Why Did the Seller Reject My Offer to Purchase the Home?
Reader question: "I recently made an offer to buy a house. But the seller rejected my first offer without much in the way of an explanation. Another buyer made an offer to purchase the home before we had a chance to do so. I want to have a better plan in place the next time we go through this process. We offered an amount that was close to comparable sales in the area. So I'm surprised it was turned down. Why was my purchase offer rejected by the seller?"
There are several reasons why a home seller might reject an offer from a would-be buyer. Maybe they had a stronger bid from someone else, or one that asked for fewer concessions. Maybe they felt there was something questionable about your finances. These are some of the common reasons for rejection. Let's explore these and other possibilities.
7 Common Reasons Why Sellers Reject Purchase Offers
Why did the seller reject your purchase offer? Chances are, it was for one of the reasons listed below, or even a combination of these factors.
1. They received a higher offer.
The seller might have received a higher offer around the same time you made your offer, or shortly before yours. It's common for sellers to collect and review a "batch" of purchase offers before responding to them, especially in a hot market. For instance, they might have a few come in on Friday, and then more over the weekend. So on Monday, they would choose the strongest one and reject all other offers.
If another buyer offered to pay, say, 5% more than you and did not ask for any additional concessions, the seller would have been wise to accept the stronger bid. Homeowners who are selling a house all have one thing in common. They want to make the most money while doing the least amount of work. Someone else may have offered them more money, plain an simple. This is one of the most common reasons why sellers reject purchase offers.
You might not even know if this was the reason. Homeowners are not required to tell you why they turned down your offer. They can keep it to themselves. Most of the time, however, the listing agent will share the seller's reasoning with the buyer's agent, who will pass it along to you. Just know they are not required to do this.
2. They have unreasonable expectations.
Some sellers are realistic about local market conditions. They understand the driving forces of supply and demand. They have a pretty good idea what their homes are worth in the current market. They set their asking prices accordingly. Other sellers have their heads in the clouds. You never know which type you're dealing with until you make an offer to buy the house.
Sometimes the seller will ask for more than "fair market value" for the home. Some homeowners set their asking prices based on the amount they need to pay off their current mortgage balance, or the amount they paid for the house when they first bought it. But these figures might be different from the current market value of the home (and they probably are).
This could be the reason why your first purchase offer was rejected by the seller. Was their asking price above comparable sales, or "comps," in the area? Do they have their heads in the clouds? If so, it might be time to move on to the next home, especially if the sellers are not willing to come back down to earth.
3. You don't have your financing lined up.
Have you been pre-approved for a home loan? Or, do you have money in the bank for an all-cash purchase? If you've answered no to both of these questions, you've given the seller a good reason to reject your offer. Homeowners want to know that you have some kind of financing lined up, and they'll want to see proof. Otherwise, they won't be inclined to put the house under contract.
- Mortgage buyers. If you're using a home loan to finance your purchase, the seller will want to see a pre-approval letter from a lender. This kind of letter shows that you've been evaluated by a lender and will likely receive financing.
- Cash buyers. If you're paying cash for the home, the seller will want to see bank statements or other proof of your assets, before they accept your offer.
If you make a purchase offer without either of these forms of "evidence," there's a good chance the seller will reject it. At the very least, they will probably come back to you with a request for such documents. This is standard operating procedure during a typical real estate transaction.
4. You asked for too many concessions.
Did you ask the seller(s) to pay some, or all, of your closing costs? If so, that might be the reason why they rejected your initial offer. When you ask the homeowner to do or pay something above and beyond the purchase price, it is known as a "concession." They are also referred to as seller-paid contributions.
Whatever you call them, homeowners hate them. After all, concessions essentially chip away at their proceeds / profits (unless they raise the sale price to compensate for it).
As a general rule, home buyers can get away with more in a slow market, and less in a hot market. If your local real estate market is sluggish, and homeowners have to wait a long time for a solid offer, you have more leverage when requesting concessions. If you're in a hot market with rapid sales, the seller might simply reject your offer because you're asking for too much -- and because they have other offers in hand.
This is why it's so important to familiarize yourself with local market conditions. A real estate agent can get you up to speed on local trends. Armed with this knowledge, you can make a smarter offer that has a better chance of being accepted by the seller.
5. You insulted them by offering too little.
You said you used comparable sales in the area to determine the amount you offered. This is a smart strategy. If you offered to pay an amount that was similar to the price at which similar homes have sold for in the area, then you've made a reasonable offer.
But for educational purposes, let's assume you offered an amount that was well below the asking price. Let's further assume that the asking price was reasonable and based on recent sales data in the local market. In real estate lingo, this is known as a low-ball offer. It's an amount that is well below the fair market value of the home.
If you make a purchase offer of this nature (one that is well below the actual market value), you are giving the sellers two reasons to reject your offer:
- They can reject it for financial reasons, because there's a good chance another buyer will be willing to pay market value for the property.
- They may feel insulted by your low-ball bid. This gives them another reason to turn it down.
Real estate advice columnists often tell buyers and sellers to "leave their emotions out of it," and to negotiate with cold, hard facts and figures. This is good advice, but it is sometimes easier said than done. Homeowners, in particular, tend to get emotional during the negotiating stage. After all, they have a direct emotional attachment to the property, while the buyer does not.
If you offer an amount that is well below the asking price (and, more to the point, well below the actual market value of the home), you could insult the sellers and end up with a flat-out rejection. It happens all the time.
Of course, this all depends on local housing conditions, as with the other items on the list. As a home buyer, you can get away with more in a slow market, but less in an active one. So you need to know where you stand, in terms of leverage, before you start making purchase offers.
6. You skipped the earnest money deposit.
In a typical real estate scenario, the buyer will offer to put a certain amount of money down in the form of a deposit. It shows they are serious and earnest about buying the house, and is therefore referred to as "earnest money." The buyer usually makes a deposit (or the promise of a deposit) during the offer stage. It's usually written into the purchase agreement.
The amount varies from a flat $500 - $1,000, up to 2% or 3% of the sale price. Generally speaking, buyers make larger deposits in hot markets in order to get their offers accepted by the sellers. On the contrary, buyers tend to pay less earnest money in slow markets (where there is less need for it).
This is another common reason why home sellers reject offers. Think about it from their perspective. When they sign a purchase agreement and put the house under contact, it usually means they won't be receiving or evaluating offers from other potential buyers. It's serious business. So the homeowner will want to know that the buyer is equally serious about buying the house. That's the purpose of the deposit.
The bottom line is that an offer without earnest money is more likely to be rejected by the seller, especially if they can reasonably expect another offer to come along soon.
7. They didn't like the type of loan you were using.
Some sellers (and their listing agents) are prejudiced against certain types of financing. For instance, some real estate agents feel that FHA loans are harder to deal with because the appraiser is required to inspect all sorts of "health and safety" items, in order to meet FHA's minimum property standards. There is some degree of truth to this, but it is largely blown out of proportion.
Such agents usually "infect" their clients with their prejudiced views. As a result, the seller might be more likely to reject an offer based on the type of loan being used. Such actions may not be logical, but they do happen. It is a cold, hard reality of the real estate world.
Our advice: As a home buyer, you should use the type of mortgage product that works best for you. If a seller takes issue with your financing method, for whatever reason, then that's their problem -- not yours.
Counteroffers Typically Happen Before Rejection
Rational home sellers want to make a deal. Their twin motivations are to sell for the highest possible price and as quickly as possible. From a homeowner's perspective, there is nothing worse than a long listing period that drags on for months. All those showings, all that house cleaning and staging -- it gets old quickly.
As a result, sellers typically don't reject first offers for no reason. They usually negotiate to reach common ground. After all, both parties want to make a deal. And real estate deals usually require a bit of back and forth, where the sale price is concerned.
In a typical real estate scenario, a seller will be more inclined to counter an unacceptable offer, rather than rejecting it outright. So, as a home buyer, you should be equally prepared for counteroffer situations.
Summary: This article answers the question, Why was my offer rejected by the seller? Ask you can see, there are several reasons why a homeowner might turn down your initial offer, or make a counteroffer of their own. And we've only covered the most common reasons. There are others as well. As a buyer, your best strategy is to (A) research the local market, (B) make a reasonable offer based on comparable sales, and (C) know when to walk away.