A real world example
This is a story about good friends of mine who placed an offer on a home they loved some time ago. Their offer was $750,000, only subject to a short finance clause of three working days. They added a letter explaining that all the bank needed was a valuation. They also conveyed that they had a valuer organized for the next day should their offer be accepted. Their financial position was excellent, the agent was briefed (they really wanted the house) and there was enormous confidence the finance clause would confirm.
I personally had just sold a house the month before, four doors down for $751,000. It was in a similar condition and a similar size. According to my property smarts system, the house my friends were looking at was actually a larger floor area and larger piece of useable land.
The offer accepted was UNDER $690,000 and one can only assume that it was unconditional.
In this situation, what would be your decision? Each to their own, but I personally would be accepting the $750,000 conditional offer every day of the week if the lower offer wasn’t budging. I don’t know the situation from the seller’s perspective, but close to 10% of the purchase price is a large concession.
The Stanford Marshmallow Experiment
It may seem unnatural to compare the Stanford Marshmallow experiment and real estate, but stick with me. The Stanford marshmallow experiment, conducted in 1972, was a test in delayed gratification. The premise was that children could have one immediate reward now or double the reward if they waited a period of 15 minutes. The purpose of the study was to understand when the control of delayed gratification, the ability to wait to obtain something that one wants, develops in children.
How does this relate to selling a home?
When selling a property (especially in this market) you are commonly presented with a number of offers. These offers will often range between being unconditional and containing multiple conditions. The unconditional offers will give instant gratification and a sense of completion relief, whereas the conditional offers may require a little patience, the ability to hold your nerve and put your fear of loss to one side.
I have heard of and seen many instances like the one above where an unconditional offer is accepted despite the fact that there were significantly higher offers that may have had condition/s attached. Some of these decisions are most definitely justified but some, I feel, were made in order to receive instant gratification. Sometimes holding your nerve to “double the number of marshmallows” pays off.
Obviously there is a lot in play here – some of the considerations will be:
- How likely the conditions are to confirm?
- How long the conditional period is (the shorter the better). I will save the explanation of clauses like the cash out for another day.
- Your personal circumstances (there may be a need for an urgent sale).
- The differential between the offers. It can obviously make more sense to accept an unconditional offer only $10,000 below a conditional one as opposed to say, $50,000 or more.
- How likely would you be to receive another offer at a similar level should the conditional offer fall over? The number of offers and at what level these offers were would be taken into account here. We could delve into backup clauses but again, I will save this for another day.
There are two words I often repeat to clients – don’t panic. I realize we don’t want to make a decision to accept a contract purely based on the price and it then does not confirm. But conversely, don’t feel forced into accepting an offer to satisfy a need for instant gratification.
Remember – if you are an owner selling, in a multi-offer situation you have options. You don’t have to accept anything, you can negotiate (i.e an unconditional offer could be negotiated higher if it was slightly behind a conditional offer) and you can outright accept an offer to name a few. You could also consider looking at a backup as mentioned above.
The agents role in proceedings
Often the person who needs to delay their need for instant gratification is the agent. Agents will often have a bias towards trying to talk their client into accepting an offer that is unconditional. Why would they do that you may ask? Agents can have exactly the same fear of loss/instant gratification feelings as you.
I am by no means saying the highest offer should always be accepted but a good agent should be able to talk their client through the pros and cons of working with the different options and lead them to a point where they feel empowered and comfortable with their decision.
Key takeaways
- Don’t panic
- Weigh up your options (you do have options)
- Try not to feel pressured
- Ask questions of your agent
- Make an informed decision
Last but not least trust your gut feeling and instincts. These are made up of a lifetime’s worth of experiences and they account for something.
Feel free to touch base with me should you need advice or an opinion on anything at all.
