Why would a home seller ask a buyer to offer LESS?

Question

My brother-in-law is looking to buy a house. The house he wants has been on the market for a long time, and it's in pre-foreclosure. The owners are underwater on it. He submitted a lowball offer, waited a long while, and then talked to the listing agent, who said it was too low so he didn't even show it to the sellers. Then he submitted a new, higher offer. The real estate agent then came back to them and said that the offer was too high, and he needed my BiL to submit a LOWER offer. This seems incredibly sketchy, but nobody has any idea what game this guy is playing. Why would a seller's agent ask a buyer to submit a lower offer?

Update: My BiL got some clarification (?) that seems to just muddy the water more in my mind. Keep in mind, I'm not sure he's a reliable reporter, so something may be lost in translation a bit. I'll just paste what he said verbatim: "I've talked to a couple of people that have done short sales and foreclosures before - apparently they're still planning to declare bankruptcy, but with me buying the house, they'll have less to pay out of pocket, so they have to hit a specific number to legally do it."

Answer 1

Something sketchy is definitely going on. Real Estate agents are obligated under the National Association of Realtors Code of Ethics to take all written offers to the homeowners, regardless of how low it is unless the homeowner has specified a minimum offer amount or waived, in writing, that obligation. Your brother in law can ask for rejections in writing so that there is a more formal trail, especially in the case of rejecting an offer for being too high.

Standard of Practice 1-7

When acting as listing brokers, Realtors® shall continue to submit to the seller/landlord all offers and counter-offers until closing or execution of a lease unless the seller/landlord has waived this obligation in writing. Realtors® shall not be obligated to continue to market the property after an offer has been accepted by the seller/landlord. Realtors® shall recommend that sellers/landlords obtain the advice of legal counsel prior to acceptance of a subsequent offer except where the acceptance is contingent on the termination of the pre-existing purchase contract or lease.

Really, it sounds like the listing agent is trying to avoid selling to your BiL, for whatever reason. Your BiL should have his own agent who should be taking care of this for him. He could contact the seller directly and let them know of the "too high" offer he made and ensure it was actually passed on to them. Not ideal for a variety of reasons, but if he really wants the place and believes the seller's agent isn't operating above-board, it might be a good tactic to take.

Additional note: Not all real estate agents are members of the NAR, however there is still an expectation that the ethical standards would be followed. There are also state laws that could come into play with regards to presenting all offers to a seller.

See Makyen's comment re: Realtor vs real estate agent:

All Realtors® are members of NAR. Realtors®, as your quote indicates, is a registered mark. It's owned by NAR and they define its permitted use. What you were probably intending to say in your "Additional note" is that all real estate agents are not Realtors®. Without being a Realtor®, there's no guarantee as to their agreement to the NAR code of ethics. However, their duty to their client is usually defined by law, which may be a fiduciary relationship. Also, it's necessary to be clear as to who their real client is.

Answer 2

Based on the question update, the seller intends to declare bankruptcy, and in order to do so they must have a certain minimum amount of debt based on their income and assets. They must be currently hovering around the minimum debt mark, and if the house sells for too much their total debt will be slightly too low to still declare bankruptcy. They need the house to sell for less so their total debt stays over the threshold.

This was my original answer which still may apply in many cases, but based on the question update, probably does not in this particular case:

This doesn't necessarily have to be sketchy. If the seller's agent knows the appraisal will come in lower than the offer, the agent could simply be protecting the sale. This is a common sequence of events in a normal (not short) sale:

1. Seller picks a price.
2. Buyer makes an offer.
3. Buyer's lender does an appraisal and the value comes in lower. The lender refuses to loan the requested amount because the LTV is wrong.
4. Seller lowers the price and the home is sold.

(This happened to my sister when she put an offer on a house. Based on a lower appraisal, her lender made them offer $8K less in order to purchase the home, and the seller agreed.)

The reason the same scenario can go badly with a short sale is the bank holding the existing mortgage has the right to veto a short sale. If the bank gets wind of a higher offer they could simply latch on to that amount, and the lower appraisal would kill the deal.

Since the seller's agent represents the seller and not the bank, in this case the agent is acting in the best interest of the seller without anything illegal or immoral going on. It's certainly possible that the seller has been informed of the offer and agrees with the request to lower it.

And BTW, your BiL could just ask the selling agent why they suggest a lower offer...

Answer 3

Another possibility that the other answers haven't mentioned is that the house might be part of a divorce settlement. If the current owner is being forced to sell the house to pay out half of the value, s/he might be motivated to get the sale value as low as possible to spite the other party in the divorce.

Answer 4

Tax reasons maybe? As an example, the old UK stamp duty was a charge on the entire amount if you went above certain thresholds, so if you were say £500 over the threshold you would have to pay £3000 in tax (cannot remember the actual figures), so it was better to drop the price by £501 and save yourself £2499. Amazingly it was only a few years ago it was changed to only apply to the amount above the threshold.