How Much Is Certainty Worth?

You have two offers.

One buyer offers $310,000. Financing contingency. Inspection contingency. Appraisal contingency. Forty-five days to close.

The other offers $300,000. Few conditions. Clean offer. Can close in ten days.

Which one do you take?

Most of us immediately think: “That's $10,000.” And maybe that's already the wrong way to look at it. Because these aren't really two prices for the same thing.

One buyer is offering something pretty close to $300,000. The other is offering the possibility of $310,000 if a number of things happen between now and closing. The lender has to approve the borrower. The property has to appraise. The inspection can't frighten the buyer. Nobody can change his mind. Nothing unexpected can happen during the next month and a half. If all of that works, you get $310,000.

Maybe it will. But here's something strange. When we're buying almost anything else, we understand some variation of "You get what you pay for." The cheapest contractor may become the expensive contractor by the time the job is finished. The cheapest insurance may suddenly look very expensive when you have a claim. Cheap equipment isn't cheap if it spends half its life being repaired. And if something sounds too good to be true, we're usually suspicious.

Until somebody makes the too-good offer to us. Then we become optimists. Because once somebody says $310,000, something happens in our heads. That's now what the property is worth. The $300,000 buyer isn't offering us $300,000 anymore. He's asking us to give up $10,000.

Nobody likes giving up $10,000. But perhaps that's not what we're doing. Maybe we're paying $10,000 for certainty. And that's where the decision becomes uncomfortable. Ten thousand dollars seems like a lot to pay for something invisible. You don't get another bedroom for it. No new roof. No piece of equipment. You're buying a higher probability that ten days from now the transaction is finished and the money is in your account.

So we say: “That's too much to pay for certainty.” Maybe. Unfortunately, that doesn't mean somebody else won't pay for it. The clean buyer isn't necessarily going to wait around for forty-five days while you find out whether the higher offer actually closes. He may buy another property. Then your appraisal comes in low. Or financing falls apart. Or the inspection turns into another negotiation. And suddenly you're back on the market. Except your $300,000 buyer is gone. That's when $10,000 can start looking remarkably cheap.

There's another funny thing about money. At the moment you're spending it, you feel every dollar. Six months later, assuming everything went well and you've moved on to the next deal, how often do you sit at breakfast thinking: "I still can't believe I took $300,000 instead of $310,000." Probably not very often.

Money gets absorbed. You reinvest it. You earn more. Another deal happens. Life continues. But you remember the deal that fell apart. You remember the six wasted weeks. The carrying costs. The second inspection. The buyer who disappeared. Putting the property back on the market and having everyone wonder: "What's wrong with it?" And you definitely remember realizing: “I had a perfectly good buyer six weeks ago.”

None of this means you should always take the lower offer. Sometimes $310,000 really is worth waiting for. Sometimes the higher buyer is perfectly solid. Sometimes the difference is simply too large to ignore. But I think we sometimes hold out for the higher number for the wrong reason. We think we're comparing $300,000 with $310,000. We're not. We're comparing price, probability and time.

How much would you pay for certainty if somebody actually put a price tag on it? Because sometimes the lower offer isn't asking you to leave money on the table. It's selling you something. And like most things worth having, certainty isn't free.