This type of strategy works best in a normal to hot seller’s market. Rejecting the first offer might cost you the deal but in the long run you could end up coming out ahead. Use this information as more of guideline than a rule.
In a cold market, depending on the number of offers, rejecting the first offer may not be the wisest choice. For example, the market prices are depressed. You have your first offer in six months. It is safe to assume that this may be your only offer and you should accept it.
Why should you reject the first offer?
A buyer’s first offer does not always reflect the buyer’s highest bid for your property. From the buyer’s perspective, there are three goals in making the offer:
Buyer’s Goals in Making an Offer
- To get the property for the lowest possible price.
- To get the best possible terms.
- To “feel out” the seller to see how “motivated” he or she is.
All of these goals speak toward making a low initial offer. Why offer $800,000 to a seller that might accept $770,000? Always offer the lower amount first. If the seller doesn’t accept it, you can always offer a higher bid.
When the Market’s Hot
In some areas of the country and at different times, there is such a high demand for property but a shortage of land. Multiple Offers come in as soon as the property is listed (sometimes before the listing is even published!). In this situation, desperate buyers make their highest and best offer first. The seller has a choice again to reject the first offer. After all, someone else is likely standing in line to offer more!
Will the buyer Offer More?
In a normal market, the answer is “maybe.” If the buyer undercuts the first offer considerably, then indeed they will offer more. Even if the buyers offered what they considered their best, they might stretch and still offer more if they really want to buy your house.
The market is fluid and stands still for no one. You never know what a buyer’s thinking, or what other properties a buyer is considering. In the time since the first offer was made, the buyers may have reconsidered. They may have decided that they really don’t want to buy into another house.
This is the risk you take when you reject any offer. You may not get another offer from this buyer. You may not even get this buyer to come back and honor the original offer. The consequences do sound scary but if you want the most for your house then this is the tactic to consider.
If you don’t accept the buyer’s offer exactly as presented within the time frame it is offered, you’ve rejected it. Now it’s time to make a counter offer.
You don’t both accept and counter. The moment you make a counter offer for a different price or terms, it’s a whole new offer. The buyer is under no obligation to accept your counter offer and can now accept or reject it.
You should always counter any offer that you reject, no matter how frivolous the original offer may seem. I’ve been in a situation (in a normal market) where a would-be buyer came in with an offer that was 25 percent less than I was asking. The house was listed at $800,000 and the offer was for $600,000.
Now, that’s an affront. It is insulting to be offered so much less that the asking price, particularly since the house didn’t have any particular problems that could have knocked down the price. My gut reaction was to tell this would-be buyer that we were way to far apart.
However, this is business and you never know what a buyer is thinking, So I counter back, at $5000 below the asking price, indicating that I was firm and would not budge. You know what? The buyer accepted! He had simply been undercutting me to see if I was a desperate seller.
Even if you think the buyer is insulting you. You should always counter. Once you’ve decided to reject a would-be buyer’s offer, it doesn’t cost you anything to counter. You can counter for close to your asking price, your actual asking price, or even for more than you’re asking! What’s important is that you not be the one to close the negotiations off. Keep them open by countering.
When Should You Accept the First Offer?
There are times when you should accept the first offer, and it doesn’t always have to do with market conditions. You may be desperate to sell. It could be a matter of a financial crisis (you’ve lost your job and can’t make the payments), a divorce, a transfer, or any of a dozen other problems that have cropped up. The point here is that you need to get out now, and you can’t afford to wait. When your back is up against the wall, you may not be able to risk negotiating for a higher price. You may simply have to accept what’s on the table.
Hopefully, you’ll never be in this position. But if you are, recognize the situation for what it is and act accordingly.
Never gamble if you can’t afford to lose. Never reject an offer you can’t live without.