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Updated almost 7 years ago, 02/28/2018
My Higher Offer Rejected, House Went to Lower Bidder?
Hi Everyone,
I'm a new(ish) investor in the Atlanta market, buying primarily in southwest ITP neighborhoods. I've had the experience twice now where my higher offer was rejected (in a highest and best scenario) only to have the house go to a lower bidder. The properties were both rehabs in two completely different areas (North Decatur & Pittsburgh) and two completely different price points with two different seller's agents. Both offers utilized escalation clauses. The Decatur home actually went for $5,000 under my bid.
I'm trying to understand the context where the agent would reject a higher offer in favor of a lower one, so I would appreciate the expertise of any agents in the forums so that I can avoid this costly mistake again.
We've speculated that the offers may have been rejected because of the due diligence period being 7+ days, or perhaps being contingent on inspection, but have received no feedback from the agents as to the true cause. Do any of you have experience or advice in such a situation? We have shortened our DD to 3 days but I would like to learn more from the perspective of the listing agent as to what would precipitate such an outcome.
Thanks so much!
I suspect the other bidder had a no clause cash offer. That would appeal to many people.
I should have included that these were all cash offers with proof of funds. Thanks, Jonathan!
I sold a duplex to a lower bidder simply because they didn't have an inspection clause. I knew the inspection would cost me more than taking the lower offer.
I have also won deals with a lower bid by not having inspection clause and having a cash offer that could close quickly.
When I do inspections, I always get off more money than the cost of the inspection. They always find something.
Since your offer was cash, that only leaves inspection as the reason.
Originally posted by @Mary B.:
Hi Everyone,
I'm a new(ish) investor in the Atlanta market, buying primarily in southwest ITP neighborhoods. I've had the experience twice now where my higher offer was rejected (in a highest and best scenario) only to have the house go to a lower bidder. The properties were both rehabs in two completely different areas (North Decatur & Pittsburgh) and two completely different price points with two different seller's agents. Both offers utilized escalation clauses. The Decatur home actually went for $5,000 under my bid.
I'm trying to understand the context where the agent would reject a higher offer in favor of a lower one, so I would appreciate the expertise of any agents in the forums so that I can avoid this costly mistake again.
We've speculated that the offers may have been rejected because of the due diligence period being 7+ days, or perhaps being contingent on inspection, but have received no feedback from the agents as to the true cause. Do any of you have experience or advice in such a situation? We have shortened our DD to 3 days but I would like to learn more from the perspective of the listing agent as to what would precipitate such an outcome.
Thanks so much!
I never have a contingency when buying a rehab. The whole point is to rehab. There are probably others like me who are going to gut the property. Sometimes simply changing the floor plan makes the house worth plenty more and since that means rewiring and re-plumbing anyway, it's all built into the offer. That doesn't mean you shouldn't have contingencies, it just explains why some of us don't.
"I sold a duplex to a lower bidder simply because they didn't have an inspection clause. I knew the inspection would cost me more than taking the lower offer."
This makes a lot of sense. I will consider removing the inspection clause once I am more comfortable with my ability to evaluate structural issues or in houses where the land value exceeds the purchase price. I neglected to include in my original post that the offers were all cash, so I do not believe the closing schedule would be a factor here. Thanks, @Joe Splitrock
Thanks @Account Closed! Never? The properties I am bidding on are generally 80+ years old so it's mostly to protect me from fire damage and foundation issues, but I can see the merit in your approach. Would you mind elaborating on what factors in condition you would consider deal-breakers?
Originally posted by @Mary B.:
Thanks @Account Closed! Never? The properties I am bidding on are generally 80+ years old so it's mostly to protect me from fire damage and foundation issues, but I can see the merit in your approach. Would you mind elaborating on what factors in condition you would consider deal-breakers?
I agree, In my case I won't offer if I see there is a serious foundation problem, under or near high tension power lines, too near a cliff, flooded, burned, drug house, war zone, more than 3,000 sq ft, under 1,000 sq ft, clouded title. I've done all of those in the past, but learned that it isn't worth my *particular* time (some people have more time on their hands ;-) I can usually get everything I need to know by Google Maps and a quick drive by.
7 years ago we got an amazing deal on a mixed use commercial. We knew the owner was out of state (it was an estate sale) & the place was full of junk & the old machine shop was full of old equipment.
We offered cash, close in 30, no inspection & we would take it 'as is'.
Several others were also cash & higher but wanted inspections & the place cleaned up.
It's NNN & still returns us 28% p.a.
But we do have experience regarding structural, elect, plumbing etc etc.
We had the opportunity to bid on another property that was part of the estate. It was run down tavern & 4 equally rundown studios apts. Even though it could have been a great deal we lost it over a mere $5,000 that we wouldn't budge on.
I am an inactive agent and currently work on the finance end for real estate investors.
That said. the winning bidder could have offered to be a repeat buyer if the property's was owned by an investor. Probably a faster cash offer was a component as well.
Thanks @Account Closed! I really appreciate your expertise. My five year goal is to get into small to medium multi-family and mixed commercial so I really appreciate your input. I've got access to good title search tools and data due to my business associations in commercial real estate appraisal, so it sounds like I just need to put in a little more legwork and familiarize myself more intimately with building codes and structural red flags and bid more aggressively on these properties.
Thanks again, invaluable input from all!
@Mary B. our title guy was invaluable in nailing the mixed use commercial. He discovered the fact that it was an estate & the heir was in New Mexico & not interested in cleaning up the property. The property sat vacant for a couple of years & we instigated the listing & sale by our title guy calling her about her intentions.
I was the seller in a recent scenario like that - in Pittsburgh.
Buyer A came in the first time and scoffed at the price, told my agent that he was way too high. Came back a 2nd time with contractor and spent some time, then shook her head and they both left. Then she made an ok offer with low downpayment and subject to a renovation loan - that was several days after the first.
In the meantime buyer B came in and made an immediate cash offer, with higher downpayment. He was more serious and was nice to me, while buyer A seemed to play the game of 'this is just not worth it and the seller is an idiot for asking this price.'
Buyer A came back with a higher offer, all cash, but I had already accepted B's office and I really didn't feel good about B, because of her attitude.
I'm glad that I sold to B
Every market is different, but I know in my market here in Connecticut an offer with no inspection contingency and a high earnest money deposit amount carries a lot of weight. It can definitely be worth $5k to a seller.
- Michael Noto
It happens. I was a seller and I took a lower offer, $20,000 less than the highest.
I sold a rental, back in 2006, believing the market peaked. I got quotes from brokers ranging from $699K to a frothy $850K. From 2003 to 2006, triplexes went up $100K/year, unbelievable.
Believing the market was at it's peak, told the brokers I'm happy with $699, for a quick sale, as I was going to sell it a year earlier, things got busy, and it was $100K less. The first 2 brokers were shocked, didn't want to do it, thought I was stupid, the 3rd said in such a market, if you underprice it, people will bid over asking. I like what I heard, and told him to go ahead. Our family own rentals in San Francisco where paying over asking is common.
As it turned out, I got bids of $720k, $740k, and $760K. Asked the broker if I have to go with the highest. He said no, I can go with the one I'm most comfortable with. So I went with the $740K. Says he'll handle the couple putting in the higher bid.
The $760K came from working couple putting 10% down, and the 90% mortgage looks iffy. The $740K came from 2 investors who will put $500K down, and have a partner putting up the remainder if they can't get a mortgage.
My goal was to close on it in 2006 before the market crash. This was in Sep 2006 and we closed in Dec 2006. The investors turned out to be flippers that had a for sale sign outside place the week after the closing.
The market crash came, looked at property values the summer of 2007, and the property was listed as $630 to $675K. I was glad I didn't go with the $760K bid. If the mortgage was rejected, as I'm sure it will, I have to find new buyers in the middle of a market crash.
I feel bad for the buyers, the flippers, but investing in NYC, things like this happens. I know quite a few unlucky people who lost their shirts during such downturns.
As to the couple who lost out, they're lucky. They got a chance to buy what they couldn't afford to buy, a few months later, for $100K less. When I spoke to the broker earlier, asked if the higher bid buyer can come after me, he said no, and given what happened, lucky them.
Fill up the pipeline.
In every scenario we routinely win with our Cash, no inspections, 10 day close offers. Being GCs ourselves, when we go to check out a property we know everything there is to know in 30-60 mins on site, so no need for a formal inspection.
And it helps big time.
When we sell B-C, the ONLY offers I will even entertain inspections on are retail MLS sales. Otherwise, wholetail/wholesale etc, EMD is firm day one and there are no inspections. Bring whoever you want out before you make the offer.
Wow, thank you all so much for the answers. I feel really fortunate to be able to pull from the shared experiences of this community as I try to navigate my way through this field. I'm going to try to respond to everyone in one post so no one gets peppered with emails about the thread :)
@Pat L. I work in a companion position to commercial real estate appraisers and as such have had opportunity myself to conduct title searches - one of the houses I mentioned earlier was also an estate property that had been flooded while the relatives sorted the will. It is good to hear that you were able to derive such success for your transaction and inspires me to consider that it may be appropriate for me to dig a little deeper when I come across similar situations. Thank you again!
@Michaela G. I'm so glad you replied! At the risk of appearing like some weirdo, I actually recognized your name from the property records I've pulled over the past 18 months in Pittsburgh. We probably waited too long to pull the trigger in that neighborhood, but because I was a novice, I was comfortable paying a little more to satisfy my confidences in the direction of the market. When I found this forum, yours were some of the most informative and helpful posts I read, so I wanted to tell you how much I appreciated it. I'm getting outbid way about asking the last few weeks, so I think I've been priced out of that market, but were fortunate to pick up two out of the 20 or so we went for.
Your comment is really interesting and important because it reminds me that at the heart of all of these transactions are people and that we can be swayed by experiences and attitudes. I'm definitely not your buyer or bidder (not that you were implying that) but it is an important lesson to learn for me too; bad days and bad attitudes can have pretty far reaching consequences. I never really considered it because I try to be kind and polite to everyone, but I believe the house we are under contract on right now may have been a similar scenario. We met the seller in person and learned about his history with the home and how he felt about all the changes in the neighborhood. At the same time, several investors pushed through the house with a checklist loudly talking about all of the things they were going to gut, even though the house was mid-renovation with contractors present. We already had a pending offer prior to meeting him, as I'm sure others did as well, and by the time we got home, he had signed it.
Congratulations on your hard won successes investing in the area and thank you for never being stingy with your expertise or experiences!
@Michael Noto Thanks so much! I was hoping to hear from some agents for just this reason. I had no idea that the amount of earnest money made a difference. I can definitely bump that up because it makes zero difference to me, as I intend to pay in cash for the full amount of the bid.
@Frank Chin Bayside! You're up near Great Neck, right? So beautiful up there! Thanks for sharing your experience. These houses were definitely both under-priced and all of the bids were over asking. I am impressed with your ability to read the market like that and to evaluate the credibility of the buyers. 2006 was the year I bought my first house, and wouldn't you know, still stuck with it ha ha! I was fortunate that the area I chose did not go down in value, but it certainly did not go up for many, many years. Thank you again!
@Bryan Blankenship Thank you! I'm just trying to get where you are :) I think I have some more learning to do to that ends, although I've overseen some large renovation projects, I just do not feel qualified to make judgment calls on entire houses. It's super important though if I want to be successful in this, so I appreciate hearing about your process. We renovated and recently sold a large beachfront home in Costa Rica and I intend to design and build two more on adjacent land, so what I am doing here is really a trial run for that. I was born in Dayton, go Reds! :)
@Mary B. how quickly was your escrow going to be? Might have been a quicker close without contingencies or one of the two. Your agent should be able to check your MLS (assuming this was listed on the market) to see when the COE date is and can also see whether the property shows contingencies or not. For the one that sounds like it already closed, your agent should just be able to call the listing agent and ask what the terms were.
Essentially, your agent should be able to find out exactly why you lost.
when I was buying all of my houses for 10k or so, I always offered full offered price as earnest money, without any contingencies. I know that I got several houses, even though there were higher bidders. The banks saw me as a serious buyer and not just a tire kicker.
@Ariel Smith the escrow for the earnest money was 3 days, the cash payable at closing and the closing date was two weeks "or sooner" depending on the contingency. I also thought it could be a quick discussion between the agents - I'll inquire again about it. Thanks so much for sharing your expertise. I think, from what I've gathered via this discussion, is that our contingency was too harsh and due diligence too long and that we should offer more in earnest money. You all have been a great help.
@Michaela G. I really admire your strategy - I'm about to put a bid on a rehab in an estate and I think I'm going to increase the earnest money dramatically and drop the contingency. This one is a much higher price point but I'm more comfortable because it's just down the street from me and actually has the same builder as my home, so I am very familiar with the structural condition and build quality. Thanks again!