Buyers, Put Skin in the Game
By Jim Palmer Jr.

 In a recent scenario, a newly listed home received 7 showings on the first day of the listing and immediately 5 of those buyers (including one that had never seen the property) wrote competing offers.  All the buyers knew of the others interest and knew they needed to present their best offer in order to be competitive on the day when the offers would to be decided by the seller.  The sellers considered each offer separately and then rated them in order of desirability.

The buyer who had never seen the property because they lived far away was at a distinct disadvantage, even though their offer was cash and more than the asking price. Because the proven track record for those types of offers shows a very high flub rate, the seller thought it was too much risk and put that one in last place.

Due to certain undesirable components of the other offers, the two finalists in this bidding war were actually not the highest bidders!  The seller then labored in their consideration about which of the two remaining offers to respond to.  It came down to the difference in the amount of earnest money that was offered. The seller responded to the offer that showed they would put more skin in the game sooner than the other buyer.  The loser of that contest had offered to purchase with a 20% down payment on their financing addendum, but had only risked $500 as earnest money.  The seller was baffled by the fact that they would have enough money ($75K) for the 20% down payment, but were not willing to risk more earnest money than that.  Because of that fact alone the seller rejected their offer.

The seller was very aware that earnest money is contractually designated as “liquidated damages” and that the contingencies of the contract would make it difficult, if not impossible, to collect that earnest money in case of a legitimate flub, but they were still swayed by that one difference in the offers.

In a competitive market (like we are currently experiencing), sometimes the small things make the difference to a seller.  There are more things to consider than just the offering price, but in general the more the buyers are willing to take risk away from the seller, the better their chances are of gaining the competitive edge over other buyers.