You Have an Offer to Buy, but it’s a bit under your Asking Price.   You want to wait for a higher offer.   What’s the best strategy?

You Have an Offer to Buy, but it’s a bit under your Asking Price.   You want to wait for a higher offer.   What’s the best strategy?

If you wait too long for a higher offer, you run the risk of netting less due to added costs and expenses.   Calculate the cost of waiting and figure out how much more you need to make the wait a net plus for you.

Here’s a scenario:

You live here in Weston or Davie, you evaluate your home at $700,000 but you think your house is worth a bit of a premium and you ask me to list it for $750K. 

This happens EVERY DAY.  

One week later I get you an offer from another Realtor… $710K, but the seller wants a 3% credit to defray their closing costs.  This nets you $689,000 (approximately) less the costs of sale.   If you pay 6% commission and have state taxes and such,  you’ll net something like $634000.  This is what you’ll walk away with, assuming you have no mortgage, approximately.

That’s not bad… but you wanted more.  You decide you want to wait for a better offer.  

This illustrates the math of the sale – it’s not a valuation and nothing suggests that I have all the right answers,  but you should think of this. 

A “better offer” has to meet two criteria:

1. Does the better offer leave you better off than you would with this offer, assuming the extra costs and the time needed to get that offer are factored in, and
2. Why do you think you can get a better offer, and how long do you think it will take to get it.

The first question is math.   The second one relates to markets.   Your decision as to what to do should answer BOTH questions

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The Math

1. Let’s assume that the next acceptable offer at a higher price comes about a month later.   And that the buyer needs 60 days to close (your first offer closed in 30 days).  Now your closing is about 60 days later than the first offer would have given you.  You have to pay two months of mortgage, two months of insurance, two months of HOA fees, two months more of property taxes, two months of water/sewer/trash, two months more of electricity and whatever else you pay to keep up your home.   I’ll take a stab at a cost of 7500 for those two months.  
2. Your new offer is for 720K with no seller credit. Now your net is something like 662K.   Your net is up 28k less your 7500 expenses, or 20,50k net increase That’s about a 4.5% increase.  Not bad for a 60 day wait IF YOU CAN GET IT. 
3. Bottom line on the math is you need to gross something like 705K in this scenario to break even.

It’s actually a bit more complicated than that – if have a mortgage you’re paying down some principal and taxes and some of that will come back in the closing.  But, simply stated, it will cost you money to wait. 

The Market

NOW the market comes into play.   This isn’t 2021 when people were lining up to make offers on homes with 3% mortgages.   It’s more complicated than that.   If you think you can get a meaningfully higher offer, with an achieved price that makes the wait worthwhile, with better terms, fewer contingencies, or you can afford to wait… go fot it.  But be very clear about your goals, and evaluate whether waiting is really worth your while.    These days, a fat pheasant in the hand is worth two chickens in the bush, to kill a phrase. 

Let’s negotiate on that first offer.   Your goal is to NET about 660K.  Let’s make that a hard floor and negotiate to it.  That first offer at 710K with a 3% credit is too low.   You need to be NET at about 718K or higher to meet your goal.  So I’d drop my 750K offer to 735K and reject the 3% credit with a goal (in my head) to get a deal at 718K or higher.  It’s OK to say “no”, but it’s much more fun to say “maybe, if you’d….”.  You never know what the potential buyer will say.  AND we keep other contingencies in mind.  This buyer wants to close in 30 days (good).   If there are no other weird contingencies in their offer it’s just a question of numbers.  But other factors can come into play, and we have to think of all of them. 

This is where negotiating is important in real estate transactions.  .   LET’S discus your goals before you list your home; are you in a hurry, can you afford to wait, do you need top dollar for your home, or do you want or need to cash out more quickly… all of these things will affect your asking price and your negotiating strategy. 

It’s what I do… give me a call.