By Brendan Leahy, Naked Real Estate®
The obvious answer is $855,000. On one of my Roleystone sales, taking it ultimately left the sellers $36,000 worse off than the clean offer they already
had.
I get paid when your home sells, so you might expect me to tell you to take the biggest number and move on. This article argues the opposite, which is at least a sign I am not just protecting my commission.
Here is the situation I see more than any other when two buyers want the same home. One offer is higher, but the buyer needs to sell their own place first. The other is lower, but the buyer has finance pre-approval and can settle when you want.
Most sellers instinctively reach for the higher number. Sometimes that is absolutely the right decision. Sometimes it is not, and the difference may only become obvious weeks later, when the higher offer falls over and the other buyer has bought somewhere else.
Price is one number on the offer. There are several others.
When an offer comes in, the price is the part everyone reads first. It is rarely the only thing that decides whether you actually end up with that money.
An offer in Western Australia also tells you:
- whether the buyer needs finance approval, and how long they have to get it
- whether the buyer has to sell their own home first
- whether it depends on a building or pest inspection
- how large a deposit they are putting down
- when they want to settle
- any other special conditions they have added
Each one is a way the sale can fail, or be delayed, or be renegotiated before settlement. A higher price with three conditions attached is not the same offer as a lower price with none.
The question I ask every seller to think about is not “which is the biggest number.” It is “which of these is most likely to actually settle, at that price, on a date that works for me.”
Subject to sale is the big one
Across my own sales, roughly three in four of the buyers we work with are also sellers. So a lot of the offers you receive will be subject to sale, and that is normal.
It is not automatically a bad offer. But it means your sale now depends on someone else’s sale, in a market you do not control, at a price you have no say over.
The standard protection is what most people call the 48-hour clause. It lets you keep marketing your home and consider another offer if one comes along. If you want to proceed with that other offer, you give the first buyer notice under the clause. They then generally have two business days, not a literal 48 hours, to satisfy or waive their subject to sale condition. If they cannot, you can usually terminate that contract and proceed with the other offer. The exact wording matters, so read the clause in your contract. The detail is in my subject to sale guide.
But that protection only works if another buyer turns up. In a quiet market, you can be tied to a subject to sale offer for its whole term with nobody else coming through the door.
The practical question to ask is simple. Is the buyer’s own home already on the market? Is it priced realistically? Has it had interest? A subject to sale offer from someone whose home is already under offer is a very different thing from one whose home has not been listed yet.
Finance, deposit and settlement
A finance condition is common and usually fine. What matters is whether the buyer has pre-approval, how realistic the loan is against the price, and how long the condition runs. The finance clause article explains where this catches people out.
The deposit is another term to compare. In WA a deposit is not compulsory and the amount is negotiable. I look at it as part of the overall offer, but I would not assume a larger deposit automatically makes one buyer safer than another.
And settlement matters more than people expect. If you are buying your next home, an offer that settles on the wrong date can cost you more than the price difference between two offers, through bridging finance, rent, storage or a second move. A delayed settlement is not a situation you want to engineer on purpose.
A Roleystone sale where the lower offer was the right one
In early 2019, when the Perth market was still soft after the mining downturn, I hada Roleystone home on the market from $720,000. I have changed the sale figures to protect the owners’ privacy, but the proportions are exactly as they were.
Two offers came in.
The first was $747,000, subject to finance only. The buyers had bank pre-approval, and apart from a building and pest inspection there were no other conditions. A clean, genuine offer.
The second was $855,000, subject to the sale of the buyers’ own home in Canning Vale.
On paper, that is $108,000 more. Easy decision.
So I went and looked at the Canning Vale home before giving the sellers my advice.
That is the part sellers sometimes miss. I was not comparing $747,000 with $855,000. I was working out what had to happen before each buyer could actually hand my sellers the money.
The buyers had been told to expect $1.45 to $1.5 million for it. When I walked through, it was nowhere near ready for market. They were halfway through painting, the gardens were not done, and the place was pretty much a war zone. Even finished and presented properly, I could not see it getting more than $1.1 million at best.
That meant the $855,000 offer depended on a sale that was not ready to start, at a price I did not think the market would pay.
My advice was not to take it. Take the $747,000, which was real and ready to go.
The sellers took the $855,000.
Ninety days later the buyers’ home still had not sold. The subject to sale term ran out, the buyers did not extend, and they walked away from the contract.
The sellers asked me whether the finance buyers were still around. They were not. They had bought another home.
We ended up selling the property for $711,000. Thirty-six thousand dollars less than the clean offer they had in their hand, three months later, after a stressful wait.
Afterwards the sellers said to me, you should have made us take the other offer.
I understood why they felt that way. But that is not how it works, and it should not be. My job is to put every offer in front of you, tell you honestly what I think of each one and why, and then the decision is yours. I cannot make a seller accept or reject anything, and I would not want an agent who tried.
What I can do is make the risk as clear as possible before you decide. Which is why I now explain it the way I do below.
The way I explain it now
Imagine you walk into the casino with $747,000 in your pocket. It is real money, and it is yours.
You walk up to the blackjack table and put the whole lot down on the chance of winning an extra $108,000.
If it comes off, you are ahead. If it does not, you do not get your $747,000 back. You leave with whatever the market will give you on the day you try again.
That is what taking a weak subject to sale offer over a clean one can be. You are not choosing between $747,000 and $855,000. You are choosing between $747,000 now and a bet on $855,000 later.
Sometimes that bet is worth making. The point is to know it is a bet.
One more thing that story taught me. The clean buyer does not sit on the bench waiting for you. The moment you accept another offer, they are free to buy something else, and good buyers usually do.
When the higher conditional offer is the right call
I do not want this to read as “always take the clean offer.” That is just as lazy as always taking the biggest number.
Sometimes the gap is large enough that it is worth the risk. Sometimes the buyer’s own home is already sold and their condition is close to a formality.
Sometimes you are not in a hurry, you have no purchase of your own riding on it, and you can afford to wait and see.
The point is to weigh it, not to follow a rule.
What if there is only one offer?
Everything above assumes you have two buyers to compare. Often you have one.
When there is only one buyer, you cannot make them compete with somebody who does not exist. What you can do is negotiate on more than price.
Conditions are negotiable. A shorter finance period, a larger deposit, a settlement date that suits you, a subject to sale condition with a firm end date, or a buyer agreeing to list their home straight away. Those are all things a single buyer can give you that are worth real money, and many will agree to them to secure the home rather than haggle over the last few thousand dollars.
A good agent is negotiating the whole offer, not just the headline number.
How Select Date Sale® fits in
When more than one buyer is interested, our Select Date Sale® process gives every registered buyer the chance to put forward their best and final offer, and those offers come in with their conditions attached. That puts you in exactly the position this article describes: several offers to compare side by side, on more than just price.
I have explained how that process works, and where it is the wrong choice, in Auction vs Private Treaty vs Select Date Sale®.
The question to ask your agent
Not “which offer is highest.” Ask this instead:
Of the offers I have, which is most likely to settle at that price, on a date that works for me, and why?
A good agent will answer that with specifics about each buyer’s position. If you get a number back instead of a reason, that tells you something too.
After more than 1,500 personal sales since 2002, I can tell you the offers that cause the most grief are rarely the low ones. They are the high ones that fall over.
Frequently asked questions
Should I always accept the highest offer on my house?
No. The highest price only matters if the sale actually settles. An offer with fewer conditions, a firmer finance position or a better settlement date can be worth more to you than a higher one that depends on things you cannot control.
Is a subject to sale offer a bad offer?
Not necessarily. Most buyers need to sell before they can buy. What matters is how far along their own sale is, whether their home is realistically priced,
and whether your contract lets you keep marketing and accept another offer if one comes along.
What is an unconditional offer?
An offer that is not subject to conditions such as finance approval, the sale of another property or inspections. A cash buyer may be able to make one, and some financed buyers choose to offer without a finance condition. Finance pre-approval on its own does not make an offer unconditional. Because it carries the least risk, an unconditional offer can be worth accepting at a lower price.
Can I negotiate conditions as well as price?
Yes. Finance periods, deposits, settlement dates, inspection conditions and subject to sale terms can all be negotiated. When there is only one buyer, negotiating the conditions is often more valuable than pushing for the last few thousand dollars.
How do I compare two offers with different conditions?
Ask which offer is most likely to settle at that price and on a date that suits you. Look at each buyer’s finance position, whether they need to sell first, how far along that sale is, the deposit and the settlement date. Your agent should be able to explain the risk in each offer in plain terms.
Selling in the Perth Hills or Foothills?
If you are selling in Bedfordale, Roleystone, Kelmscott, Mount Nasura, Mount Richon or Seville Grove, the offers you get will depend on your home and your buyer pool. How you weigh them is where the result is made.
Book a free Perth Hills and Foothills property appraisal, and I will talk you through how I would handle the offers on your home, before any arrive.
Truth. Strategy. Sold.
If you are new to how offers work in WA, start with how the Offer and Acceptance process works in Western Australia.
This article is general information and not legal advice. Every contract is different. If you are weighing offers with conditions attached, talk to your settlement agent or a lawyer before you sign.
About the author: Brendan Leahy has been selling homes throughout the Perth Hills and Foothills since 2002, with more than 1,500 personal sales. Learn more about Brendan Leahy.