You will often here real estate agents say your first offer is usually your best offer. Now is this really a cliche or is it fact?
As a real estate agent, I can tell you this statement is mostly true. It is not just a cliche and I am going to go into why “your first offer is usually your best offer” is often correct.
All to often sellers will be very adamant when a listing first comes on the market. Activity is good and the home seller is feeling confident. Go back to when your agent gave you pricing on your home. A real estate agent will give a range a home is worth. It is just human nature that a home seller only remembers the high side of the range and automatically lists at that price or even a little higher.
In no way I am suggesting you should accept a low ball offer. But, it is important to review your comparable properties and carefully consider all offers. A skilled negotiator can many times turn a low ball offer into an acceptable offer.
First Offer Is Usually Your Best Offer… Why is that?
As a home seller you most likely are like every other home seller and want top dollar for your home. As you take the time to prepare your home and get it listed emotions run high. It’s stressful. Your home is listed for two weeks you have had a fair amount of showings. No offers.
Then your agent calls and says an offer is coming in! It gets sent over to you but it is $20,000 less than your asking price. Your heart drops. You call your agent wanting to reject it outright. Then your agent says you should strongly consider countering the offer and follows up with the dreaded “your first offer is usually your best offer”. Ugh you want to ring your agents neck! Why are they throwing out a cliche. Don’t forget that offer is often negotiated up, so I am talking about the number that is the final and best from the buyer.
Well it is not a cliche. It is often true. As agents we see sellers reject good offers in the beginning because the seller thinks they can get more. Then we watch as the house sits on the market and even lower offers come in or price changes are required below the original offer. Now it becomes a game of trying to chase the offer you lost!
Let Me Explain Why
There is some actual substance behind “your best offer is often your best offer” it is not a cliche. Ill explain.
There is a pattern we see all the time in either showing activity or online activity of a home as seen in the graph below. And, these are things that I track for my clients.
Showing activity will peak usually in the first 2-4 weeks a home is on the market. After that we will often see the activity drop like a lead weight and then showings become more and more spotty as time goes on. After 90 days your lucky to see a few showings a month.
This is also the same reason why it is important to sell your home in the first 30 days that you are on the market.
Let’s get inside the home buyer’s head for a minute. There is a process many home buyer’s go thru to get to the point of making and negotiating an offer that is acceptable to the home seller as I previously explained.
Most people in general have a pack mentality. If others do or want what they want it validates their decision or desire. Look at how prevalent name brands are… Polo, Mercedes, Rolex, Coach, etc… But they are popular and it is human nature to want to belong and be a part of what others are doing.
Look at the stock market. So much of the market is people following what others are doing. It becomes follow the leader. So much so, that sound principals can be thrown out the window….. if they are wanting or buying it, I should to!
Most home buyers want what other home buyers want. If they see activity it validates they have picked a good property. Back to back showings, simultaneous showings, packed open houses, new to the market…. all create an urgency to make a decision and step up and get the home. This creates competition among buyers. Alternately, if your home does not sell buyers become suspect. What goes thru their mind is what is wrong with it, why don’t other people want it.
The Home Buyer Cycle
The reason agents see this pattern over and over again is because of the cylce a home buyer goes thru on their search for the perfect home. A home buyer gets the thought to buy. They do some homework and get a mortgage pre-approval…. then call an agent and pick out a ton of homes in their price range.
First Phase of the Home Buying Cycle- Market Testers
Home buyers get the thought to buy. They spend hours looking for home on the computer. They will start hitting some open houses and maybe schedule a showing or two with an agent.
Second Phase of the Home Buying Cycle- Just Starting Their Search
They have met with an agent. They realize they need to get a mortgage pre-approval if they are serious buyers. Time to get serious. At this point the inventory they are looking at is the same inventory that has been around for weeks or even months. It is the old tired inventory other buyers did not immediately snatch up.
How many times do you see feedback from agents saying the buyer just started their search they are not ready to make the decision on any home? Quite a bit. But buyers have to start somewhere.
Third Phase of the Home Buying Cycle- Learning The Market
They are nearing the end of all of the inventory that was left by other buyers. Third phase buyers now realize that they need to pay closer attention to the new homes that just came on the market. Good houses in any real estate market go quick!
Realities of the market place or starting to creep up on them at this point. Missing homes because they did'nt schedule a showing quick enough, losing homes because they have underbid, taking to long to decide to put in an offer and the home is already under contract, maybe a lost home or two over home inspection, passing on homes they thought were overpriced but were snatched up immediately…..
Third phase buyers are learning hard lessons in the marketplace. One fact that every home buyer need to learn no matter how experienced they are is the internet has sped up the buying pace. Even in slower markets the good homes…. priced at market, in great condition and in good locations are gone in the bat of an eye. While market times are far lower than we have ever seen, part of it is the market itself but part of it is also the internet and putting homes in buyer hands the minute they are listed.
Fourth Phase of The Home Buying Cycle- Ready to Buy
Not that homes are not sold to buyers in all phases of the process, but your fourth phase buyers are your best buyers. Showings of your home in the first few weeks will be made up mostly of fourth phase buyers.
Fourth phase buyers know they need to get into good homes right away. They have been fully educated about the market and market value of homes and are tired. They are ready to buy. The fourth phase buyer will step up and do what they need to do to get a home they want.
What Happens When Your Home Sits on the Market Unsold
If you miss that critical 20-30 days on the market. You will see showings start to drop off. Waning off to almost nothing after 60-90 days. The phone will ring, you’ll get an appointment. But., more often than not they are home buyers just entering the market. They need to cycle thru the phases before they are truly ready to step up and buy.
As a home sits on the market, buyers will see the days on market and ask whats wrong with the home? Excessive days on market make buyers wonder why has this home been rejected by previous buyers. Buyers are far more willing to submit low ball offers and have ridiculous home inspection requests when a home has sat on the market for 60-90 or even 120 days.
There is also a certain segment of the home buying market that wants to find a home that has been sitting around. These feel they can get a better deal because they don’t have to usually contend with multiple offers.
Final Thoughts on Your First Offer is Usually Your Best Offer
While this is a bit of a generalization it is often how the buying cycle goes. There is a reason why your first offer may be your best offer.
I also don’t want home sellers to think I am telling them to take the first offer unilaterally. This is a discussion to have with your real estate agent and it is time to review comparable properties again. Don’t dig in your heels over a few thousand dollars if that is what it comes to early on in the process. Many buyers in the marketplace are fully educated about current market conditions and have maybe felt some pain in missing out on other homes, these home buyers are likely to put in the best offers on your home.
If you have high buyer interest in the first week this is also when multiple offers can occur. As a home seller, if you get multiple offers this is the best situation to be in.
This is why you will often hear agents say “your first offer is usually your best offer”. It is also why it is critical to sell your house early in the process. They know the cycle and they know how a majority of home buyers operate.