Because you can only sell the house once. So given an appropriate asking price, the first acceptable offer is as good as the next 10. (If your realtor is any good, the price will be close to the true market value anyway, or priced appropriately considering trade-offs, like closing quickly.)
If you can get that offer without the hassle of showing the house to a thousand strangers, and having random people stopping and peeping through your window, then why not?
Another common occurrence is accepting an offer below certain known loan limits. If you know you want to get approx the local limit for a jumbo loan, then accepting a price slightly over that limit comes at the cost of fewer potential buyers, or offers that have to back out because they couldn't get financing approved. So the rational choice might be accepting the lower offer, instead of slightly higher with more hassle/risk.
If I list my house for $20, then realize it might be too low and raise the asking price to $100k, that doesn’t suddenly mean I’m forced to accept the first offer that comes in.
I never understood why though, in the worst case doesn’t their house just take a bit longer to sell if a deal falls through? Aren’t there backup offers in play? Is taking a lower offer really better than just waiting a bit more for the higher offer?
It isn't the Realtor accepting the price, it is the owner. At least in my state they are obligated to present every offer. Price is not the only dimension to factor in either. Just off the top of my head:
(1) inspection contingency
(2) mortgage contingency (or how much to make up for the appraisal)
(3) timing for closing
(4) lease back option
Can all affect what you would select, not just the price.
If you have 30 offers within 2 days, but then reject them all waiting for another buyer, the buyer you wait for has to outbid the 30 previous buyers to make it worthwhile. The likelihood of that is slim.
Most serious buyers are ready to go in this market and will come in strong with their best offer days after it hits the market.
Plus, realtors put a lot of pressure on sellers to accept an offer especially when it's over asking price. They'd rather have 2 sales a week at 98% of max price than 1 sale a week at 100% of max price.
Yeah that's my main point. Where I live too is very competitive with most homes getting 4-5 offers after a week or 2 of showing. So of course buyers are encouraged to do everything to make their offer appear as good as possible. Waiving repairs, going far above ask, etc. But waiving the finance contingency is always the best thing you can do and allows you to either pretty much guarantee your offer will be accepted without waiving other things like repairs, etc.
1) Speed - it's possible that the money is needed ASAP (for instance, to put into a disappearing business opportunity or help pay for the house they are moving into.)
2) Simplicity - A lot of people hate complexity. They're willing to pay a premium for simplicity.
3) Lack of work/investment - A lot of pocket sales don't involve the same amount of fixing up the house as you would have to do to put it on the wider market. Less investment of cash and effort.
4) Ignorance - Their agent tells them they have an offer above asking. They say yes not knowing whether it was ever one the MLS.
In real estate, it's common for a house to be listed at one price, but the seller will turn down offers at that price because it's reasonable to expect bids 10-30% higher than the listing. There's no contract until both parties agree.
Houses are listed artificially below market to expand interest and create bidding wars. No one expected to sell for $950k and if that was the only offer they got it would have been rejected. I had this experience on a property in Toronto where they listed at $1.5 million didn’t get a bidding war, rejected our offer, relisted at $1.71 million and eventually sold.
Above asking is a meaningless number because asking isn’t a reflection of what anyone expects a house to go for. It’s a game price designed to attract as many of the right people as possible to the property.
Regardless of reality, sellers see the buyers as being less serious and/or more likely to back out of a deal with a lower down payment.
As someone who bought their house with a smaller than normal down payment it was quite frustrating. I wound up starting to bid much higher than I wanted in an effort to put more room between myself and normal down payments
Note that this only really matters in a hot market where sellers can pick and choose
Same here. I've never bought a house so I don't quite know the details about it, but if people are getting 15-20 offers on a house within 24 hours of it going on sale, why not just raise the price?
but your offer will never be accepted. someone will offer more down, conventional, or even multiple cash offers. especially for homes in the starter price range.
1) having a lower price attracts more bidders, and the bidders may go much higher than they originally planned after they see it in person.
2) having multiple potential buyers in the mix creates urgency, which drives the price up AND lets you sell faster.
3) Homes aren't free to own. Most have mortgages that you waste money on interest again each month, amongst other things (taxes). Selling fast for cheaper may not be less money in the end.
4) Homes on the market for a long time get tainted. People get worried there's a reason no one has jumped on it yet (maybe there's a sinkhole under it, or the water is bad, or some other thing you can't tell in a driveby).
however a home is a unique item, limited in availability. Hence it warrants allowing others to offer more for it. plus just as it is the right of buyer to haggle for the best price it does not always mean the lowest
As mountineer22 points out, this is a strategy to concentrate serious offers and play them against one another. The lower you set the price, the more initial interest you get, the greater chance two or more potential buyers get excited. With competitive bids, you can find the true 'market' price pretty quickly.
In a hot market this apparently works well.
Anecdotally, when my wife and I were looking for our eventual home in Cambridge a few years ago, we went to more than a couple of "open houses" which were pro forma: Despite being listed on Wednesday, by Saturday the sellers already had an offer they were prepared to accept without even waiting for competitive bids!
Because most offers are "subject to favorable financing" and if the person doesnt get favorable financing, the offer falls thru and the seller ends up holding the housing longer w/o a seller and paying the carry. People will often sell at a lower absolute price (slightly lower) for all-cash offers without the issues of financing.
Also, financing can fall thru for silly reasons (eg the bank found some crazy lien from the 1940s) and want it cleared before they offer financing.
It isn't really a bidding war, it is everyone guessing at what the next best offer is and trying to beat it. I never understood why, if you have 20 offers on a house and $500k is the best, the realtor doesn't go back to the other 19 and say they need to offer at least $505k, and repeat the process until there is a single offer remaining.
If you can get that offer without the hassle of showing the house to a thousand strangers, and having random people stopping and peeping through your window, then why not?
Another common occurrence is accepting an offer below certain known loan limits. If you know you want to get approx the local limit for a jumbo loan, then accepting a price slightly over that limit comes at the cost of fewer potential buyers, or offers that have to back out because they couldn't get financing approved. So the rational choice might be accepting the lower offer, instead of slightly higher with more hassle/risk.
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