In case you haven’t heard, it’s a hot market in San Francisco. With the return of a strong market (no, not because of the geeks in blue – because of the inventory), we’ve see a return of properties advertised and marketed for sale with an offer date. For those who aren’t already familiar with the term, it means that the sellers have set a date on which they will review any and all bids on their home.
Sellers like offer dates because it gives them a feeling that their home has been marketed for a long enough period of time that they aren’t missing potential buyers. However, sellers also like lots of money and sure-things. Setting a bid date addresses the feeling that the home has been properly marketed, but it creates a degree of uncertainty (a seller/seller’s agent may be worried that they won’t get any offers, and that an empty offer date will immediately be followed by low-ball offers).
Buyers — believe it or not — also have some reasons to like offer dates. For one thing, if you turn your back on the market for 24 or 72 hours, you don’t have to be worried that your dream home was snagged by someone else. It also gives a buyer more than 8 seconds to digest a disclosure package, review comps, and make sure they are making an educated and informed purchase. Let’s face it, though; it also puts pressure on them to write a strong offer (either at or over the asking price), and in some cases feel as though they should waive a general inspection contingency (which is a very, very, very bad idea IMHO unless you have a very specific and smart reason for doing so).
Well, if a listing agent (and thus the seller) set a bid date and stick with it, then things work pretty well. Buyers have time to do their homework, and sellers feel they’ve gotten good market exposure.
Pre-emptive offers, though, are the cause of much heartache and grief (unless you happen to be making a pre-emptive offer, and it works, in which case your joy didn’t come cheap). A pre-emptive offer is an offer presented to the listing agent prior to the offer date, which the seller then accepts.
I’ve taken two listings from the San Francisco MLS and blurred out the property-particular characteristics to help illustrate the situation.
At the top of this article is a picture of a property with an advertised offer date. The agent-only section of the MLS will typically contain additional information for buyer’s agents who are interested in making an offer, including links to disclosure packages, etc. If you are a buyer and you “play by the rules” then you will wait until the set date to have your agent present your offer. Agents typically set bid dates when interest in a property is very high, there are multiple requests for disclosures, and they believe setting a date will bring the highest price for their seller. An agent should (IMHO) decide on their strategy with their seller in advance of listing the property in the MLS. (Note: The strategy can be to make a decision about a bid date after the first open house. A strategy can be whatever you want it to be, the point is that sellers and listing agents need to be on the same page.)
Below is another property listing in which the public remarks mention the seller’s “right” to accept a pre-emptive.
So if an offer date has been clearly advertised and someone shows up with a contract to purchase before the advertised date and time, what happens?
California state law requires that an agent present all offers received to the seller. So if a buyer’s agent shows up early, what’s a listing agent to do? (And rarely does a timid buyer’s agent show up with a pre-emptive. The conversation usually goes something like this:
Buyer’s Agent: Hi, I have a great contract to purchase your property.
Listing Agent: We’ve set an offer date of X.
Buyer’s Agent: This is a great bid and it’s only on the table right now for the next 6 hours. If you don’t show this to your seller then you’re breaking the law and I’ll report you to the appropriate authorities and your seller will forever curse your name for not showing them this amazing bid from my phenomenal clients….
If that listing agent has, in advance, discussed an offer strategy and confirmed it in writing (you know, like email – no fancy forms required) that the seller will not review offers until a set date and time (the, um, offer date), then they can kindly return it to the buyer’s agent and ask them to submit it on that date, or explain that they are happy to hold on to it until that date but that it will not be presented to the seller until then.
If the listing agent has not discussed their strategy in advance, then they’ve put themselves in an all-around lose-lose situation. If they don’t present the offer, they will be in violation of the law. If they do present the offer, and the sellers accept it, then they’ve possibly exposed themselves to ethics violations either from fellow agents or the general public, because all parties in a transaction owe the other parties the duty of honesty, even if they don’t represent that particular party. My personal opinion is that accepting a pre-emptive is a violation of the code of ethics, other agents disagree.
So what’s gone from a win-win where sellers have plenty of marketing exposure and buyers have time to do their homework has instantly become a lose-lose, in which one party violates an agreement (the offer date) to the detriment of all of the other buyers and buyer’s agents who are doing their homework and getting ready to make an offer on the advertised date.
Which is where language like “Our offer date is X. But we can take a pre-emptive if we want” comes from. Although an argument can be made that language like that really does mean that they don’t want to wait for an offer date, so just bring them your best offer right away.
And thus, the pre-emptive offer, which causes plenty of hard feelings all around.
Disclaimer: I’m not an attorney, and I probably couldn’t even play one on television. Talking about offer dates and pre-emptives can quickly turn into a discussion about agency law, state real estate law, and the code of ethics. This article isn’t offering legal advice or counseling, and hopefully you are having discussions like this with your agent. This article is not intended to be specific advice for your particular situation, just a general discussion of why this happens in San Francisco and what can be a good thing for everyone can quickly turn ugly. You shouldn’t play field-hockey in the middle of Lincoln Way, and you shouldn’t take advice from strangers you haven’t met on the internet.
All that said, what are your thoughts and experiences with offer dates and pre-emptives?