ADDRESS

8915 S Keystone Ave Ste C
Indianapolis, IN 46227

PHONE

317-657-8059

I am trying to buy a house, but my offer was rejected. Why?

Why your home purchase offer was rejected.

When I saw this question on the forum, my first thought was “ask your agent”. Then it occurred to me that they may not be using a real estate agent. Then an even worse possibility occurred to me. They may be using a realty agent that doesn’t know what they are doing. Finally, I accepted that one of those two situations had to be the case and this person needed my help.

First the quick reply, “was your home purchase agreement out and out rejected…or did they make a counter offer? If it was rejected, did they accept an offer from someone else?”

In this market, it wasn’t much of a surprise when they told me that the seller had rejected their offer in favor of another offer on their home. So I replied, “The other offer was more appealing, in fact without seeing either offer I can tell you that it is very likely that the other offer was substantially more appealing. I say this because if the two offers were even close, the  listing agent would have danced with glee while declaring an auction and set a date and time for both parties (and anyone else that wanted in the dance) to turn in their highest and best offers.”

Needless to say, this was on an internet forum so the the original poster told me how they had made a fair offer and that I was wrong. When I asked what fair had to do with the housing market, the person (I assume) who asked the whole world this question told me I was probably a total failure and I lived in my moms basement. Since this is an internet forum I was immediately bombarded with a deluge of mom jokes, threatened, and called names for 3 hours straight. Feeling bad for my moms good name, I decided they were not worthy of my solid advice and came back to my web page to talk to myself (and you good reader) about it.

Being that I didn’t know much about that persons offer or the property they were trying to purchase, I decided it would be best to talk about some of the factors I discuss with my buyers and sellers when either writing an offer on a house or choosing between two offers with a home seller.

For the quick list those considerations are: what is the dollars and cents bottom line, how sure is this purchase agreement to close, is this buyer (or seller) going to be easy to deal with, and is my client satisfied with the deal. Lets look at all four seperately.

What is the dollars and cents bottom line for this real estate transaction? 

This one seems obvious, but it isn’t. When we say this, people always think about the actual offer price. The thing is, while ego keeps sellers looking at that offer price, smart sellers (and good Realtors) look past the offer price and ask how much is the seller going to walk away with. This means going through the whole contract and seeing who is paying for each section of the title fees, checking if the buyer asking for closing cost concessions, looking to see if there will be a survey and who pays for it, finding out how due and past due property taxes are going to be divided up, and half a dozen other things that can eat into the dollar amount the seller will be walking away from the closing table with.

While individually most of those things don’t cost much, two different contracts with the same offer price can easily have a net price that differs by $10,000.00. I don’t know about you, but that is substantial enough for me to at least give it a moment or twos thought.

How confident am I that this offer will reach the closing table? 

Besides all of the contingencies, flakes, life issues, and flat bad luck that can kill a real estate sale; different lenders, appraisals, loan programs, and purchase types can put a realty transaction at risk.

Let me not start off by blaming the lenders and just say the first thing I am checking for is to see if they have even talked to one. We know that because the offer should have been presented with a pre-approval letter from a lending institution. In the case of a cash deal there would be a proof of funds letter instead and in that case you can skip down to the next section. If there is not a pre-approval letter, first I will ask the offer writing broker if there is one, and if there is not I will strongly suggest to my seller that they just throw the offer away. It is a 99% chance of being a total waste of their time and emotional drain. If there is one we go down the checklist.

What type of bank wrote the pre-approval? If it is an online bank, traditional bank, or one on our secret list of lenders who routinely screw up transactions; chances are the loan will close late if it will close at all. We won’t likely flat turn down an offer over this, but if its two close offers and one is from a small mortgage lender I know does good work and one of those I just discussed… its not hard to predict what I am going to suggest to the seller is the better option.

Can the home even appraise for the offered price? We probably looked at this before we considered the lender…but its all in the same setting. One fact you have to know is all Realtors are unabashed optimists. Itsthe only type of person that can emotionally survive working in a commission only field. As a result, when a buyer wants a house REALLY REALLY REALLY bad, they will sometimes want to offer well over asking price. The buyers agent will usually try to talk them down, but never very hard. They want the offer to be accepted. Well the thing is, appraiser work to protect the banks interest and banks view it as an unnecessary risk to loan 125% of a homes value. So while your outrageous offer looks great on paper, all it is going to do is take the home off market for a month or so and break the buyer and sellers heart. That doesn’t mean that a seller won’t take a overly high offer, or that I won’t even suggest it. It does mean we are going to be looking for protective language, partial cash purchase, and FHA or VA loans that are well over what the overly optimistic agent thinks the house is worth will not even be considered.

Which brings us to the risks to closing brought on by different mortgage programs. There are hundreds of mortgage programs available out there, and I can’t talk about all of them. So to illustrate what I mean I am going to pick on FHA and VA loans for a minute. The reason I am choosing them is they are both very common, and they both have a substantial number of hurdles that other programs don’t have. Some examples are special inspection processes and restrictions on home purchases that conventional loans do not have. These are things like FHA doesn’t like chipped paint. The wrong FHA appraiser will kill a deal over chipped paint on a window sill. A VA home loan example is the buyer OR seller may be on a government list (and they have one for everything) for something as simple as failure to perform on a government contract totally unrelated to real estate. It won’t matter why, the VA underwriter will not approve the loan and the deal will not close. Both agencies (and many other loan type underwriters) have whole books of these restrictions. Again, with most sellers these programs won’t keep an offer from being accepted, but they will make the offer a weaker option against a similar purchase agreement written with a good old fashioned cash or conventional loan.

The risk of alternative financing. In this day and age we don’t see as much of this type thing, and when we do it is a sure sign the buyer is either wholly unqualified to buy the home, or has not developed credit. In fact, thanks to the Dave Ramsay crew and all the manual underwrite lenders out there these days, the no credit people can even finance. So when we get an offer written as a rent to own or land contract, it is just assumed that the person writing it has not managed their money well. The only way I would suggest a seller of mine accept one of these deals in the current climate is with a large (like 35% plus) down payment and a land contract written by the real estate attorney of our choice. The risk with these buyers is too much for the lenders and it is too much for my clients.

How difficult will it be to work with this buyer?

Thanks to the popularity of television house flippers and fly by night “instant real estate millionaire” schools, everybody and their mother thinks that they can come in and hard ball a deal with success. I mean anyone can do it, right? NO.

In fact as a listing agent, when we are reviewing a purchase agreement with a seller, we are on the look out for signs of this. The reason is simple. We want our seller to make as much on the sale as they can with the least amount of stress. Hard ball players and unreasonable people are likely to accommodate either goal.

Some of the things that make a home buyer seem difficult to work with are:

Long escrow periods. Its not that you are being a pain, its about risk again. The longer the home is off the market, the worse it looks if the deal falls through. On top of that, sellers usually want to sell quick so they can buy their new home.

Extraneous contingencies. No reasonable person expects a buyer to forgo a home inspection when purchasing a home. That said, the more contingencies you place on the contract the more risk to the sellers prospects. I think it is fairly clear that less contingencies are more appealing.

Asking for the moon, and at a discount. Just like with contingencies, sellers expect to make some concessions when listing a home. The operative word is some. The less concessions you ask for, the more likely a seller is to approve your offer.

Short answer periods. Everything in a real estate transaction is on a timeline. Some parts are tighter than others. If you aren’t giving my seller a reasonable period of time to make a decision, I will recommend they check “declined” and send it back with commentary. My clients will not be bullied into a deal.

Summary

The long and the short of this is that when you are writing a purchase agreement, and especially in a strong sellers market like we have right now, always consider whether you would accept the deal or not. This doesn’t mean you shouldn’t protect your interests as well…just acknowledge that the seller is going to do that as well, and it is in both of your interests to start out with a fair and equitable offer. (Even if fairness has nothing to do with markets)

If you want to work with an agent that will protect your interests as a home seller and give you the best opportunity to have your home purchase offer accepted when buying, give Robb a call at 317-657-8059 or email robb@yourrealtylink.com to set up your obligation free consultation.

Share this:

Follow me here!