What does an offer expiration date mean?
When you write up an Agreement of Sale, which is an offer for a property, there is a space to fill in when that offer expires. If the seller signs it exactly as is, prior to that date, that contract is considered binding. Conversely, if the seller signs it after the expiration, it is not binding.
Consider a long expiration
If a seller receives an offer with an expiration date several days away, it allows him to wait to see what other offers come in. So, there is very little pressure for the seller to make a decision right away. However, a long expiration date doesn’t benefit the buyer for a couple of reasons. The first is that, technically, since the seller could opt to sign the offer any time up until the expiration and, therefore, commit the buyer to the contract, the buyer cannot put an offer on any other property during that time frame. Think what would happen if a buyer had two offers out and both of those sellers signed?
Consider a short expiration
When a buyer chooses to submit an offer with a short expiration date, now there is pressure on the seller to decide if taking the “bird in the hand” is worth it. He will wonder if something better might come along if he waits. Realize that if he signs it once it has expired, you are no longer bound to honor it. The seller risks “losing the buyer” if he doesn’t sign an offer prior to its expiration.
Let’s look at the other side of the equation: if the seller signs your offer and then discovers that other prospective buyers have expressed interest, he might feel that he’s allowed a potential bidding war to slip away and may believe he’s “left money on the table”. For these reasons, he may not be interested in taking an offer with a short expiration, especially if it is submitted in the very early stages of the home being marketed. (The assumption, for this post, is that the properties discussed are newly on the market and are expected to receive multiple competitive bids.)
Using an expiration date strategically
Let’s say you find a property you are very interested in and you want to convince a seller to take your offer for it before he has received (the expected) many other bids. As long as your offer terms (price and conditions, contingencies, etc.) are very favorable to the seller, putting a short expiration date on the offer will exert pressure on him. Sure, he could let your offer expire in the hopes of either receiving a better offer OR gambling that you would choose to still honor/resubmit your original offer with a later expiration date. He can’t be certain, though, that that plan will result in him getting the best offer. What if he doesn’t get something better and you decide to buy a different house, once your offer on his has expired?
Understand that his risk grows the better your offer is. This strategy doesn’t work if your offer isn’t compelling. What you, as a buyer, are trying to do is end up securing the property and doing so at possibly a lower amount than you might have to spend if you wait to submit an offer after the seller has received multiple offers. Obviously, there is no way to predict what other offers will be received or when.The goal is to submit an offer compelling enough for the seller to decide that risking allowing it to expire it is not worth whatever he deems the likelihood of receiving a better one is.
If this scenario sounds like a psychological game, that’s because it is. It’s all about predicting what offers might come in as well as guessing what the seller’s risk-tolerance levels are. You will never know, for certain, either of those things. All you can do is try to craft an offer where the combination of price, terms and expiration date compel the seller to sign it before it expires. The good news is that, if the seller does not sign it, you can always submit another (similar, identical or different) offer with a different expiration date.
If you are relocating to the Philadelphia/Main Line area, please go to my blog page and search for posts using the relocation tag. Contact me to discuss your Philadelphia area relocation! jen@jenniferlebow.com/610 308-5973
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