Sellers, is the first offer you get the best?
From this question you might surmise that we're edging toward a different market, one in which offers come not in multiples and all at once, but singly in dribs and drabs. That's good news for buyers, but for sellers in most local markets it means a change of approach. Now if you do things right, you'll get an offer. And if it's your first offer, it may well be your best.
Multiple offers won't necessarily go away. Well-priced, well-presented, entry-level single-family homes in the usual "hot spots"—Palo Alto, Los Altos, San Mateo—will probably continue to get more than one offer. But in a balanced or declining market, even multiple offers don't always mean a sales price above list. And single offers have always been the norm in local markets at the very top and bottom ends of the price range.
If real estate continues to soften, properties that once would have attracted multiple offers may not. So it's time to dust off that old truism, "the first offer is the best offer". It isn't always true, but it's true enough, often enough, to examine.
Why should the first offer stand out from the second, third or tenth offers? Let's answer that by looking at the typical offer process in a seller's market. You put your home on the market, set an offer date and get five offers. Two aren't bad but they aren't what you hoped for. Two are more aggressive and give you everything you expect.
And one offer is a grand slam in the bottom of the ninth in the seventh game of the World Series in front of 100,000 delirious fans. It gives you more than you expect and maybe even more than you deserve. You take it not just because the numbers make you want to laugh out loud, but because it comes from the most motivated buyer. That's the kind of partner you want throughout escrow because that's the kind of buyer most likely to be a partner, or at least not a monumental pain.
Now let's look at selling in a buyer's market. Instead of five buyers for every house, there are five houses for every offer. Offers are rare and highly prized by sellers, and the chance of getting a second or third offer much less. That's not to say you won't get an offer every now and then, just that your most appropriate response to the first offer probably shouldn't be "are you kidding?". Because First Buyer won't need much persuasion to pick up his toys and go play with one of the four other sellers in your neighborhood. He's nervous—none of his friends are buying—and he's got plenty of choices.
Remember those five offers you'd get in a seller's market? Now subtract four of them. The one offer left will still be a stand-out, but it'll stand out because it's almost certainly a bona fide offer. And we'll have to downgrade its rating, not just from "grand slam" to "everything you expected", but all the way down to "not bad but not what you hoped for". That doesn't mean you'll accept the offer as written, but it does mean you'll probably want your agent to do some focused win-win negotiating to make it a better offer.
That stand-out offer will probably come from First Buyer.
Why? Like all buyers, First Buyer looks over his shoulder to see what the other buyers are doing. His competition is, in a sense, his advisory board. But First Buyer is willing to step up to the plate even before his advisors pass judgment on your house and its price. That's big. He's entering uncharted territory, and that means he's motivated. Second Buyer probably won't be quite as motivated. When and if Fifth Buyer shows up he'll expect a deep discount because by then your home will be well past its "sell by" date. And Sixth Buyer will be the seller's nightmare, the bottom feeder, using a slow market to make low-ball offers, grinding on you all the way through escrow if you can even get him into contract.
First Buyer will probably be the most real and realistic. In any market, buyer's or seller's, buyers don't get any better than that.