By John McCarthy
You have looked and looked and looked for your “dream home” and finally found it. It is within your budget and checks off all your needs and a few other things you never thought you could get in your price range. Yes, all this in our current sellers’ market where multiple offers on homes just listed is the new normal. You decide to make an offer after sitting down with your REALTOR®, and 24 hours later you get the call that your offer was rejected. Disappointment sets in. What happened? Well, it could be any number of things, or a combination of the following:
Reason #1: The sellers received a better offer
This is the obvious one. Keep in mind, home sellers usually want the most money for their property with the best terms (more on this below). Believe it or not, it isn’t always about the most money. Admittedly it usually is, but often times a seller will favor one offer over another when offers contain better terms than yours: lesser mortgage amount required, pre-approved buyer, bigger or all cash component, no contingencies, to name but a few. If you thought this house was your “dream home”, then there’s a very good chance others thought the same.
Make sure you’ve made all the necessary calculations and supporting documents (preapproval from bank or mortgage company or if paying cash, proof of funds) ahead of time in order to put in your best offer.
Reason #2: Your offer was lower than the asking price
Your REALTOR® can give you a market analysis on what the home is worth and you can formulate an asking price. This price can be influenced by whether or not other offers have been submitted. When that is the case typically a seller will require that the buyer give their best offer and there is little to no negotiation; one offer is simply chosen.
Some buyers won’t get involved in a “bidding war”. This doesn’t make any sense to me if you truly want the house. Make your best offer. If you don’t get the house you can say “ok, it wasn’t meant to be”. You can’t complain about not getting a home if you aren’t willing to try, just as you can’t win the lottery if you don’t buy a ticket.
Reason #3: Too many contingencies
One of the surprises that I have found over all the years writing and receiving offers is that the best price doesn’t always get the house. It’s true, even in this crazy market. If you’re thinking of putting an offer at full, or over the asking price but with lots of ridiculous contingencies, don’t be surprised to see that your offer lost to one with a lower price. If you are in a competitive offer situation and the seller has excluded the washer and dryer, why are you making your offer contingent on the seller leaving those items behind? Please do not misunderstand me. There is nothing wrong with standard contingencies (home inspection and financing for example), I am talking about things that make the seller say “do they really want the house?” Remember you are competing with another offer; the idea is to get the house. Factor in what it will cost you to buy a washer and dryer. Do you want this contingency to potentially cost you the house?
Market conditions will dictate whether more or less contingencies are likely to be accepted by the seller. We are in a highly competitive, sellers’ market. If we were in buyers’ market the seller would be much more likely to leave a refrigerator behind to get the sale done. Frankly some of my sellers 10 years ago would have bought the buyers new refrigerator if it meant a sale.
Reason #4: The sellers have unrealistic expectations
Unfortunately, some sellers see their home in a different light than even their REALTOR®; “We must have priced our house wrong now that we are getting all these offers, let’s put it back on the market at a higher price. I know this home will sell for what we are asking even though my REALTOR® and everyone else told me it was overpriced.”
Your offer to purchase a house might be at full asking price, without any unreasonable contingencies, yet the seller may reject it or try to put you off. Frustrating, but try to be patient. Find out why they are stalling. They may just be nervous about the whole process, or maybe the house they want won’t be ready for another few months. Your REALTOR® can try to get creative and find a solution such as closing on the deal and renting back to the current seller.
Reason #5: No Preapproval Letter
If I had a nickel for every time I asked a buyer if they were preapproved and heard them say, “We are all set. We won’t have an issue getting a loan”. Get pre-approved before you start looking at houses. The bank or mortgage company won’t charge you and it doesn’t take you long to go through the pre-approval process. Most importantly, if you are competing with someone to buy a home, which offer would you accept if you were a seller, the first one being an offer at full asking price, yet without any pre-approval, and the second one being slightly below asking price, but with a pre-approval letter. If you are “all set” on your financing why risk losing the house you want. Another big upside of getting pre-approved is that you’ll have a very good understanding of how much you can borrow.
Reason #6: Timing
You have been renting from your parents, in-laws, friends, enemies, etc. and you can’t wait to get out and into your dream home. But maybe the seller hasn’t found anything yet and doesn’t want to move out for 2-3 months. Can you wait? If you can, it may make you a better buyer to that particular seller. If the seller wants to get out quickly as they are buying something soon and don’t want to carry two mortgages, or they are being transferred out of state, maybe a quick close has benefits to them. Do you care when you close? If not, let the seller decide (within reason). Also, if you are competing with another, make sure the dates on your contingencies aren’t extending past normal time frames. For example, you shouldn’t need more than 7 days for a home inspection period; you shouldn’t need more than 3 weeks to get financing from the signing of the Purchase and Sale document, etc. I can’t tell you how many times I have seen these dates pushed way out. The seller doesn’t truly know a deal will go through until these contingencies are met, so work with a bank or mortgage company that will give you quick but realistic dates. Your REALTOR® should be an excellent resource to you here.
Hopefully it won’t take you dozens of showings, open houses and offers on one house after another before you get an offer that is accepted.
The key is to try to look at your offer from the seller’s point of view. Is the house worth what they are asking? If so, why offer less if you know there is competition? Here is a question I ask buyers before formulating an offer “If you were to read in the newspaper that a house listed at $399,900 sold for $425,000 what would your reaction be? Would it be ‘phew, that buyer paid way too much or it was worth at least $425,000, we should have offered more.’”
Most of all, learn from your previous rejected offers. Why it was rejected? Knowing this will hopefully result in you making your next offer more attractive. And always sure you understand the seller’s situation so that your next offer has a better chance of being accepted.