Monday, November 24, 2008

Is the "Other Offer" Fake?

by Osman Parvez
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It happens.

We are about to submit an offer. I'll call the listing agent to to let them know, a professional courtesy, but always strategically with short notice. Then the listing agent says, "Oh by the way, I'm expecting to receive another offer today. Better gets yours in."

Sometimes, it will happen after a second (or third) showing. I'll get a call from the listing agent who informs me that she has another offer on the table, so we better hustle if we're serious about the property.

Why Does This Happen?
Agents create a "fake offer" scenario to alter the leverage in the negotiation. If a potential buyer believes they are competing with another offer, they are more willing to give up a few bucks. It also avoids a low ball, which most agents loath to present to their sellers. In many cases, passing along information to buyers agents than an offer is imminent will precipitate a real offer. It creates a sense of urgency.

Is it Real?
As irritating as this is, there's no fool proof way to tell if the other offer is fake. We'll advise our clients on our impression of the legitimacy of the offer based on absorption, previous interactions with the listing agent, and on our general experience in negotiation.

It helps to ask the listing agent detailed questions about the other offer. Many agents in our area are not experienced at verbal negotiation so if it's fake, they will probably exhibit signs of discomfort when being questioned.

It also helps to pay close attention to language. There's a big difference between "expecting" an offer and having one on the table.

How to Handle The Situation
First, weigh how much you really want this particular house. If you're working with a good agent, she should have told you the true days on market for the property (not always what it shows on the MLS sheet). Your agent should also have been educating you on the market along the way, so by the time you're ready to write an offer, you should be comfortable knowing whether you're dealing with a very desirable property or one that merely fits your basic requirements.

If you aren't 100% committed to this particular property and are willing to let it go, you've got an ace in the hole. Call their bluff. If it turns out to be fake, you can always come back to the table later and with more leverage than before. A competitive bidding situation is not helpful if you are focused on getting the best possible price.

Or, if you really want the house, you can play their game and write an offer. Keep in mind that most of the time, in my experience, the other offer doesn't materialize and you can come back to the property later. Or a better home might be listed in the interim. Patience is your friend.

On the Other Hand
Sometimes the other offer turns out to be real. A few weeks ago, we were helping clients find a property in Broomfield. We'd been working with these clients for a few months and they were comfortable with their knowledge of the market. We targeted a property that fit the buyer's criteria, was seasoned (on the market for 90+ days), and we were preparing to write an offer.

Just as we were about to submit, the listing agent calls and tells me that she noticed we'd been to the property twice. She wanted us to know that she had an offer coming in. I told my clients and after some consideration, they decided to walk as a matter of principle. They weren't going to enter an environment of competitive bidding. In this case, the other offer turned out to be real. The property did go under contract.

One more thing. This should be common sense, but I'll say it anyway. If the other offer does not materialize and you go back to the table, don't tell the other agent that you think she was lying. You'll likely damage the negotiation. People don't like to be called liars, even when they're actually lying. They'll now be forced to act offended, even if they aren't. Having an offended counter party is going to make things more difficult, which won't benefit you. It's enough to know that they were probably dishonest and you can communicate your position more subtly. Keep your eye on the ball and focus on using your enhanced negotiation leverage.

By the way, if you're a listing agent and you're considering a "fake offer" strategy, think carefully. Even if its real, it always feels disingenuous. If you do it, it better be real. Agents will go back and check to see if the property actually went under contract. I know I check, if only to better hone my skills at negotiation. Remember, this is a small real estate community. It takes many years to build a good reputation and one flub to destroy it.

image: rick


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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties.   We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. 

5 comments:

  1. Oh for Pete's sake: Anytime you submit an offer in this market, make it clear that you will lower the offer by 5% if a competing offer is presented.

    And then make sure you do. Because any realtor that is playing the "we have another offer" is living in the past and deserves to have their butts handed to them.

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  2. Well, the "we have another offer" game could be quite real at the low to mid range of the market. It might also apply to particularly desirable properties.

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  3. Is there a general reluctance among agents to acknowledge to their clients that the other agent may be dishonest? When buying our house, we felt our agent didn't want to admit that some of the things the seller's agent was saying seemed extremely unlikely (e.g., saying there was a concrete shortage that prevented them from fixing the driveway).

    p.s. this was a very helpful and interesting post - more about negotiations in the realtor world, please!

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  4. When asking an agent to reveal details about the competing offer they may well be uncomfortable... it could be walking a fine ethical line if disclosing those details MAY not be in the best interest of their seller. I wouldnt paint them as inexperienced or bad negotiators for their discomfort.

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  5. When we bought our house in Martin Acres the house was FSBO. When our agent called to inquire about making our offer the seller said 'Oh yeah by the way we have another offer'. Without the potential for sullying their profesional reputation, I think the seller felt free to play fast and loose with some facts. In the end we bough the house and have been very happy.

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