Tight Austin Real Estate Market Causing Frustration for Buyers

Real Estate Contracts

We’ve had several deals in the past few days, both on the listing and selling side, in which multiple offers have caused consternation for Buyers who were bumped off of almost-done deals by newer offers. The problem arises when the Buyer believes the Seller has accepted their offer, when in fact, the Seller has simply agreed to terms but a fully executed contract does not yet exist. Meanwhile, another offer comes in, creating a multiple offer situation, and the Seller dumps the first Buyer and takes the new offer. What should be done when a Seller and Buyer have agreed on price, terms and conditions, and then a new offer shows up before final signatures have been obtained? I’m going to explain how we do it and why.

Looking at it From the Seller’s Side
First of all, in a real estate transaction, the seller starts out with all the control. A good listing agent (assuming an attractive listing in a strong seller’s market), will make sure that the seller never gives away this control. The best way to maintain control of the deal is to never let the seller sign anything until the Buyer is completely done. That means, never make a written counter-offer, but instead reject the offer and let the Buyer know what terms would be acceptable if a new offer were to be submitted. TAR (TX Assc. of Realtors) has a promulgated form for this purpose called “Seller’s Invitation to Buyer to Send New Offer”.

This form does three things. First, it informs the Buyer that the offer is not accepted. Second, it invites the Buyer to submit a new offer that may be more favorably considered if certain terms and conditions are present, and outlines those terms and conditions. Finally, the form states “This communication and invitation is not a counter-offer. The property remains on the market and seller may consider other offers and accept another offer.” The same thing can be done verbally by telling the Buyer’s agent “the Seller is not going to accept the offer, but if you send it back with A, B and C changed, theres’ a very good chance it will be accepted”.

This method prevents the akward circumstance where a Seller may have signed and delivered a counter-offer to the Buyer, and before the Buyer returns the counter-offer, the Seller receives what appears to be a substantially better new offer. Having sent the counter-offer, the Seller is not free to consider the new offer, and must now hope that the 1st Buyer rejects his counter-offer so that the new offer can be considered. The Seller can also withdraw the counter-offer in writing, but this process can get real messy when trying to establish exactly when the withdrawl took place and whether or not the Buyer had signed before or after that time. It’s much cleaner to not get tangled up in that sort of mess in the first place, and this is accomplished by not letting the Seller sign off on the deal until the Buyer is completely done.

(One thing to note, I’m talking about this method in the context of a strong seller’s market. In a strong Buyer’s market, or even a nuetral market, the Seller will probably want to go ahead and respond with a written counter-offer. And a written response to a full price offer that just needs minor changes is OK too.)

Lets’ say now that the Seller has worked back and forth with a prospective Buyer, either verbally or via reject/invite, and there is agreement on the terms and conditions. The Buyer has submitted a final offer with terms and conditions the Seller can live with, but before the agent can get with the Seller to sign off, the listing agent receives a new offer for a higher price and/or better terms. The listing agent is required to present this new offer to the Seller.

Should the Seller dump the first Buyer and automatically go to the next offer? What are the Seller’s options in this circumstance? What is the “right” thing to do? What is the “best” way to handle this?

There is no one right answer. It all depends. The “right” thing to do may not be the “best” thing to do. Even though the second offer might look better on face value, there is no way to know that the offer will ultimately result in a better outcome for the Seller. Likewise, the first offer, even though things are finally worked out on the terms, still has to survive the Option Period.

Absent any substantial and predictable differences in the likelihood of one offer providing a better outcome for the Seller than the other, we will advise our Seller to stick with the first Buyers and work that deal to it’s natural conclusion. This assumes also that the first deal is one the Seller is happy with. And we’ll make sure to get some good will from the Buyer by informing them that we had multiple offers and chose to stick with them, which they should appreciate. Then we’ll ask the other Buyer if they would like to make their offer a back-up offer (taking a back-up position has it’s own set of pros and cons which I should write about another time).

The Seller also has the Option of rejecting all offers on the table, informing all parties that multiple offers now exist, and inviting all Buyers to resubmit their best offer. If all offers are rejected, the Buyers will then have to decide to 1) resubmit their offer unchanged, or 2) not resumbmit at all, or 3) submit a changed offer. We recommend Sellers do this only when none of the offers are acceptable to the Seller as-is, and there will be no regret if none of the Buyers come back with a new offer. In other words, we do this when we have multiple unacceptable offers.

When this “send your best offer” strategy is used after negotiations were near conclusion with an earlier offer, the first buyer, who may have thought they had a deal, will normally be offended and view this as the Seller acting in “bad faith”, even though it is perfectly legal and prudent for the Seller to do this. Nevertheless, it’s something the Seller should take into consideration when making these decisions. It really is an unkind thing to do, to yank the deal out from under a buyer who has been working in good faith toward a mutually acceptable deal. It can create ‘bad karma’, if you believe in such things. On the other hand, this method can result in a bidding war that drives up the sales price of the property, and there is nothing wrong with obtaining the highest sales price the market will bear. Or it can result in all buyers going away and having to start from scratch again. It really is just like gambling, and each circumstance needs to be considered in its own context.

From the Buyers Side
When working with buyers, we are often submitting offers on new listings that have just hit the market, and if the listing shows well and is priced right, we assume we may end up in a multiple offer situation. In preparing the offer, we make sure to send to the listing agent an offer that is ready to be signed and accepted by the seller as-is. That means it’s free of errors and we find out in advance any information that might be helpful to include in the offer. We want to send an offer that, if anything, will require only a price change for the Seller to be able to sign off. This is imperative in a hot market, such as the one we are now in, where multiple offers are common, and clean offers stand the best chance of being accepted right away.

If we are not fortunate enough to get the seller to sign off on the offer as-is, we will request a written counter-offer. This is where the trouble can start. If the listing agent is like us, they won’t provide a written counter-offer, but will instead want to come back with a verbal counter-offer, which of course is not binding on the Seller. The Buyer has no control over how the Seller responds.

Since we do not control the deal on the Buyer side (other than having the power to walk away), we have to work with the other agent in this informal manner. If it’s an agent we know, we’re not so worried, but often it’s an agent with whom we’ve never dealt. Also, when there is an out-of-town Buyer and an out-of-town Seller (plus the two agents), the logistics of getting every counter-offer in writting, faxed back and forth between four destinations, can become very difficult and time consuming. In fact, after a contract has been faxed around three or four times or more, it can’t even be read – and that would be after just one round of negotiating in writing.

So, even though as agents we all know that it’s best to have all counter-offers and communication in writing, the logistics of accomplishing that can slow down the negotiation process. For a Buyer, adding time to the negotiating proceess is not a good thing, since it increases the chances that the Seller might receive another offer before ours is signed. But not having the Seller’s responses in writting isn’t a good thing either, since there is no guaranty the Seller will sign off on the final agreed terms. So it’s a catch-22, and Buyers have to remember that the deal is NOT done, regardless of what anyone says, until the final changes and signatures have been completed by all parties.

So what’s a Buyer to do in a hot market, waiting for the right home to come along?
You have to have all your ducks in a row and be ready to make a good, clean offer instantly. You should already have an agent who knows the areas in which you are searching, and who knows how to write clean offers on your behalf. You should have an online portal set up that notifies you each morning via email of new listings that match your criteria. Your agent should be doing the same. Your agent also need to be able relate well with the listing agent, and remember that the listing agent can influence the Seller, so it pays to be nice no matter what. Buyer Agents who may have had success with a certain style of negotiating in the strong Austin Buyer’s Market of 2002 thru 2005 need to adjust to the new Sellers Market in Austin.

We just dealt with a Buyer’s Agent who tried to bully and boss us into accepting her client’s offer, but the offer was poorly written and contained terms (such as the Seller paying for the survey, and the Buyer paying no Option Fee) that had no chance of being accepted by our Seller. Her second try was even worse and she actually yelled at Sylvia on the phone and threatened to take her client to find another house, and then hung up the phone on Sylvia.

Meanwhile, a perfectly written clean offer came in and our Seller signed it as-is with no changes (and was able to because they weren’t locked up in a counter-offer). Then we received a threatening email from the irate first buyer, who had no idea how poorly her agent handled her effort. It’s too bad, because the first buyer very much wanted the house and didn’t even care about those items her agent chose to fight about. Had the first Buyer’s agent written a proper offer and not acted like a nut job, her client had a two day head start on purchasing the home and would have had it locked it up before the next offer showed up.

Bottom line, it’s a Seller’s Market, Buyers don’t have the control, and smart agents and their Buyers and Sellers recognize this and proceed accordingly.

Posted by Steve
10 years ago
Steve

Steve is a Real Estate Blogger, Husband and Dad, UT Austin Grad, Runner, Real Estate Broker and owner of Crossland Team and Crossland Real Estate in Austin TX.

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Marci - 10 years ago

I have a buyers-side story to tell. We submitted an offer on a Thurs. afternoon and the seller’s agent told us there were no other offers. It was a good, clean offer within $3,000 of the asking price. The next morning, we received a “Seller’s Invitation to Buyer to Send New Offer” requesting an offer at the asking price. My agent called the seller’s agent within about 15 minutes to tell her we would be submitting an offer above the asking price, and the seller’s agent said, “Sorry, we already accepted another offer.” I know they were within their rights to do so, but the way it was handled was very upsetting to us (and at least 1 other buyer that I know of). The seller’s agent also did her client a disservice by not persuading them to select the best of multiple offers, which she invited other buyers to submit! We are under contract on another house we are quite happy with now, but as you can see I’m still a little bitter about the previous situation!

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Steve - 10 years ago

Marci,
Thanks for posting. Your story is one that will become more common this summer. I hope your new home provides everything you want in a place.
Steve

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Spencer - 10 years ago

Steve,
Thank you again for another insightful, informative post. Keep up the great work.

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Dara McLoughlin - 10 years ago

Steve & Sylvia,
Your blog has become a compulsive must read for me. Thank you for your wonderfully selfless, informative postings. You help raise the professionalism of the industry. Best of luck for the future and please continue the great work.

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Steve - 10 years ago

Thanks Dara. your comments are much appreciated.

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