realize the drama that they create when they counter over the asking price. Time to Blog!
Does a seller have to accept a full price offer?
The short answer is “No.”
Real estate is not like shopping at the supermarket. When you go to the grocery store and the item is marked $1.29 you can be confident that when you take it up to the cash register you will be allowed to purchase it for $1.29. Even if the computer register makes a mistake and shows it at $1.50, for example, you can still talk to a manager and he will likely give it to you for $1.29 because that’s the price marked on the item.
Real estate doesn’t work that way.
So why does the price appear in the MLS if the seller won’t accept that price?
MLS systems were originally created by agents for agents. They were not created by sellers to advertise their prices. The listing is placed in the MLS by the listing agent, not by the seller. So the MLS listing is not an offer to sell made by a seller. The primary purpose of the MLS listing is to publish an offer of compensation by a listing broker, directed to other broker participants in that MLS. By entering the listing in the MLS the listing agent is effectively saying to other agents “Hey, I have this listing. If you bring me an offer from a buyer and my client accepts it I’ll give you part of my commission”. The listing agent enters the price that the seller listed the property for into the MLS. However, while the listing agent is holding a signed listing (service) agreement with the seller, the listing agent is not the ultimate decision maker on the price that the seller will actually accept from a buyer. The seller is the “principal”. The listing agent is not the “principal”. The seller is the one who makes the final decision on the price he will sell for.
If a seller declines a full price offer, does he have to explain the reason why to the buyer?
No, the seller does not have to explain their reasoning to the buyer. In fact, the seller does not even have to reply to the buyer’s offer at all, even a full price offer The seller can remain entirely silent.
If the Realtor represents the seller alone, and does not represent the buyer, that Realtor is solely the seller’s fiduciary. The listing agent does not have to explain to the buyer’s agent the reason the seller declined the buyer’s full price offer. Of course the listing agent may well do this if she feels it is in her client’s best interest. For example, if the seller wants the buyer to re-submit a revised offer the listing agent might explain to the buyer’s agent how the buyer might improve their offer. However, there are times when the listing agent, acting as the seller’s fiduciary, will find it to be in the seller’s best interest to say nothing. In that event, she will remain silent.
What are some of the reasons why a seller might decline a full price offer?
First, rest assured that the vast majority of sellers will gladly accept a full price offer. Or, they may give a buyer a counteroffer on a couple of details in the terms but accept the full price. However, there are reasons why some sellers may not accept full price. Here are a few of those reasons:
1. The seller may have received another written offer
In fact, the seller may have not just one additional offer but several. The other offer(s) may be higher than your offer, lower than your offer, or the same as your offer. Regardless, the seller is free to accept one offer, counter one offer, counter multiple offers, or decline all offers. The seller can respond however he wishes. There is no “first come first served” in real estate. In practice, the way it usually works is that when a seller receives two or more offers, the seller will either accept the best offer or the seller will counter two or more offers creating a “bidding war”. In the event of a bidding war, the parcel is likely to sell for over the asking price.
2. The seller may have received another verbal offer
Even if the seller does not have another written offer, his seller may have received a verbal offer from another potential buyer via the listing agent. It could be that when the seller heard about this other buyer the seller decided not to respond to your written full price offer. He may be hoping to get more from this other buyer who has floated a verbal offer. It could be that the other buyer has not gotten around to putting that offer in writing yet. The seller may also be planning to increase the listing price based on another verbal offer that he has received.
3. The seller may be unhappy with the terms in the buyer’s offer
Offers are not all about price. Offers consist of price and terms. Sure you may have offered full price, but did you ask for a 120 day escrow period so that you would have time to come up with the money? Is your offer contingent on selling your house in Bosnia? Did you ask the seller to pay for all of the closing costs including your portion? Did you say you were going to get a bank loan on vacant land with 10% down when the seller knows that virtually no such loans exist? Did you ask the seller to pay for a perc test for septic, a well inspection, or a survey? If you answered “yes” to any of these questions, the seller may be saying to himself “Give me a break. I’m not even going to reply to this frivolous offer” even if it is full price. Yes, the price is fine. But the seller doesn’t like the terms.
4. The buyer’s agent may have “shown her hand” to the listing agent
The agent representing the buyer may have inadvertently or deliberately disclosed to the listing agent the buyer’s extreme motivation to purchase or even the buyer’s willingness to pay more if necessary. The buyer’s agent may have dropped into conversation that she thinks the parcel is a “good deal” or “very well priced”. She may have called the listing agent incessantly asking if there are competing offers, or pressuring the listing agent for a response. This is a “tell” that the buyer is very interested and is pushing her agent to get a response from the listing agent and seller. When the listing agent represents the seller exclusively, and does not represent the buyer, that listing agent is the seller’s fiduciary and not the buyer’s fiduciary. So the listing agent may advise her client, the seller, she believes the buyer may be willing to pay more than the asking price. This advice may cause a seller to decline or counter a full price offer even when the seller has no other offers.
5. The listing agent’s phone may be ringing off the hook
If you are a buyer and you think a parcel is so awesome that you are motivated to offer full price, then it stands to reason that you are not the only person likely to be interested in this parcel at that price. The listing agent may be receiving considerable interest in the parcel in the form of a high volume of phone calls and/or many e-mails. The listing agent has likely shared this information with the seller. The seller may take this as a sign that he can get more than his initial asking price for his parcel.
One time back when I was a new agent I had a land listing next to a housing development. To me, this land looked like undesirable rocky desert up on a hill. I assisted the sellers in pricing it based on comparable parcels. However, after I listed it my phone rang every 30 minutes. I couldn’t believe it! Apparently, the residents of the adjacent housing development with a private water skiing lake and high end homes did not want anyone buying this parcel, developing it, and marring their serene hill views! So they all wanted to buy it before a developer got hold of it. Clearly, based on the volume of phone calls I was receiving, this parcel was under priced! Yikes! I contacted my sellers immediately and we increased the price sharply. After that, the phone then rang about every day or so instead of every 30 minutes, as it should if a parcel is priced properly. Then it sold at the new higher price. Luckily we caught it before an offer came in but if an offer had been received at the original price the sellers would surely have countered it over the asking price based on the volume of calls.
6. The seller may have had a change of heart on price based on reliable or unreliable new information
Unrelated to the actual response the listing agent is getting to her marketing, after signing the listing agreement at a particular price, the seller may discuss the price with his financial advisor Pandeep, his neighbor Mary Sue, or his favorite uncle Herb who used to sell real estate back in 1958. New advice (reliable or unreliable) may cause him to change his willingness to sell at the price he listed his parcel at originally. Wisely or unwisely, this may cause him to decline your full price offer.
7. The seller’s confidence in the economy may have improved since he listed the parcel
It is unlikely that the actual economy for land sales would change in 3-12 months, the time-frame of a typical real estate listing. However, while the economy itself may not change noticeably, the seller’s psychological confidence in the economy based on news reports could easily change in a period that short.
I get sellers calling me all the time 3-6 months after I give them a price opinion asking me if I can now list their land for more than I told them a few months ago. “Can I get more now?” they say; and then a few months later, “OK, how about now?” It reminds me of kids in the back seat of car asking every 5 minutes “Are we there yet?” “The economy is not improving that fast kids! (No, we are not there yet!) Call me in 2-5 years (not 2-5 months) and I’ll give you a higher price”, I say.
But what is relevant here, is not the reality of actual change in prices on land but consumer (seller) confidence in the economy. If a seller priced his land 2011 in a terrible economic recession, and receives his first offer in 2013 he might think “The economy has improved since I priced my land back in 2011. I believe I can get a higher price now or in the near future.”
Of course you and I both know that his property was OVER-priced in 2011. That’s why he has not received an offer for two years. Finally, the economy has caught up with his high 2011 listing price and he’s received his first offer from one lonely buyer. But the seller may not see it this way and may decline to accept his first offer, a full price offer, in anticipation of further improvements in the economy. I’m just saying.
8. The buyer or the buyer’s agent may be acting like a jerk
Sellers do not want to sell their land to buyers who are acting like jerks or who are represented by agents who are acting like jerks. An example of a jerky thing to do would be to submit a full price offer and then get angry, improperly threatening litigation if the seller doesn’t immediately accept the offer. Any mention of the L-word for any reason is naturally a huge turnoff to sellers. Sellers do not want to do business with buyers who seem litigious or who might create a complicated unhappy escrow experience. As a pure business decision, reasons like these might prevent a seller from accepting a full price offer from such a buyer.
It’s illegal to discriminate because of race, sex, religion etc. So obviously a seller should never decline a full price offer for any discriminatory reason.
Sellers who counter more than one buyer, e.g., over the asking price, must inform those buyers that this is a multiple-counter situation. While sellers can generally remain silent on what they are thinking, the fact that they are countering multiple buyers is not information they can withhold. The reason is, even if a buyer accepts the sellers counteroffer, the seller may or may not sell to that buyer because the seller has given counteroffers to more than one buyer. If two or more buyers accept, the seller still has the opportunity to choose and countersign. There is a spot to disclose that this is a multiple counter offer on the boilerplate California counteroffer form.
This blog does not pertain to the situation where a seller has already accepted full price offer (or any offer) from a buyer, there is signed written agreement, and then the seller wants to cancel. That’s a whole different situation.
If you have a thorny problem on your hands and need legal advice don’t get your information from this Blog or any Blog. Nothing in this Blog should be construed as legal advice. If you need legal advice, consult an attorney, preferably a real estate attorney!
Advice to Sellers:
Yes, you can ask a buyer to pay more than the listing price. But let’s face it, it’s just plain awkward. It creates an undesirable drama between the seller, buyer, listing agent and the buyer’s agent. As a seller, it’s far better to list the property at a price you are actually willing to accept. If the price you are willing to accept changes, then talk with your Realtor immediately about modifying the advertised listing price.
Further, asking your listing agent to try to get you more than the listing price you originally contracted for is also awkward. Such a request may create bad feelings between the seller and the listing agent. Remember, the listing agreement you signed is a service agreement between you as a seller and your Realtor. This means that the Realtor agreed to perform a service, spending her time and money, to find you a buyer at a particular price. That price appeared in black and white in the service (listing) agreement. Your agent did not agree to spend her time and money marketing your property at some other price or any random price you might decide on at any random time. Yes, she may agree to change the price slightly but just remember that was not the original deal! You wouldn’t be too keen your listing agent contacting you after signing the listing agreement and saying “oh, by the way, I have decided to increase the commission”, now would you?
Also be aware that by countering over the asking price you risk causing the buyer to disappear. There are some buyers who, upon receiving such a counteroffer, will think you’re an unfair meanie and will walk away just on principle, even if the higher price you are seeking is still fair.
Sellers should choose their listing price wisely to begin with after reviewing the pricing research provided by the Broker. Make sure there is a meeting of the minds between all co-owners and the Broker before signing the listing agreement!
Advice to Buyers:
If you think a parcel is an awesome deal, it is likely you’re not alone in that opinion. When you find a fabulous real estate opportunity, be aware that multiple offers are always a possibility. The best way to avoid a bidding war is to write a “clean” offer. That means you should offer full price and, in addition, offer 50% of all closing costs including title insurance. To increase the odds of acceptance, write into your offer that the seller can choose the escrow and title company. But the most important advice I can give you is this: submit your offer quickly before anyone else sees the listing!
Advice to Agents:
If you are a buyer’s agent and you submit a full price offer on behalf of your client and get no response please don’t jump to the conclusion that there’s some conspiracy afoot against your buyer like the agent who inspired this Blog post did. There are many reasons why a seller would decline a full price offer as I explain here. Even if you get no reply, remember, a non-reply, while no fun for your buyer, is legal. Further, note that the listing agent has a fiduciary responsibility to the seller, not to you or to your client and has no responsibility to tell you what the seller is thinking. A seller could be declining your full price offer for any number of reasons and the listing agent has no duty to tell you the reason. By flaming the listing agent, you risk creating ill will. In your effort to be a good fiduciary to your buyer, please remember that being rude to the listing agent is not in your buyer’s best interest. Just politely contact the listing agent to inquire about the status of your buyer’s offer. Be careful about seeming too desperate and “showing your hand” because the listing agent may use that to her client’s advantage. Monitor the MLS listing daily to see if they might have increased the listing price. If you get the news that your full price offer is declined just ask your buyer if they want to submit a better offer. Remember, you may see more and more bidding wars, declined full price offers, and counteroffers over asking price as the economy improves more and more, so just take a deep breath and take it in stride.
If you are the listing agent, make sure your sellers know that they should only list at a price they are actually prepared to accept. If the price they are willing to accept changes, encourage them to contact you immediately to discuss whether it makes sense to officially change the listing price.