Understanding Predicated Offers
Predicated offers are some of the most difficult things to wrap your brain around when you are a new Realtor and are even harder to understand for the average home seller. So what is a predication? A prediction is basically stating “if this happens then that will happen” and in the case of real estate it typically means I will buy this property when this other property sells.
There are types of predications which each have their own nuances like open predications, closed predications, open predications that become closed predications, open predication response times, and a host of other things to understand and how they affect each other and work together to the benefit of a buyer or seller. Let’s dive in and understand the terms then understand how to leverage them in your favor.
Open Predication Offers
One type of predication is an open predication. An open predication is typically used when someone really wants to write an offer on a property but they need to sell a property that is not yet under contract and possibly not yet even listed. In these situations a buyer typically has less leverage, because they are not a ready willing and able buyer, and thus wind up paying a bit more to entice the seller to bite because their house needs to sell and is not actively marketed or under contract.
Open predication offers are considered “open” because if another offer comes along that the seller prefers then they can accept that offer after a certain period of time. The period of time required for an open predication offer response can vary from 12 hours to a whole week, but typically 48-72 is the norm. Once a seller receives another offer that they find acceptable they will give the other buyer that has the open predication written notice which starts that clock ticking down. That buyer then has to find a way to get financing and remove their predication and agree to a timely closing or their contract can be canceled once the time runs out.
Closed Predication Offers
The next type of predication is what is called a closed predication. Closed predications typically mean that the buyer has their house under contract and possibly are even through inspections and appraisals. This still protects them if the appraisal comes in low. These offers are considered more likely to happen and less of a hypothetical by a seller and so these buyers will have just as much negotiating leverage as any other ready willing and able buyer. Sometimes offers will begin as an open predication but have verbiage that alters the status to a closed predication once something happens such as inspections being completed or a contract being accepted on the buyers home.
It is important for buyers, sellers, and their Realtors to have a firm grasp on how predications work and how to leverage them to their advantage. If you are selling your home you would always prefer open predications because it allows them to have their cake and eat it too. They can accept a very strong offer and continue to market the home to other prospective buyers. Buyers on the other hand will always prefer a closed predication because no one wants to prepare their house to be marketed and get an accepted offer on the house they want to buy; to have that deal go up in smoke because an offer from a ready willing and able buyer came down the pipe.
Both Types of Predicated Offers
It is important to remember that any type of a predicated offer is not a closed deal by any stretch of the imagination. The real estate agent will be actively checking on the status as they don’t get paid their real estate commission until the home owned by the buyer sells and the transaction on the new property is closed.
Being a buyer or seller will quickly change your perspective on how you want a predicated offer to work and be negotiated. Take care to hire a quality agent that has a strong knowledge of how predicated offers work so you can leverage the negotiations in your favor.
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