Receiving and Negotiating Offers
You have placed your home on the market and it has been shown many times. Now is the moment you’ve been waiting for. You have received an offer to purchase the house. Now what do you do? Is it a good offer? What if you’re lucky enough to receive multiple offers? If you are working with a REALTOR® he/she will sit down with you and explain the pros & cons to the offer(s) but ultimately it is your decision to make. This article contains tips to be sure to review when negotiating an offer.
An Offer to Purchase is a legally binding document that outlines the terms and conditions under which a purchaser is prepared to buy. The offer will include general information such as both parties' names, the address of your property and all necessary dates. It will also include a negotiable purchase price; this being the first price offered and a list of the contents that may be sold with the home (the chattel). It will also include all financial details such as, the proposed down payment, amortization rates and terms, as well as the closing and expiration dates.
The price is instantly where everyone looks first. This price is not what you will collect at closing. You will need to figure the sales price minus fees, taxes and insurance. If the price is lower than what you were expecting don’t automatically reject it. Take a look at some of the other terms of the contract. Those terms are discussed in greater detail further on.
ASKING FOR CLOSING COST CONCESSIONS
It is very common, even for REALTORS®, to look directly at the sales price and no further. Before deciding on an offer, the reviewer needs to look at the closing costs section of the contract. If the buyer is asking for closing cost assistance it is in fact lowering the offer price. I hear it all the time from agents as well. “I’ve made a full price offer.” What they don’t see is that the buyer is asking for 3% closing cost assistance from the seller. If the offer price is $100,000 with 3% closing cost assistance, the seller would have to contribute $3,000 to the sale. This makes the offer in reality is $97,000 not $100,000
HOW IS THE PROPERTY BEING PURCHAED
Is the buyer planning to finance or pay cash? When an offer is made with cash there are several advantages. One advantage is there is no financing contingency period. Financing contingencies can last from 30 to 60 days. This is time the property is off the market and not being actively marketed for sale. If the financing falls apart after this deadline, the contract is dead, the buyer gets their deposit back, and the seller gets to start all over again. With a cash offer, you don’t have to worry about this time period and can close a lot sooner.
Another advantage of a cash offer is you don’t have to worry about the property appraising. When dealing with financed offers it is important to remember banks loan money based on two things: the agreed sales price, or the appraised value, whichever is lower. If a bidding war drives the asking price up, the house will still have to appraise at the higher price if the offer is made with financing. If the appraisal comes in at a lower than agreed upon price, the seller has two options: void the contract and start over or lower the contract price to the appraised value. With a cash offer there is no appraisal and you can close much sooner.
HOW MUCH IS IN ESCROW?
An earnest money deposit will be held by a third party until an agreement is reached or there is a closing between you and the buyer. At that time, the money is usually credited to the buyer and applied to the down payment. Until you accept his or her offer, the buyer may withdraw the offer and get the earnest money back. On the other hand, if the buyer fails to follow through with the contract once it's accepted, you may be entitled to the earnest money. The more money they put on the line, chances are the more serious they are about purchasing the property.
When reviewing an offer check for repair requirements and/or allowances in the contract. Even a cash offer could have a stipulation in the offer stating the seller must perform repairs. “As-is” contracts are the only exception. As “as-is” contract is just that, the buyer will buy the property exactly how it sits with no repairs done by the seller. Financed offers will sometimes be submitted without an call for repairs or allowances; BUT it is not only up to the buyer and seller. The buyer’s lender will have requirements that the seller MUST perform before closing.
Buyers will sometimes ask for a seller to leave personal property as a part of the deal. Items that are most commonly requested are refrigerators, washers, dryers, and window coverings. This gives you more bargaining power.
What if you have multiple offers? First of all, congratulations! The first step is to notify all parties that you are now in a multiple offer situation and all parties need to submit their highest, best, and final offers. Once you have received them all, now it’s time to choose one, but remember-highest does not always mean best. For more information on this subject please refer to our previous blog “MULTIPLE OFFER SITUATIONS: WHICH IS THE BEST OFFER.”
Sellers are always looking to sell: A) at the highest possible price, b) with the least amount of inconvenience and c) in the quickest amount of time possible. Like with most transactions in life it will only come together if you have both parties willing to give and take. The agents at First Coast Realty, Inc. are all exert negotiators. We are always here to help buyers and sellers through this type of process.