Should You Accept a Preemptive Offer?

The concept of preemptive offers is certainly an interesting, exciting and somewhat divisive topic within the real estate industry.  It’s a bit of a technical term that really you probably haven’t come across unless you are in the midst of buying or selling real estate.  It’s really a term that came into use with the rise of the coming soon marketing strategy, and  also along with the increasingly common practice of listing agents setting an offer review date.

So preemptive offers have been quite popular here in the Bay Area for quite some time, and they quickly gained steam in the rest of California. Now the rest of the country is picking up on the idea of preemptive offers, but as I always say, as California goes, so goes the rest of the world.

If you’re not familiar with preemptive offers, I’m going to cover a variety of points buyers and sellers ought to know about them. What are they? Are there different kinds? Should you accept a preemptive offer if you receive one? As a buyer, how can you get a preemptive offer accepted?

For information on making a preemptive offer as a buyer, you can click here.

The Offer Review Date

When you meet with a REALTOR to discuss selling your home, he or she will probably present you with a marketing plan. This plan covers a wide variety of topics, ranging from their online marketing strategy to the details of how they will uphold their end of the contract. 

Within that marketing plan, the REALTOR that you’ve chosen may present you with the date that the two of you will sit down and review any offers that you’ve received on the property. When the property “goes live,” which is the term that refers to when the home is publicly listed in the local MLS, offers will start coming in, especially in a market as hot as the market in the greater San Francisco Bay area (assuming that you are using the correct pricing strategy). On the review date that you and your REALTOR have agreed upon, he or she will sit down with you and start looking at the offers that you’ve received up to that point.

However, you may receive an offer or multiple offers well in advance of that public offer review date, and these are known as preemptive offers.  The buyers are trying to get you to accept an offer before you’ve had a chance to review offers from all potential buyers for the property, who typically only submit their offers in the hours or even minutes before the offer submission deadline.

What Are the Types of Preemptive Offers?

I say there are actually three different types of preemptive offers. The first kind, which is certainly the most common, refers to offers that are made before the review date that you and your REALTOR have agreed to. It’s not uncommon for buyers or their real estate agents to reach out to the buyer’s agent and ask if the agent and the client can review their offer, even if the offer review date hasn’t arrived. It’s important to understand that the listing agent is legally required to present all offers received to the seller, as soon as is reasonably possible – even before the offer review date that’s been agreed upon between seller and agent.  The only exception to this is when the seller has given explicit written instructions to the listing agent not to show them any offers received until that time.  The latest version of the Residential Listing Agreement does include such language in paragraph 10B(2), although this is an option that must be specifically checked.

The second type of preemptive offers is those that are received before the house is even publicly listed on the MLS (perhaps for example as something like a Compass Private Exclusive, or in a “coming soon” status). It is not unheard of for REALTORS in the Bay Area to leak information about a listing to other brokerages in the area before the home officially hits the MLS (although this may be a violation of the MLS clear cooperation policy, but that’s a whole other topic).

The third type of preemptive offers are sales that can be made between a seller and a buyer before the REALTOR has an actual opportunity to list the property. It’s not uncommon for someone who is planning to sell their home on the open market, so they begin talking to REALTORs about listing it for sale.  They may also talk to other family members, neighbors, or colleagues…word gets out, and then they receive an offer on the home from someone they know or who heard about it through the grapevine, and then accept that offer, preemptively, before it ever gets listed and goes to the open market.  This is in almost all cases all cases a bad idea, as it typically ends up costing the homeowner tens or even hundreds of thousands of dollars compared to what they could make on the open market.

Everyone wants to know…

The Downside of Preemptive Offers

There are downsides of preemptive offers for both the seller and their agent. Obviously, if the property is sold off-market directly between buyer and seller, the agent can be cut out of the deal entirely. That sounds like it’s bad for the agent, but in reality, it may be much worse for either the buyer, seller, or both.  Selling real estate is actually highly technical and there are lots of opportunities to omit some crucial information about a property, which could result in the price being too high, or too low, or be kindling for litigation between the parties post-sale.

However, if the property has been listed for sale, and the listing agent has published an offer review date, accepting a preemptive offer puts the agent in a real conundrum. REALTORs in California and across the country are bound by the National Association of Realtors’ Code of Ethics. One of the clauses in that code of conduct is to be “clear and honest in all communication.” When the agent publicizes the offer review date and accepts an offer before the publicized date and time, it could easily be argued that he or she is not being “clear and honest.” 

However, the biggest danger in preemptive offers is to the seller. When you sell your home before you’ve had a chance to review all potential offers on your home, you run the risk of not getting as many offers as you would like, and the price may be lower than one of the offers that you failed to review.  While there is no mathematical formula to this, decades of anecdotal experience tells me that the more offers you get on your home, the higher the sale price will ultimately be.

Should I Accept a Preemptive Offer? 

In virtually every case, I tell my clients to avoid accepting preemptive offers. Obviously, I want to do everything to abide by NAR’s Code of Ethics, and when if I do put an offer review dates on a listing, I believe in abiding by that. However, my biggest reason for advising my clients against accepting preemptive offers is for their own good.

I recently closed a transaction in which I represented the buyer. She found a home that she loved, and we put in an offer on it. Shockingly, the seller quickly accepted the offer. I say that it was shocking because I truly believe that the seller could’ve gotten far more out of his home than my client offered. However, he was determined to sell the home quickly and took the offer. 

Instead of accepting a preemptive offer, view it as an opportunity to counter the buyer’s offer. If the potential buyer is putting in an offer and asking for a quick response via a short offer expiration date, it’s obvious that he or she loves the property. With that in mind, consider the risk that you’re taking by accepting this offer. There could be dozens of other offers coming in, and those offers could be for more money. If you’re truly interested in the preemptive offer, use it as an opportunity to get more out the buyer. Your REALTOR should take that opportunity to shop the offer around and see if they can’t find anyone else who may be open to making a competing offer.

As long as there are homes for sale, there will be preemptive offers. People will always want their offer reviewed before the review period begins, people will always try to make an offer on a home they like before it hits the open market, and people will always try to pay as little as possible for the home that they’re buying. Instead of jumping on these preemptive offers and costing yourself money, talk to your REALTOR® about how to wait things out and make sure you have a chance to review all of the offers on your Bay Area home.

Time to talk to a REALTOR?

Making a Preemptive Offer as a Buyer

It is very common these days for homes to first come on the market as a “coming soon” listing.  These listings are posted to the MLS and can be seen by REALTORS, and their clients who have access to the MLS through the agent.  The “coming soon” period may be as soon as a few days, but sometimes it drags on for months. Typically though a “coming soon” listing will be in the state for less than 30 days.

It is very common for a buyer to want to make an offer during the “coming soon” period.  However, much of the time, MLS rules prohibit the listing agent to show the property while it is in the “coming soon (do not show)” status.

However, I am not aware of any provision that says the seller cannot themself show the property to a buyer.  Although I have never had a buyer do this, I am not aware of any provision in the code of ethics (which homeowners and consumers are not bound to), contract, or law that prohibits a buyer from going to a home, knocking on the door, and asking the seller if they can take a look around.

Of course, in this day and age, it’s unlikely you’re going to find many people who will let a stranger into their house to take a look around, but in some cases, it can happen.

But assuming that you as the buyer do know enough about a property to feel comfortable making a preemptive offer on it, there’s something you should know:  this is not the time for making a lowball offer. If you are going to have any reasonable hope of the seller agreeing to abandon their marketing plan and sell the property before it properly is exposed to all buyers, your offer is going to have to be good.

How good?  I tell my seller clients that if a preemptive offer comes along, it needs to be as least as good as what we could expect to receive on the open market.  Actually, probably a little bit better than that even – because receiving a preemptive offer is a sign that you have a very desirable property.  If there’s one buyer already willing to write an offer on it, odds are there will be more – and when buyers compete against each other, that will send the price climbing.

And that is exactly why buyers are interested in making preemptive offers: they don’t want to have to compete with a bunch of other buyers.  It may be that you find a seller who is satisfied with your preemptive offer, because their price expectations may not be all that high, and your unspectacular preemptive offer may be “good enough.”  But don’t count on it.  My advice is that if you’re making a preemptive offer, make it a knockout, because that’s usually what it takes.

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Seb Frey helps long-time Bay Area homeowners make their next move easily the next one yet. If you're looking for a minimum of hassle, maximum net cash on sale, and certain results, contact Seb today.