Understanding The Psychology of These Complex Conditional Offers

As the market transitions from a strong seller’s market to a more balanced market, I have been getting a lot of questions about offers that are conditional on the Sale of the Purchasers Property – known as SPP’s.

I am not going to offer you a legal opinion on this as I am not a lawyer and not qualified to do that and, the legal nuances of these conditions vary slightly across the country, but I can help you look at the underpinning psychology so that you can help your clients decide if this could be a good tool to help them get their home sold. If you are unfamiliar with the clauses in your jurisdiction, get your broker/manager or a lawyer to walk you through the process. It is critical that you understand the legal nuances on this one.

What is it:

In a nutshell, an SPP is a condition that a buyer puts in their offer that basically says that if they sell the home they currently own (the backup property) within a certain period of time, they will buy the property. It doesn’t generally have a lot of detail about the price and terms that they will accept for the back up so it’s a pretty low commitment on the buyer’s part. This condition should also contain an escape clause (aka a time clause) that allows the seller to continue to offer the property for sale and entertain other offers but giving the first buyer the right to firm up if another offer is accepted by the seller.

Offers that are CoSPP can be a waste of time or they can be a very effective way to get your seller’s home sold in a challenging market. The difference lies in the quality of the property that the buyers own, the reasonableness of the buyer and the integrity and professionalism of the buyer’s agent.

Don’t take this lightly. Once your seller accepts CoSpp, they are basically in bed with the buyer and the buyer’s agents and that can be a very uncomfortable feeling.

Things to consider as the listing agent when an offer CoSpp property comes in on your listing:

1. If your seller accepts the offer, will it have an effect on how other potential buyers think about the listing?

2. Is the Backup property saleable?

3. Is the Buyer serious, reasonable and trustworthy?

4. Is the Buyer’s agent knowledgeable, realistic, collaborative, trustworthy and capable of getting the back-up property sold?

Let’s take a deeper look at each of these:

1. If your seller accepts the offer, will it have an effect on how other potential buyers think about the listing?

The CoSPP will definitely have an impact on how other buyers think about the listing. Some agents think it increases the appeal because of the herd mentality – we want what other people want. I think it often has a negative impact. I have been involved in many transactions with CoSpp’s over my 34 years in Real Estate and I never remember it helping to attract other buyers. Also, when I was looking for a home this past fall/winter, I really shied away from these listings because I didn’t want to get emotionally involved in a house that I couldn’t buy. It would take up valuable time and it had a strong chance of ending in disappointment since the original buyer can and often will firm up if another offer comes in. I didn’t want my offer to be used to complete someone else’s deal. My inner voice told me to wait and see what happens and each time, I lost interest in the property.

2. Is the Back-up property Saleable?

You and your seller have the right to know all the details about the back-up listing. If the buyer’s agent is unwilling to give you detailed information about the property, a copy of their CMA and a written description of their listing strategy including pricing, staging, timing and commission, don’t even consider the offer. I use to insist on seeing the property myself before I would make recommendations to my seller. You need to know what sort of bed this is. You are sharing in the risk so you need to be able to accurately assess what that risk is.

3. Is the Buyer serious, reasonable and trustworthy?

This one may be a little bit more difficult to establish but no less important. Ask the buyer’s agent about the buyer. Where they work, how long have they been looking for a property, did they sign a Buyer representation agreement, what is their financial situation and what is their motivation for moving. While many agents feel that they shouldn’t share all of this information, help them see that the only way your client would want to jump into this condition with them is if they trust them. Then do some extensive googling to learn everything you can about the buyer. Remember, even if their listing strategy looks solid, if they aren’t serious and reasonable they likely won’t get their home sold and your clients will be left out to dry.

4. Is the Buyer’s agent knowledgeable, realistic, collaborative, trustworthy and capable of getting the back-up property sold?

There are some really excellent agents around and it’s not just based on experience. I’ve seen some of our newer agents doing brilliant deal making. Don’t recommend your client get involved in a CoSPP unless you have complete faith that the other agent has the ability to get the house sold and to communicate clearly and honestly with you and your seller.

These conditions work if all the parties work together and are creative about making things happen but more often than not, they end in disappointment, unkept promises and souring relationships. If this comes up, take the time to do your due diligence and give your client the very best information and advice so that they can make great decisions.