The Reverse Offer

Here is a tool you should keep in your real estate….ummm…..tool box!

The seldom-used “reverse offer” allows the seller to start up the dialogue again after, perhaps, a regretful occurrence.

I suppose it’s better than physically crawling back, right?

Some things are simply best done in reverse.

Like driving!

Like last week when I was in the underground parking garage at 1101 Leslie Street, and rather than do a three point turn, I decided to back my car up at about 15 KM/H, and due to my post-vertigo symptoms (still have some occasional blurred vision and dizziness – like when I rapidly turn to look over my shoulder while driving backwards!), I bumped into the concrete pillar.  Okay, I smashed into it…

Or what about Kris Kross?

Remember “Jump” and “Warm it Up?”  I sure do!  The third single was “I Missed The Bus,” for those of you that like to start conversations at bars, dinner tables, and bus stops…

Kris Kross wore there clothes in reverse!

These two totally macked-out daddys were the daddy-macks of the early 1990’s, and although they didn’t wear their shoes backwards (this might have proved difficult…), they fully committed to the gimmick that made them rich at thirteen years old.

By the way, whatever happened to Sir Mix Alot?

Moving along…

A “reverse offer” is exactly as it sounds; it’s an offer that is made by the seller to the buyer.

The cliche “nine times out of ten” would drastically underestimate how often buyers make offers to sellers, and I’m sure that some people reading this can’t even comprehend how a reverse offer works, when it would take place, or more importantly why a seller would use one.

We’re in a red-hot market right now, and it could be argued that we’ve been in at least a ‘warm’ market for the past 15-16 years.

So while a reverse offer doesn’t apply as much today is it would in a down-market, it still has its place.

Let’s go back to the fundamentals of contract law for a moment.

If a buyer makes an offer to a seller that is irrevocable or “good” until 11:59PM, then it automatically terminates at midnight.  The seller can accept, reject, or sign the offer back before midnight.

If the seller signs back the offer, as soon as he or makes a single change to the offer or “puts pen to paper” as we say, then the original offer is null and void.  For example, if the buyer makes an offer for $350,000, and the seller crosses it out and puts $355,000, then the original $350,000 offer is null and void and the seller can’t turn around and say “Okay, okay – I’ll take the three-fifty.”

When an offer expires, the situation becomes different.

If the seller allows the clock to strike midnight, he or she can’t accept the offer for $350,000, but the seller can still sign it back.

This is essentially a reverse offer but we just call it a delayed sign-back.  Most agents don’t let offers expire, but in the past week I’ve been working on two separate offers where I’ve given the seller until 8PM and they’ve signed it back the next day at noon.  How unprofessional…

But the reverse offer that I’m talking about, in its cleanest and most uncommon form, is something yet entirely different.

Consider this situation…

On Monday, my buyer makes an offer for $350,000 that is irrevocable until 11:59PM.  The seller looks at the offer, balks, insults, and walks away.

We go our separate ways.

The days pass, and the seller starts to regret his or her actions.

Call this the “morning after effect,” if you will.

On Friday, the seller draws up the offer exactly as it was before, and submits this to the buyer.

This is a reverse offer.

There are many times when the listing agent will get on the horn and ask the cooperating agent, “Hey, have your clients bought yet?  Are they still interested in my seller’s property?  Why don’t you put something back down on paper and we’ll start this up again?”

This happens all the time.

But what if the cooperating agent and/or the buyer aren’t interested?  Or what if they’re not motivated?

Well, that’s when the seller can draw up a reverse offer and fax or email it to the cooperating agent just as buyers and their agents usually submit offers to sellers!

I’ve always maintained: It’s one thing to negotiate on the phone or verbally, it’s something entirely different to put it down on paper.

You’ll rarely find me negotiating verbally.

Just this afternoon, I got a text message from a listing agent saying, “If I can get my seller to sign back at $260,000, can you close this deal?”

I wrote back and said, “If your seller wants to sign back at $260,000, then have him sign back at $260,000 and email it to me.”

That’s it.  It’s that simple.

Why would I say, “Yes, sure, great” when I don’t even have the $260,000 on paper yet?  What guarantees do we have?

All we would be doing is losing our leverage.

I won’t say yes, no, or maybe to anything unless it’s on paper, and this is when a good reverse offer can come into play.

I’ll often tell a listing agent, “Have your client put it on paper!”  This isn’t because I’m lazy or because I don’t want to waste my clients’ time, but rather because it gives us the leverage and the final say.  If we get paper in front of us, then we hold all the cards.  We can make it a firm deal right then and there by just signing the confirmation of acceptance!

A couple months ago, I reached a stalemate with a deal for an East York property.  We let it slide, and about six days later the listing agent called me back and asked if we would come back to the table.  I wasn’t sure if she was speaking on behalf of her client, or on behalf of her own wallet.

There was a good chance, to be perfectly honest, that her client never instructed her to contact me and/or to bring our offer back to the table.  The listing agent might have thought that if we made the offer again, maybe her client would work with it, or maybe her client would reduce the price.

The problem was – I wasn’t sure.  If her efforts weren’t sincere, then I would be wasting my buyers’ time and more importantly I would be giving them false hope.  I didn’t want my buyers to get all excited only to be let down by the seller signing back at the ridiculous price they had previously handed us.

So I told her, “Have your client bring the offer to us.”

The funny part is, she didn’t even know what I meant!

I said, “Work up a reverse offer, and if your client puts $442,000 down on paper with her signature, then my clients will accept and we’ll have a deal.”

This way, I would know if she was bluffing all along just to get us back on paper, or if her client really did want to work with the price we had given them six days earlier.

The listing agent said she “didn’t like” the idea, and I started to think that perhaps she had been looking out for her wallet all along.

So I went out of my way and actually drew up the offer myself!  I put it in a PDF and emailed it to the listing agent, saying “Here is the offer for your client to present to my clients.”

Talk about ass-backwards!

Had my clients signed that offer, then we would be making the offer to them.  But I did all this without my clients even knowing because as I said – I didn’t want to give them false hope as I wasn’t sure if the listing agent was sincere.

But to my surprise, the listing agent sent it back an hour later with her seller’s signature and initials in all the right places, and then we held all the cards.

I called my clients and told them, and after a brief explanation, they realized that they simply needed to sign the Confirmation of Acceptance and they had just bought themselves a house!

The reverse offer is a seldom-used tool, but one I think we’ll see more and more of as the market gets continues to grow in complexity.

And if the market ever does drop off, we’ll be seeing this sort of thing all the time…

5 Comments

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  1. Geez. Never thought to do this….at any point in my career. It’s a solid idea IMHO, and something I might actually be doing this upcoming week. I’ve asked if buyer’s were interested in coming back to the table, but drafting the offer and submitting it to the buyers has never crossed my mind. Thanks for posting this.

  2. Doctor Phil says:

    Hi David, first-time poster here. I don’t want to date myself but I was an elementary school principal when that infamous song by Sir MixAlot made its 90’s debut, and this post gave me a fantastic chuckle and a trip down memory lane. I remember thinking about how truly awful music had become and what a terrible influence the lyrical content was on on our youth. Sadly, that song about girls’ behinds would one day pale in comparison to what happened in the late 90’s with the Britney Spears revolution, and what eventually carried on into the miserable state of pop culture today and the effect it has on young people. I’m so glad I’m retired. I fear for my grandchildren.

  3. David Fleming says:

    @ Joe Q.

    Grey area?

    An agent has fiduciary duties to the client, and always has to act in the client’s best interest.

    If this agent was trying to solicit an offer for her client because she felt it was in the client’s best interest and she was bargaining in good faith, then it’s not unethical.

    But if she was told by the client “I’ll never accept that number,” or “I’m done working on this,” and then she went ahead and called me to say, “My client wants to start negotiations back up again,” then I think perhaps she was looking out for herself and thinking more about ‘closing’ the client than working for the client.

    We’ll never know what was in somebody’s head…

  4. JG says:

    ” I bumped into the concrete pillar. Okay, I smashed into it…”

    I hope the car’s all right.

  5. Joe Q. says:

    ” I wasn’t sure if she was speaking on behalf of her client, or on behalf of her own wallet.

    There was a good chance, to be perfectly honest, that her client never instructed her to contact me and/or to bring our offer back to the table.”

    Wouldn’t that be a pretty severe ethical breach?

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