Riverside Realtor Blog - Alma Dizon

Alma shares her experiences and observations as a Realtor in Riverside California.

Sunday, April 23, 2006

How (Not) to Write a Counter Offer

I spend about as much time preparing a counter offer as I do an offer. I like to talk to the buyers’ agent before they even write the offer, so that I can save time and paper. Then when I get the offer, I go over it with a highlighter pen (which won’t show up in faxes and photocopies), marking all the errors and incomplete spots. If possible, I call the agent and get as many pages corrected and refaxed as possible as I hate having to attach an addendum to the counter when I run out of space. I ask for the buyers’ lender letter, FICO scores, and proof of funds upfront, and I tell the agent that the counter will ask for them if they’re not included with the offer. Then I call the lender to ask if the offer is for the most the buyers can afford and to discuss how the loan will be structured. After that, I draft a counter for my sellers and include wording that the buyers will be preapproved by a loan officer I know since I’m not a lender myself and have only done the preliminary footwork. Then, we go over the draft to see if there are any details that I’ve left out. I do all of this because my sellers have enough juggling to do between their daily lives, preparing to move, and trying to keep the house perfect. They usually understand that I’m doing all the homework, but on occasion, I do have sellers who just can’t accept the information I provide. Not surprisingly, they’re the ones who can’t process the data I give them from the start.

I had some clients once who had an older home that they had fixed up nicely, but there were still some items that they hadn't taken care of before the husband got a job relocation out of state, and they ran out of time and energy. Unfortunately, before Joyce and Noah (not their real names) interviewed me, they talked to some other agents who told them that their little 2-bedroom, 1-bathroom house could get 70k more than the only sold comparable I could find from the previous 60 days. They decided to go with me, but they insisted on pricing the house 40k over the one comp. I agreed that the house might have sold for the amount they wanted if there weren't so many houses on the market, but they were sure that the quality of their house would win out over the supply versus demand rule. They promised to reconsider the price if they didn't get any offers, and we left it at that.

The months dragged by, and there were no offers. Joyce and Noah moved and rented an apartment while continuing to make payments on the home in Riverside. Only a handful of agents came by, and only half of them left their cards. I called for their feedback, and the ones who responded said it was cute, but their buyers expected another bathroom at that price. I kept asking Joyce and Noah if they were ready to lower their price, and they hesitated, saying that they didn't want buyers to think they were desperate even though the house had been vacant for quite a while. I finally told them that I didn't think anyone would notice because we had so few agents showing the house. In other words, the price of the house and its lack of a 3rd bedroom (let alone another bathroom!) were keeping it from popping up in agent searches on the MLS. Houses all around theirs were selling, and there were now two comps 20k under them, but interest rates were starting to go up, and I didn't think that the market would reach them before buyers ran out of spending power.

They finally lowered the price 10k, and a couple more agents brought clients to the house. Then nothing. After much discussion, I got the couple's permission to put in the MLS description that they would help with closing costs. At last, we got an offer. After subtracting for the closing costs they wanted, it was for 10k under the only comp I'd given them at the start. I talked to the buyers' agent, and he was frank with me, his buyers were maxed out and couldn't go any higher. So that went into the reject pile. Even I thought we could do better than that.

Several weeks went by, and a second offer came in. I looked over their FICOs and proof of funds, and I spoke to their lender. Their offer was at the maximum that they could get a loan for, and they were extremely borderline with insanely high interest rates due to past credit problems. Their monthly payment was going to be about $3,100/month. The lender was doing them a favor by reducing his own fees and allowing a slightly higher debt-to-income ratio. I reported these facts to Joyce and Noah, yet amazingly, they wanted to counter back higher to 1k short of their current list price.

"But they can't do it," I said. "They’re maxed out.”

“They can get another lender,” Joyce said.

“No one else will do the loan this high because they can’t make any money off these people,” I replied. “So what's the point of asking them for the impossible?"

"They can counter back," Joyce insisted. "They can increase their earnest deposit."

"What difference does that make?" I asked. "They have a higher than average deposit already, and you'll net the same amount either way."

It was getting late, and the couple wouldn't listen, so I finally threw up my hands, redrafted the counter, and called it a night.

Two days later, I called the buyers' agent to find out if they would be countering back. She told me that the buyers had gotten cold feet because of family troubles. If they could get back on track and if interest rates didn’t go up, they told her they might come back in a couple of weeks and resubmit an offer. I sighed, thinking that they were probably going to go look at other houses with another bathroom during that time.

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