Do Pre-emptive Purchase Offers Work?

Although the housing market seems far from healthy in many places, there are some locations where the inventory of available homes is so low that sellers are receiving multiple offers on their property from buyers wanting to take advantage of the extra low interest rates. This is particularly true in Northern California’s Silicon Valley, where money is available, but housing is scarce, so having two to three offers to choose from is becoming common. As inventories in other areas continue to drop, this situation may become all too familiar.

For the sellers, this is a great situation because they can wait for second and third offers before making a decision. To take advantage of this trend, sellers can publicize a date through their real estate agent that they will review offers on a certain predetermined date. For the buyer, getting an offer accepted is more difficult when the competition is high. One idea—a leftover from the real estate boom of the mid-2000s—is the pre-emptive bid.

A pre-emptive bid is when a potential buyer’s agent submits a bid to the sellers’ agent ahead of the predetermined date. For the buyer, this is an opportunity to get ahead of the potential bidding war, but there is no assurance that the seller will agree to review the pre-emptive bid. Although real estate professionals are legally required to inform the seller of any and all offers, some sellers choose to stick to their predetermined date and so will refuse to entertain an early bid. If the bid is enticing enough, however, they may change their minds in the bidder’s favor.

Here are some things to consider when making a pre-emptive bid:

Offer more than the asking price: Make the bid sweet enough that the sellers will consider it even when they said they would wait. To make the offer appealing it should include the bidder’s letter of pre-approval from her lender and proof that the buyer has reviewed and agreed to any of the sellers’ disclosures. A signed disclosure statement submitted with the bid shows the seller that you understand what you are purchasing.

Second, do not clutter up the bid with contingencies: A pre-emptive bid is asking for a favor already, so requesting more from the seller makes it more likely that the bid either will not be entertained or will be rejected.

Put a reasonable end-date and time on how long the offer stands. This forces the seller to decide whether to consider it, but if the date and time are so immediate that there is no time to review the paperwork, an agent may advise the seller that such a pre-emptive tactic is proof that they should wait to see all the offers.

From the sellers’ side there are other things to consider: Before accepting a pre-emptive bid, check the bidder’s credentials. Even if the buyer offers cash and a quick closing, if his ability to actually produce the money might be compromised, the property will be tied up under that contract for as long as it takes to determine whether or not it will go through. This situation could lose the seller the option to take any of the bids that would come in on the predetermined day.

Some agents consider pre-emptive bids to be so-called “bully offers” because the bidder controls the timing of the transaction rather than the seller. If the bid is being considered, the agent must inform all other interested parties of the fact, and update the listing to remove the predetermined date. In either case, a buyer making a pre-emptive bid or a seller setting a predetermined date and sticking to it is all a bit of a gamble. If the sellers wait until the predetermined date they may get no offers at all, so the pre-emptive bidder can come back in with a lower offer.

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