Offers and ContractsOffers and Contracts to buy real estate are what it’s all about. All the decisions have been made. The house has been prepared like a model. Advertising and marketing has established your online and offline exposure. The listing is in the MLS and the showings are in full swing. Now it’s time for the reason that all this work has been done: an offer to purchase. Offers and Contracts in Real Estate are a bit different than in many
businesses. If a buyer asks a shopkeeper "could I buy this for $10?" and the
shopkeeper accepts the offer, the buyer can still change their mind and walk
away. Not so when you are dealing in Real Estate. When a buyer makes an offer,
it is in the form of a legal contract. If you, as the seller, accept the This is why it is so important that a seller never gets involved in oral offers and negotiation. If you have a house listed at $175,000 and the buyer asks "would you sell the house for $165,000?" almost any response you make--short of "put it in writing"--can cause problems. If you verbally accept the offer, not only does the buyer have no obligation to actually buy the house, many will say to themselves, "gee, that was easy....I wonder if $150,000 would work?" This is why most agents will never deal in verbal offers. If you are selling on your own, it is very good advice! Some important points regarding purchase offers1) If you intend to accept an offer (or make a counter-offer), do it as soon as possible. At any time prior to your acceptance or counter-offer, a buyer can withdraw their offer. EXAMPLE: Seller Jones receives an offer from Buyer Brown. The acceptance date on the contract is the next day at 6:00 PM. Seller Jones knows that he is going to counter-offer at a price just a bit over Buyer Brown's offer. At noon the next day, Buyer Brown, in a cold sweat, withdraws the offer. Seller Jones is out of luck. Once they have verbally withdrawn that offer before your response, there’s no going back. 2) Any changes made on the contract constitute a counter offer and require written approval of all parties for the contract to be enforceable. Even seemingly minor changes open the door for either the seller or buyer to change their mind, before all parties have initialed the contract. EXAMPLE: Seller Smith receives an offer on his house. He accepts all of the conditions of the offer (selling price, financing agreements, etc.) except for one. He changes the occupancy date from July 31st at 12:00 noon to July 31st at 6:00 PM, wanting to give himself a bit more time for moving. If the buyers agree (in writing), there is no problem and the contract is valid. If the buyers change their mind about buying the house, however, the contract is not enforceable. There has been a change (the occupancy time) that has been approved by only one party to the contract. What about low offers?No matter how well you have prepared your house and how certain you are that it is priced at fair market value, there is always the possibility of receiving a low offer, especially with the downturn in the real estate market. It could be simply a shot in the dark, or it could be due to a limit in the buyer's mortgage qualification ability. No matter what the case is, though, the most important thing to remember is do not take it personally. Many home negotiations, if they had just been allowed to run their course, very well may have come together acceptably for all concerned if the negotiations hadn't fallen into a "grudge match". Yes, it is your home, and yes, you have put a great deal of love and effort into it, but taking a low offer as a personal insult solves no purpose and is a classic seller mistake. It clouds judgement. Reject the offer altogether and tell the buyers or buyer’s agent that “We’re really just too far away from the right number to make this work out, but Thank You for your interest” or counter-offer it and move on.
Also, understand the true market value of your home beforehand. Holding out for an offer that is 10%-15% above its fair market value will backfire on you 95% of the time. It's a classic seller mistake that will keep you asking yourself, "When will it sell?” Knowing your home’s true market value is crucial to getting your home sold, as well as knowing your competition. If the comparable home down the street with 400 square feet more of heated living area is on the market for $15K less than your asking price, you’ve got a problem. Know your competition is crucial, because buyers that are in the market will certainly be looking at those as well, so make sure you know how you stack up. What other contingencies could trip me up?Giving the buyer too much time to get final commitment letter. Depending on the way that the finance contingency is spelled out it could give the buyer an unusually long amount of time to get out if their financing falls through. In the finance contingency, it should take the buyer no longer than 3 to 4 weeks or 30 days to get a final commitment letter from the lender that they’re going to underwrite the loan. The amount of days for a buyer to walk away and still get their earnest money back because of financing is spelled out here in offers and contracts. If you’re occupying the property, make sure that you give yourself 10-14 days to close after this commitment letter date in offers and contracts. This way you don’t get everything packed up, move to your new place (because you do have to be out by closing day unless spelled out in a “Seller Possession After Closing Agreement”) and then have the closing fall through. Not getting a lender’s pre-approval letter with the initial offer. This is a chronic screw up with for sale by owners trying to handle offers and contracts. They made the decision to try and sell the home themselves and pat themselves on the back when they get either a full price offer or one that’s very good right away. Here’s the first clue: People that agree to a high asking price right away or full asking price probably don’t know the market and probably haven’t done any due diligence. I.E. They can’t afford the house. They look at the closing date some 30 – 45 days away and decide to take it to their attorney to get seller’s documents ready. Now, the property has been off the market for 45 days, and 3 days before closing, they find out that this buyer doesn’t have a snowball’s chance in Hades of closing this deal. Not only that, but they find out that they don’t even have the money to pay their own closing costs. And keep in mind that a pre-qualification is useless. Pre-Approval usually means that at least part of their financials have been verified as well as their work history and/or credit. Read the Pre-Approval Letter and see what is pending confirmation for final approval. There’s a reason why most successful transactions are handled by experienced agents. Allowing too small of a “Cost of Repair
Contingency” or ANY “Cost of Repair Contingency” amount, in addition to a home
inspection, in the contract. The cost
of repair contingency is quite simply an out for the buyers, and it basically
says that if it costs X amount of dollars to do all of the repairs that come up
in the home inspection, then they can walk away from These are just a few of the contingencies and situations that can keep your home sale from going smoothly or keep it from selling altogether. Take the time to talk with a professional and understand your offers before you sign them and turn them into a binding contract. Back to Real Estate Articles Investors Corner Main Sandhills Real Estate Page Sandhills Condos and Townhomes
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offer,
the house is sold. If you counter-offer, negotiations may continue. It is
important to understand that all of the offer and counter-offer activity that
you will engage in is framed legally.
If you do get a low offer, it is far more important to try to get as much information as
you can relative to the offer. Why was it at the price that it was? What was the motivation of the
offer? (Be aware, though, that if the offer has come from a Buyer's Agent, the
information you receive will only be as much as the Buyer's Agent wants you to
know. They owe their loyalty to the buyer and cannot disclose any information
that may put their client at a disadvantage.) If
the buyer’s agent feels guilty about the low ball offer, they may actually give
you more information if you ask them. There still may be information that will
be revealed to you, which will help you as you structure a counter-offer.
the deal. The home
inspector works for the buyer, and home inspections are a typical part of most
offers and contracts to buy real estate, unless the property is being sold “as
is”. When the buyer schedules a home inspection as part of offers and contracts,
you basically go back to negotiations again anyway. The buyer provides you with
a list of what they want repaired. You as the seller, let them know what you’re
willing to fix and what you’re not willing to fix. It’s just another
negotiation. And the buyer can walk away, if the two parties can’t come to
terms. Some sellers unknowingly will accept a contract with a $2000 cost of
repair contingency. It’s not hard to find enough things on
any house that would add up to $2000 to repair, if you look hard enough.
Make sure that if you’re going to sign a contract with this contingency in
there, that it’s at least $5K-$10K, otherwise you’re just giving the buyer a
chance to walk away, easily…with their
earnest money.
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