An Offer to Purchase, Contract Offer, Real Estate Sale Agreement, Property Sale Contract or whatever it’s called in your area must contain several items to be a valid contract. Thanks to common law and the legal profession, it can seem like a jumble of legalize who-haw. Therefore, obtain a standard contract from an attorney, office supply store or an agent and be on your way.
I do not pretend to offer legal advice here. The law differs, even if slightly, in each state. Although the primary thrust of a real estate contract is that it should be in writing and the goal of the parties are spelled out so as to provide clarification as to the intent of the contract between two legal and able parties, if one party has enough money, most contracts can be voided. And that’s a big “if.”
So, if you’ve still got doubts because the contract you’ve just been asked to sign was found by the buyer in his aunt’s footlocker and was created by the S. S. Kresge Company in 1947, you can always proceed, but add an Attorney Review addendum that is explained in the Contingencies Section within the Negotiation Topic here.
As far as what the vast majority of sellers look for when they receive an offer is the following:
Yes, that’s it. They forget that there are several other contract elements that can make the sale more acceptable or even downright a living hell because they didn’t look beyond the price and signed the agreement. As such, here are “key” items that the seller should be aware of before proceeding to a sale of the property.
2) whether the buyer has a property to sell or needs to close on
3) the down payment (which tells us the amount to be borrowed)
4) the closing date
5) the possession date
6) the earnest money deposit
7) the time limit to respond to the offer
8) the financing contingency (or cash offer)
9) any other buyer (and/or seller) contingencies
10) what other items are included: appliances, riding mower, etc.
These items and other situations will be covered in more detail so that you have a pretty good handle on the offer, what is expected of the buyer and of you.
THE PURCHASE OFFER
You can accept, reject or make a counter offer. Outright rejections should never be made based on the price offered or because you're offended with it. This will get you nowhere. Forget about being insulted. The only offer that counts is the final offer.
Handling a great offer:
If the opening offer is what you want, it’s best to give pause, not to immediately accept the offer.
Why not? When an opening offer is immediately accepted, buyers often feel that they started too high. This can lead to second thoughts. Panic could cause the buyers to look for ways to get out of the deal. Or they may feel compelled to hammer you with the home inspection. Avoid this potential interpretation by simply delaying your acceptance. This gives the appearance of serious thought and consideration on your part.
If you feel you have a good reason to come back at or near full price after you were given an excellent offer, then consider it. These include things like: it just went on the market, the price was set low to make it attractive, the buyers are highly motivated and that your property more than meets their needs, etc.
However, this runs the risk that some buyers may walk from your counteroffer since their emotional spring may be wound extremely tight. They could think you’re incredibly greedy for not accepting their really great offer. All buyers want to pay less than full price.
Reasonable or unreasonable offer:
Buyers’ offers are what works best for them. Outside of your asking price, they have very little idea as to what terms will be acceptable to you. The buyers may be able to agree to all of the desired changes you provide in your counter offer. So don't blow off their initial offer because it won’t “work” for you.
First offer–the best offer?
Marilyn vos Savant, in her weekly column "Ask Marilyn", in Parade Magazine, was asked her opinion on the theory that your first offer is your best offer.
She answered, “When an item–or home–is first put on the market, it gets attention from the largest number of people in the shortest period of time.
At this point, a potential buyer is more likely to make an aggressive offer so that you don’t turn him or her down and wait for better bids. Combine this scenario with the fact that owners often have inflated opinions of their possessions (especially their homes), and it’s clear that the theory makes sense.”
Spoken like a pro.
Time limit to respond:
Buyers may specify a time limit for your response, often 24 hours. If none is provided, don’t assume you can sit on it and wait for other offers to come. The buyers have the right to withdraw their offer at any time before you respond, including withdrawing it before the time limit has expired.
Once you have replied with a counter offer that contains any change to the buyers’ most recent offer, this is legally a rejection of their latest offer. Conversely, if the buyers come back with any changes to the counter offer you submit, this is also considered a rejection of your offer.
Only the offer that has not yet been accepted, rejected, or countered is considered to be the current outstanding offer. To avoid confusion, this is the reason why the offer and counteroffers should be done in writing, with any changes made in writing on the same document.
The down payment:
If you’re concerned that your property might not appraise, look closely at how much the buyer puts down. A minimum amount down (actually less than 20% in today's environment) causes lenders to carefully scrutinize the appraisal.
Understand the lender's position. Anytime a home goes into foreclosure, the lender repossesses the property and then has it resold. The proceeds from that sale need to cover legal fees, administrative costs, perform repairs, maintenance, pay Realtor commissions and then give the lender funds to cover the amount left on the loan.
A foreclosed loan with a small down payment means there will be a large existing loan to payoff after expenses. Therefore, lenders are more likely to reject a loan request from buyers who put down a small amount on a home with a borderline appraisal.
Appraisers can almost drive-by a property with 40% or more down and a quick glance tells them that a property will easily appraise. That’s because if the loan goes into foreclosure, there should be enough money from the foreclosure sale to cover the expenses and the loan balance.
Your bottom line:
You may be asked to pay for a portion of the buyer’s closing costs. Sharp buyers who sense that you are fixated on a specific selling price could work the negotiations so that you get your price, while they get you to pay for closing costs that are traditional buyer's expenses.
Always keep your eye on how much you'll net.
Pay buyer closing costs:
In some markets it’s very traditional for the seller to pay a portion of the buyers' closing costs. Customary or not, the buyers could be asking for this because they are short of cash. They need everything they have for the down payment.
Instead of countering to eliminate their request, leave it in. But counter their offer with a price that covers these closing costs. Always look at the net you’ll receive, not the bid price.
Cash-strapped buyers will almost always pay a higher price if you’re willing to help with closing costs. They’ll even pay more than the asking price (assuming it’s realistic). However, you need to be confident that your house will appraise to the sale price.
In a buyer’s market, the buyers could simply be trying to get everything they can. If you’ve got a great house, remember: they may want a deal, but primarily, they want your house.
Unreasonable buyer request:
Some buyers will ask for a credit–such as a new furnace - and inflate the requested amount such that the replacement product is a top-of-the line product.
Counter their dollar request with a lower amount. Even if this is a legitimate request from the buyer (like the inspection revealed the furnace is on its last leg), point out that you could have replaced it with a new, but average quality furnace and it wouldn’t be an issue.
If they want to buy the most expensive high efficiency furnace out there, then in all fairness they should pay the difference since they will be getting the full use out of it. The replacement product (or repair) will be exactly of their choosing and it will be brand new.
Use a middleman to help:
A benefit for using real estate agents is that the agent is the person delivering the counter offers and shouldering the sticking points. In some situations, having a “middleman” is very helpful.
A FSBO can have this third-party advantage by lining-up an attorney ahead of time. At any point in your negotiation, advise the buyers that you need to run the offer by your attorney, explaining that he or she handles all of your financial dealings.
During or following the negotiating, ask the buyers what lender they’ll use. Advise them that your attorney (the middleman) specified the need for this along with a copy of the purchase contract.
By-owners should have a purchase contract ready:
If you’re selling as a by-owner, obtain a blank contract (purchase offer form) from an agent, attorney, an internet site or office supply store. Make several copies and fill in the blanks such as your name(s) and the property address, lot size, etc. However, do not sign these contracts.
Place several of these on a table next to the sales brochures of your home. This could help to get the ball rolling for individuals unsure of their next step. People buy when you make it easy for them.
What’s the financial ability of the buyers:
During the first meeting with buyers, an agent will inquire about their current relationship with a lender. It feels like a personal subject, but it’s all in how you ask.
As a FSBO, sometime before you have reached an agreement, ask the buyers what are the current rates. Then move to which lender they’ve chosen to get their loan. This doesn’t sound abrasive like, “Have you been approved for a loan yet?” Be sure to obtain the lender’s contact person for your attorney.
Reaching your bottom line:
Don't give a counteroffer that is conveyed like an absolute bottom line, such as, "This is as low as we're going to go." Instead, “This is where we really wanted to be” is much more acceptable and says the same thing. Avoid the "take it or leave it."
The home warranty tool:
A home warranty provides some protection from repair and replacement costs for things like major appliances, plumbing, electrical, heating and air-conditioning units and usually is purchased without a prior inspection. Basically, this is used to provide assurances that most mechanical systems will be in working order for the buyer's first year of ownership.
It can save the day in order to clinch a deal. It can ease buyers’ fears while also giving you some protection and peace of mind.
During negotiations, if a question concerning the remaining life of some mechanical item (such as a central air conditioner) becomes an issue, you can put the buyers at ease by suggesting the use of a home warranty.
The seller usually pays for it but it can be negotiated, including splitting the cost.
Simply call and advise these companies that you're selling your home. Typically they cover the buyers' first year in the home and cost from $350 to $500. Some companies will optionally provide protection to the seller before the close.
In a dual offer situation, seriously consider buyers who put a lot down when financing the property versus the buyers who may offer more, but put down next to nothing. Buyers with a very small down payment have been known to bid higher than the asking price in order to appeal to the seller’s desire for the highest price offer. Then the appraisal blows this wonderful offer apart.
If you receive multiple offers, you could inform all buyers that there are other contract offers and that they should make their best offer. That this will help you to decide which party you’ll negotiate with. It tones down the “bidding war” fear for many buyers.
On the other hand, you don’t have to tell the other buyers that there are other offers, since it could scare off those who fear getting caught up in a bidding war.
WE’LL BOTH TAKE IT:
Do not have more than one of your counter offers out at the same time. If you provide a signed counteroffer to more than one buyer, both could be accepted. You will have sold the house to two parties and be in a heap of trouble.
Make a counter to the number one buyers and stall on the second one. When number one comes back with their counter offer, then make your counter offer to buyer number two. This way you will only have one counteroffer outstanding at a time. Anytime a party comes back with their counter offer, it is effectively, a rejection of your last offer to them.
One way around this restriction is the practice that’s employed in California. Their contract is structured such that the seller can have several counter offers out at a time. This can be done if the contract states that the contract is only valid when the buyers return it as an accepted offer and then the sellers sign off on it.
Say you have two offers on your $279,000 home. Buyer One offers $277,000 and Buyer Two offers full price. Sounds like Buyer Two is the winner. But suppose Buyer One is putting up $10,000 in earnest money and Buyer Two only $2,000. Wow, it appears that Buyer One is a lot stronger. Let’s play it safe and go with Buyer One.
But now, as you review the offers, you realize that Buyer One wants closing and possession in three weeks while Buyer Two wants two months which may be helpful and necessary since you don’t have your next home selected. OK, so Buyer Two is not only paying full price, but is giving you a lot of flexibility for lining up your next home. Two thousand in earnest money isn’t great, but is acceptable, so Buyer Two gets your vote. You can also try to get the earnest money increased.
However, on further examination of the offers, you find that Buyer Two has a house to sell and Buyer One has nothing to sell. Well, that makes it a lot different. Surely you could move into something in 30 days and not have to worry about the buyers selling their home. Buyer One, you are our selection.
Oh, what's this? Buyer One hasn’t gotten pre-approved as yet, but Buyer Two has a preapproval letter that states that they also qualify for a bridge loan. Further discussions with Buyer Two reveals that they would be willing to drop their contingency on selling the house and use a bridge loan if necessary. So Buyer Two is the real winner.
When only one buying party is involved, the various issues and contingencies are easier to analyze. Multiple offers provide more of a challenge, but force you to closely examine the situation in its entirety, which as can be seen, is a good thing.
ANOTHER BUYER CAN UNLEASH EMOTIONAL RESPONSES:
When you tell prospects that you are about to get another offer or that there is already another offer in the works, you run the risk of losing them. Many people in this situation are resigned to the fact that they're too late in the process or that they don't want to get into a bidding war. In a down market, it’s also possible that they won’t believe you. Therefore, in a slow market, handle multiple offers very carefully.
If the situation calls for it, consider revealing to your prospects that there is interest from another party, but that "they haven’t put anything in writing yet." Refer to these other buyers as a couple from_______, or the “retired” couple, or some descriptive phrase that humanizes them and strengthens their existence in the minds of your current prospects.
Or you could advise the second bidders that you've been moving ahead with an offer from a "couple from Missouri" but should anything happen, you'll contact them. Let them know that the other buyers saw it and quickly made an offer. This shows empathy, sincerity and could keep you in good stead with these potential buyers.
When buyers lose in a bidding war, they often rationalize why they'll be better off without the property. They often feel like they were treated unfairly and the seller or the Realtor become the easy target. If the buyers with the winning bid should fall through, the losing buyers have long since come to the conclusion that they are better off without your house.
In case you aren’t aware of Federal laws, they prohibit agents and home sellers from discriminating on the basis of arbitrary reasons. Included in unlawful discrimination are race, color, religion, gender, marital status, national origin, ancestry, familial status (families with children), disability, political affiliation, life-style or sexual orientation.
Some states and local governmental institutions have extended their definition of discrimination even further to protect buyers. You are advised to check with your attorney if you have any concerns here.
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