Why Sellers Make Full-Price Counter Offers
Negotiating Full-Price Counter Offers
In seller's markets, it's expected that a seller will write a counter offer at list price or higher. That's because the seller knows if one buyer won't come up in price or exceed it, there are probably a dozen other buyers who will agree to pay full price or better.
It often comes down to just how much is that home actually worth? Is it worth list price? Is that market value?
Why Sellers Issue Counter Offers at Full Price
- Sellers Can Be Irrational
Many sellers think their home is worth much more than it is actually worth. If you want further evidence, try counting the number of listings in MLS that sell at their original listed price. You'll find a large percentage will have had a price reduction.
- Sometimes Buyers Will Accept Full Price Counter Offers
Listing agents know that buyers who put down an earnest money deposit and take the time to write a purchase offer probably want to buy the house. Buyers have a way of letting their emotions rule and often fall in love with the house. The buyer might initially offer less so the buyer can later say to herself,"Hey, I tried my best."
- Sellers Expect Buyers to Counter Sellers' Counter Offers
Sellers know it is considered risky to issue a full-price counter offer to the buyer. They are taking the chance a buyer might walk away from offer negotiations. But like buyers who will offer less than they expect to pay, sellers will try to get more than the price they will actually accept. They want to later say, "I tried my best."
- Sometimes Sellers Have a Change of Heart
Reality doesn't always set in upon signing a listing agreement. Not until an offer is received, do some sellers start to consider the fact that they are moving. Offer presentation is often when seller's remorse happens. Sellers can feel reluctant to let their home go any price, much less at offer price, so they issue a counter offer in hopes the buyer will go away. It saves face. Rather than tell friends they had cold feet, sellers can say, "Oh, the buyer wouldn't pay our price."
- Home Wasn't On the Market Long Enough
It's not unreasonable for sellers to reject offers by writing a counter offer for full price when the home has been listed for fewer than 21 days. Ironically, the first offer received is typically the best offer, but sometimes sellers feel if they hold out for a few more weeks, somebody else will offer full price.
- Home Was Priced Right
If a home is priced right it will sell. Sellers won't have to ask "Why Isn't My Home Selling," because they will receive a lot of buyer showings. When interest level is high, generally the home is priced according to market. If it's the lowest-price home among the comparable sales in the neighborhood, sometimes buyers will fight over it.
- Bad Listing Agent Advice
Some listing agents act as though the home is not the seller's but their own. These agents suffer from White Knight syndrome. They may feel it's a personal insult to them if a buyer offers less, so they will encourage the seller to make a full-price counter offer.
The agent might also have a buyer in the wings, waiting for the seller to reduce the price. This type of offer would give the agent both sides of the real estate commission. So, the agent will do whatever it takes to make the first buyer disappear. It's not right, and it's not legal, but it happens.
Buyers' Response to Full-Price Counter Offers
Many buyers dislike negotiations. For example, a husband and wife wanted to make an offer on a two-story Tudor in the Curtis Park neighborhood of Sacramento. Their agent discovered the owners were selling when divorcing, plus the home had longer DOM than competing homes. This home was listed at $550,000, having dropped from an original list price of $635,000. (See "Irrational Sellers" above.)
At their agent's urging, the buyers submitted a purchase contract at $499,000, making the terms attractive to the sellers by offering a fast closing with few contract contingencies. The sellers issued a counter offer at $515,000.
Even though the buyer's agent felt strongly that the home price could be purchased at $499,000, the buyers were exhausted from negotiations and directed their agent to accept the counter offer at $515,000.
Consider the above reasons first and try to figure out which kind of circumstance applies to your situation. But always make a counter offer #2. You have nothing to lose and everything to gain. Continue negotiating until one side gives up. Even if the seller does not respond to your counter offer, you are always free to write another purchase agreement or resubmit your counter offer.
In the Land Park neighborhood of Sacramento, almost all the homes for sale quickly sell. But a particular home became an expired listing after three months of no offers. The seller found a tenant willing to move into the home at the same time that first-time home buyers decided they wanted to buy this home.
The buyers made a lowball offer. Then the sellers wrote a full-price counter offer. The buyers could not afford to pay full price and felt the seller did not want to sell. However, their buyer's agent suspected the seller wanted to negotiate. Ultimately, the buyers came up in price by a few thousand on a second counter offer. The sellers accepted the offer, still below list, minutes before the tenant was scheduled to move in.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.