In pockets of the residential housing market where inventories remain low, some buyers resort to pre-emptive offers in an effort to avoid bidding contests. A pre-emptive offer is one that’s made either before the property hits the market, or before the seller’s designated offer date.
There are pros and cons to this strategy. As a buyer making a pre-emptive offer, you’ll never know if you could have paid less if you’d waited to see the market response to the listing. On the seller’s side, you’ll never know if you could have sold for more if you waited until your property was fully exposed to the market.
You may wonder why a buyer would have any interest in making an offer for more than he has to, particularly in the current slowing market. Pre-emptive offers are popular with buyers who have lost out in multiple offer competitions, usually more than once. Some buyers feel it’s worth it to pay more if it means that their home search is over.
However, it’s a mistake to be so desperate to buy that you waive contingencies, which some buyers are continuing to do in order to better their offer in the seller’s eyes. This is especially risky if you give up an inspection contingency.
HOUSE HUNTING TIP: To make your offer attractive to the seller, keep contingency time periods short, say seven or so days. This way the sellers know they won’t lose much marketing time if you don’t go through with the deal
Not all sellers will entertain pre-emptive offers. Some prefer to wait until their property has been shown to a lot of buyers, especially if they listed at a competitive price. If the seller agrees to look at your offer, you may have to offer an impressive price to entice him to forego market exposure and accept it.
Even though pre-emptive offers are made to shut out the competition, buyers making early offers can still find themselves competing with other buyers. This happened recently in Upper Rockridge — a highly desirable, low inventory neighborhood in Oakland, Calif. Four buyers were interested in making pre-emptive offers. The seller decided to go ahead and listen to the offers before the designated offer date, and accepted one of them.
The buyers who thought that they had until the offer date to make up their minds were out of luck. To protect against a listing you like selling out from under you, ask to be informed if another buyer attempts to make a pre-emptive bid. This way, you’ll have a chance to make an offer if the seller changes his mind and decides to listen to offers early.
Sellers who are intrigued by the prospect of a pre-emptive offer should make sure that the buyer has done his homework before accepting the offer. One buyer was in such a rush to make a pre-emptive offer that he hadn’t read the seller disclosure package and he wasn’t preapproved for financing.
The seller was concerned that the buyer didn’t fully understand the condition of the property. The house was a major fixer-upper. The disclosures revealed many material facts that could have affected the ultimate price a buyer would be willing to pay.
A pre-emptive offer from a well-qualified and well-prepared buyer might be worth serious consideration. Some sellers have turned down pre-emptive offers only to find out that the ultimate offers they received weren’t as good.
THE CLOSING: In this case, you can’t expect the buyer who made the pre-emptive offer to pay the same price he offered earlier if it’s clear that the market doesn’t support that high a price.
Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers,” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.