EP 32: 🚩 Warning! Danger Ahead! There Are Red Flags In That Offer!

Jun 02, 2022
Red Flags to Navigate when Reviewing Offers with the Seller

 Holy cow has this series been on fire!  I have been diving into all things listings in the past couple of episodes so if you're just tuning in you may want to hop back to about four episodes  and start there because that’s where we start talking all about CMAs, and listings including how to handle them with Grace in a multiple-offer situation.

Why look for Red Flags In An Offer

In today’s episode, we’re going to dive into some red flags that you as a listing agent may see coming in with these multiple offers.  Red flags do exist in today's market!  Even though you may be getting a ton of offers and yes, they may be coming in over list price you as the listing agent still need to have the basic Foundational understanding when that red flag looks like and why that contract may not make it to the closing table and although every one I'm about to talk about is something that could happen and does not necessarily mean that offer  won't make it to the closing table it's your job at the listing agent to understand the flag, what it means, and to prepare your seller on what to do in the event something goes wrong.  So let’s talk about that first red flag. 


Over Inflated Purchase and Sale Offers


Holy cow the red flag of an over-inflated offer price.  Ladies I am fully aware that offers are coming in way above where they should be.  That's just the market we’re in right now and buyers are really having to get creative on how to land the bid so that they can have a home to live in.  However please take note of something- if you get 10 offers on your listing in the first 24 hours and 9 of them come in within $5,000 and $10,000 of each other but that 10th one comes in at like $55,000 above the rest it is an outlier offer price. It could mean that the buyer just really wants to nail down that house and wants to prevent you from even considering any other offer  or it could mean that buyer is throwing out all over the place and you have no idea if they're going to terminate using any of the contingencies or not. Just because they waive other contingencies doesn't mean that they're not willing to lose the earnest money. So if your seller does decide to go with the outlier offer that is grossly above anything else that came in do have a good conversation with them about what that means. Take a hard look at the contingencies with your seller so that if that buyer does not complete the contract you’ll have an idea if the seller be entitled to the earnest money, and if so is the amount of earnest money offered enough to entice the seller to take the home off the market and attempt to see if that offer can make it to the closing table?  Because sometimes it’s not.  And sometimes an offer that is too good to be true really is too good to be true and it's not going to come to fruition.  So even though we know we're going to get multiple offers, even though we know we want to get the highest price for our seller, our job is often misunderstood in the agent world.  We think our job is to get the highest offer for the seller when in fact our job is to get the best offer for the seller and if the best offer isn't the highest price one because of all the contingencies, or because of the closing time, it is our job to talk those through with the seller so that they can make an educated decision on which offer they are going to proceed forward with.  So be warned if that price comes in super inflated because it may just be a waste of your time.


No Proof Of Funds


The second red flag in an offer that comes in, especially if they're offering cash, is no proof of cash availability.  I’m sorry, but we are not in a market that is brand new.  We’ve been in this lack of inventory for a hot second now so if you had a buyer and he's offering a cash offer and they are not immediately sending proof of funds I would say that's a red flag!  There's no reason to wait 24 hours to provide proof of funds,  there's no reason to wait 3 days either.  A Buyer knows if they are offering their highest and best and if they really want to win that offer from the get-go then a good buyer and their agent will know that you provide proof of funds with the initial offer. And what I mean by proof of funds not just to cover the cost of the offer.  No, it is to cover the cost of the offer plus any closing costs that buyer incurs plus if the buyer is offering to pay for the sellers closing costs (which I'm seeing a lock these days) then their funds cover all of it.  And yeah we are seeing some loans go through these days so guys if there is a loan happening, whether they waive the appraisal contingency or not, if you're looking at an offer and you're looking at availability of cash and that cash offer barely covers the list price plus the closing cost then you may have a cash problem with that buyer.  Or if it really only covers the cash price because especially if they're getting a loan I want to see that they could cover the difference between an appraisal and where they ended.  So for instance If I price a home at $500,000 and they offer $540,000 I want to know that they have $40,000 to cover the difference between where I think it might appraise and where they offered plus their closing cost plus any other cash to close. If they can't offer you that then again please have that conversation with your seller. Educate Educate Educate!


Sight Unseen Offers


The third red flag that you may see in today's market is when you put that home on the market you hit active in the MLS and pretty soon you’ve got an offer without the agent ever having shown the home. The agent didn't text you, they did not alert you that the offer was coming in, and they did not follow up with you to let you know that an offer has been sent over to you and  is hoping to God that you see it.  The real truth is, that agent may be dropping offers all over the place and it may or may not be a legit offer.  It may not be the one that your seller needs to accept especially if there is any form of a due-diligence,  inspection, or other reason for that buyer to walk away because as good as our virtual tours are these days (and they're getting really good) a buyer who over offers on a home that haven't even seen the home is more likely to terminate at some point in the contract then a buyer who has seen the home, over offers, knows that they're committed, and knows that they want it.  Again it doesn't mean that a sight unseen offer isn’t going to make the clothing table. I've actually had several buyers who made it to the closing table before they ever saw the home.  These are just some red flags that you need to pay attention to as the listing agent so that when does offers come in and they look all the shiny and pretty because the buyers really want the bid, you can have good educated conversations with your seller on what all the contingencies mean and what happens if something doesn’t work out, and how do we really look at that overinflated offer.  Ultimately, is it really worth moving forward and what's the risk so that they can make a good educated decision on which buyer’s offer to accept.


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Previously on The B-Word

EP 85: 3 Easy Steps To Overcoming Perfection Paralysis

Jan 18, 2023