A Specific Example: The Danger of Accepting a Pre-emptive Offer

A SPECIFIC EXAMPLE:

THE DANGER OF ACCEPTING A PRE-EMPTIVE OFFER

By Michael Repka, Esq.

Generally, the best way for a seller to garner the highest price for a Silicon Valley home is to:

1. Prepare the home for market by fixing the low or no-cost items that might deter potential buyers, many of which a good listing agent will have fixed for free; 2. Make cosmetic improvements to make sure the house looks fresh, again some of these may be covered by the listing agent; 3. Market the home aggressively, taking special note of buyers who may be looking outside of the area; and 4. Set an offer date so that buyers can compete, and sellers can consider all offers concurrently.

Unfortunately, there are some very strong conflicts of interest present in the real estate industry that encourage agents to recommend a different path. Namely, (1) the desire for the agents (or the brokerages) to get commission from both “sides” of the transaction, and (2) the desire of the agent to attract buyers and engage them as their agent, with the promise of better deals through “off-market” transactions due to reduced competition. Obviously, this benefits the buyer, but at the direct expense of the seller who listed with that agent.

Many sellers may be in even more peril than they realize because they rely upon their listing agent for advice while not fully appreciating the agent’s conflicts of interest.

In the last edition of The DeLeon Insight, I wrote an article entitled, "Off-Market Sales Almost Always Cost Sellers Money, but Some May Think that Privacy is Worth the Price". I was pleasantly surprised by how much attention this article attracted and how well it was received. Shortly after that article was published, I spoke with two people who now realize that they may have left money on the table (in both instances, the buyer and seller were represented by the same brokerage). What surprised me was how many buyer’s agents shared their stories about the times that they had a client who would have paid substantially more than the price paid by the buyer of an off-market property.

Year Built: 1980 Home Sq. Ft.: 3,550 Price Per Sq. Ft.: $2,112 # of Offers: 10 List Price: $5,988,000 Sale Price: $7,500,000

The Sale of 27827 Via Feliz in Los Altos Hills

A few weeks ago, I experienced a situation that is perfectly emblematic of the risk associated with accepting a pre-emptive offer. We took a listing of a Los Altos Hills property that the sellers purchased in 2019 for $4.6 million. The week before the offers were due, Zillow valued the home at $6,132,229. We listed the property for $5,988,000 with the hope that competitive bidding would push the price as high as possible. Based on an analysis of comparable properties, the home seemed to support a price in the $6.5 million to $6.7 million range, especially considering the beautiful designer touches made to the home.

After fully prepping, staging, and marketing the property, we began showing it to interested agents and buyers. One of the first buyers to see the home loved it and put in an unsolicited “pre-emptive” offer of $7 million, which was over $1 million above the list price and well over the target range proffered by me and other agents who competed for the listing.

Despite my belief that this pre-emptive offer was very strong, and the buyers were represented by a very good agent, I recommended that the sellers decline the offer in favor of waiting until the scheduled offer day. It seemed logical that a buyer who loved a home so much that they would put in an offer that strong would wait another week until offers were due. As it turned out, I was right: those buyers did resubmit the same $7 million offer on offer day, along with quite a few other bidders, and the competition ultimately pushed the price up to $7.5 million! This staggering price was over $2,100 per square foot in a neighborhood that normally commands an average of less than $1,500 per square foot.

The sellers would have been thrilled to accept the $7 million offer, and they never would have known that they left $500,000 on the table.

I am human. It would have been tempting to encourage a seller to accept an offer and close a quick sale, especially if I were going to pocket an extra $175,000 in commission by representing both the buyer and the seller.

Our sincere desire to eliminate conflicts of interest in the real estate industry is precisely why DeLeon Realty is the only major Silicon Valley brokerage that never takes commission from both sides of any transaction. Thus, we don’t have the temptation to encourage our sellers to let us show our listings to DeLeon buyers first. Simply put, careful preparation, aggressive marketing, and maximum competition are the recipe for great results for our sellers. Just ask the former owners of the beautiful home on Via Feliz.