Why would a vendor accept the lower offer?

This is often an emotion-fuelled, stressful situation for buyers.

Imagine a negotiation situation… the agent is clear about the process they will follow when fielding multiple offers. The contracts are sent to the various buyers and a multiple offer scenario starts to unfold.

We all assume that vendors what the highest price, but what happens when the agent calls to tell you that the vendor has decided to take a lower offer than yours? And more importantly, why would a vendor do that?

This may come as a surprise, but it’s not that uncommon a scenario. Sometimes it’s perplexing, other times it’s frustrating. When it happens, it’s not always obvious why the vendor has accepted a lower offer, but here are some of the reasons we have had to unravel and understand.

The first, (and obvious) one relates to the offer terms. While another offer may be higher in price, the terms may not suit the vendor. If the settlement period is too long or short for their requirements, or if the deposit size is below the customary 10%, they may decide against the higher offer. It’s important to consider what the vendor’s next move may be and how your offer terms could make your offer more attractive to them.

Asking the agent is critical. Assuming every vendor wants a short settlement is naïve.

The second, (and equally obvious reason) relates to conditions. If an unconditional offer is placed beside a conditional offer, the latter will need to be quite compelling in order to entice the vendor to take the risk on the conditions. For example, if the conditions relate to finance or a building and pest inspection, the vendor may harbour concerns about the buyer actually proceeding with the deal.

In many cases, we’ve seen conditional contract acceptance cost a buyer some tens of thousands more than the unconditional offer(s).

A common reason why a vendor could take a lower offer relates to the difference between the formality of the offers. If one buyer has submitted an offer on a signed contract with a small deposit payment (consideration) and another buyer has emailed, texted or vocalised an offer, the vendor is well within their rights to have concerns about the validity of the verbal/texted offer. Buyers who are prepared to put pen to paper will always be taken more seriously.

If a buyer is coy about signing a contract, they may not be a serious buyer.

An unusual, but upsetting reason a vendor may not accept a higher offer could be due to agent foul play. If an agent is motivated for an alternative buyer to be the successful buyer, they may not submit all offers, (although this is illegal). When this does happen however, it’s more likely that the agent didn’t pass on an expression of offer, (or a verbal offer). In other words, they signed up the contract with the winning buyer and didn’t share with the vendor that they’d had dialogue with another buyer about a higher offer. A buyer can boost their chances of their offer being submitted by signing and sending a signed contract to the agent(s).

Verbal offers aren’t reliable, nor are they a real offer.

Why would an agent favour one buyer over another though?

Agents may dislike a buyer, or they may have a particular fondness for a buyer. They may have a future deal riding on one buyer, (ie. if a buyer needs to sell a property after they have purchased this particular property), or they may have grave concerns about the reliability of the buyer. It’s not necessarily agent foul play.

This latter point is important, because it relates to the perceived character of the buyer. If a buyer has demonstrated a pattern of bad buyer-behaviour in the past, an agent will be concerned about their reliability as a buyer. For example, if they have cooled off on other purchases multiple times, or failed to meet their finance clause deadlines before, an agent will be justified in having concerns about their ability to meet the terms of the contract and/or proceed with the purchase.

The last, and most confusing reasons why a buyer’s higher offer could be pipped by a lower offer relate to vendor attitudes and preferences. When this strikes, it’s common for the jilted buyers and the agent(s) to feel upset.

Vendors sometimes select the lower offer, and when they do so, it’s often for irrational or emotional reasons.

I’ve seen reasons range from anti-investor to lucky/unlucky numbers, (ie. a purchaser’s current street address number was considered unlucky within the cultural beliefs of the vendor, so they sold the property for substantially less to a buyer with a luckier street number).

Some vendors are old-fashioned and maintain a stance of high-integrity. These vendors may market a property with a fixed price tag and they advise their agent that they will enter into a contract with the first buyer who meets their price. Challenges arise when multiple buyers want to fight for the property, yet the vendor holds firm to their commitment to sell to the first buyer who met their price. We often encounter this type of vendor behaviour in the regional areas.

A vendor may read tone or aggression into a buyer’s offer/behaviour. If they dislike a buyer, it can create a significant disadvantage.

And lastly, sometimes vendors just favour a buyer. The buyer may be a friend or relative, or even just another ‘local’.

Vendors aren’t always pragmatic, and sometimes they aren’t rational either.

The agent is the conduit, however, and a clear dialogue and respectful agent relationship can go a long way to supporting a genuine offer.