Why would a seller reject the highest offer? 

 

There is no better example of this crazy seller’s market than my experience selling a house in Glendale.  The house is a modest 1570SF, with 3 bedrooms, 2 baths, 2 car garage, and was built in 1994.  The house was purchased as a rental property.  Given the increase in prices, the seller decided to sell and take his profits and run.  The house is tenant occupied and the seller wanted to sell the house as is (no repairs) with the tenants in place.  He decided to list the house at $250,000 and my phone exploded.  Several offers were received above asking including one from Happy Homes for $285,000 but the house had to be vacant at COE.  The seller took the second-place offer from Sunny Homes at $260,000 as this buyer did not require the house to be vacant.  Sunny Homes did their inspection and ran screaming from the house due to termite and wood rot damage.  

Rather than put it back on the market the seller asked me to go back Happy Homes who offered $285,000 and see if they were still interested.  Happy Homes said yes and increased their offer to $295,000 as an incentive to have the house vacant.  The seller agreed to give the tenants notice after the inspection was completed. Happy Homes did their inspection and were not happy with the termite and wood rot damages.  The seller decided he needed to determine exactly how bad the damage was before putting the house back on the market.  He asked me to have the termites treated and to have a contractor go take pictures to make sure the rafters had not been damaged.  

When I got into real estate I thought knew a lot about housing after years of owning my own homes and rentals. Little did I know that I needed a background in entomology (the study of insects) and chemicals. There are 45 different kinds of termites.  The most common ones in Arizona are subterranean.  If there is any good news about subterranean termites, is they tend to move slowly. They cannot survive in the open air so they have to build mud tubes to move around which takes a long time. But if you leave them untreated, or mistreated, they will damage your house.  The owner had the termites treated in 2017 but unfortunately, the chemical used was Dominion.  To quote David Ramos from House Doctor Exterminating, “All Dominion does is tick off the termites. It does not kill them.”  Ok he used more colorful language but you get my drift.  The best chemical is Termidor.  Only one treatment is needed, it takes about 90 days before the termites are dead and the house should be treated every year.  If termite tubes are seen after 90 days the exterminator will come back for free to treat again.

Meanwhile back at the house, I had the termites treated and the contractor took pictures.  The termite damage was not in the rafters which was great news.  It was mostly in door frames, baseboards and oddly in some of the bathroom and kitchen cabinets.  The wood rot damage was extensive because of the mister system on the patio. The moist air had allowed all the supports to rot meaning the patio needed to be rebuilt.  Armed with an updated Seller Disclosure, a one-year termite warranty and more details about the repairs needed the house went back on the market.  

Multiple offers were received with several above list price.  The highest offer was from Magic Homes at $285,000 with $1,000 earnest money and cash using a hard money loan. (A hard money loan is a short term loan (3-6 months) that does not require appraisal, does require a large down payment ~40%, and has a high interest rate.)  The second highest offer from Terrific Homes was at $265,000, $10,000 earnest money with $2,000 of the earnest money becoming non-refundable upon accepted contract and proof of funds on hand  (no hard money loan).  Despite the much higher offer from Magic Homes the seller decided to go with Terrific Homes.  The reasons were the higher earnest money, cash on hand versus hard money, and non-refundable earnest money upon accepted contract. The seller felt more confident this buyer would actually complete the purchase. Whether or not Terrific Homes will think this house is terrific remains to be seen as we are still in the inspection period.  I will let you know the results next month.

Note I made up all the buyer names so I could have some fun with this article.