Negotiating the Purchase Offer: Price is not all that Matters for Sellers
Negotiating the purchase offer: Receiving an offer to purchase your home is thrilling. After months of planning, preparing, and marketing, you have finally connected with the right buyer. Somebody out there thinks your home would be a desirable place to relocate their family and they have even taken the time and effort to put an offer in writing to purchase your home.
It’s a time of anxiety, elation, satisfaction, and relief. Unfortunately, you may be a little quick to celebrate. We recommend that you hold the champagne for a minute to make sure you’ve considered what matters when negotiating a real estate contract.
We’ve listed a few questions you can ask yourself when negotiating a contract.
What is an acceptable offer?
A lot of variables go into determining what qualifies as an acceptable contract offer. And, believe it or not, price may not be the overriding variable when it comes to determining what an acceptable offer is. Let’s start with the basic elements of the sales contract.
Is the offer in writing?
Real estate contracts have to be in writing before they are binding on the parties. If someone makes a verbal offer to purchase your home, they probably have no obligation whatsoever to go through with the transaction.
Because of this, I don’t even consider verbal offers a part of the negotiating process. If a buyer is seriously interested in a property, they will take the time to put the offer in writing. So, my advice is to ignore any verbal offer you receive. A caveat: verbal countertoffers may be considered as a precurser to getting the final contract in writing. But that is pretty far into the process!
Has earnest money been paid?
Real estate offers should be accompanied by earnest money or a good faith deposit. The higher the amount of earnest money accompanying the offer, the more serious I consider the buyer.
When a Realtor is involved, the earnest money check will be made payable to a Brokers Escrow account where the funds are not be distributed without agreement between the buyer and seller.
If the purchaser defaults on their obligations in the contract, the earnest money stands as liquidated damages in most contracts. This provides some assurance to the seller as they know they will get some return even if the buyer evaporates into thin air.
Escrow accounts are trust accounts governed by State Law. Consult your attorney for clarification on how escrow account distributions are made.
When is the closing date?
Are the buyers going to close in a reasonable amount of time (typically 30 to 45 days)? If the time goes past 45 days, I start to worry about pulling a home off the market. What happens if the buyers fail to close the contract and the home has been off the market for 90 days?
When do you have to move out of the house? If the closing occurs before your new residence is available for occupancy, can you rent the home back from the buyer for a few weeks or months? Closing dates are negotiable and sellers should make sure the date meets their expectations.
What are the cutoff dates for inspections and approval of inspection reports?
Most buyers today want to have a home inspector take a close look at the condition of a home before they purchase. They will inevitably have a punch list of repairs they want the seller to make before they are willing to close on the home.
The important consideration for a seller here is to make sure they know about these repairs as quickly as possible after the contract has been signed. A cutoff date for inspections ranging from two to three weeks is adequate for most homes. And, a cutoff date of 1 week after the receipt of the inspection report for approval of repair items by the seller is reasonable.
Most sellers don’t want to take their home off the market any longer than 30 days for the entire inspection process. If you fail to reach an agreement with the buyer as to which items should be repaired, you can put the home back on the market and only 30 days will have been lost in the process.
Who is responsible for repairs?
Sellers should make themselves aware of items they warrant versus items that are being sold “as is” in the contract. If a clause specifies that the roof must have 12 years of functional life left in it, you want to make sure you know how much it would cost to replace the roof if it is deemed to be obsolete. Do your research and homework now. Don’t wait until after you have signed the contract.
What are the contingencies for the transaction?
The contingencies you usually hear about involve a buyer having to sell their existing home before they can close on the new home. But, contingencies can include any number of other items such as inspections or financing.
Are these uncertainties you can live with? Are the cut off dates for contingencies clearly specified and the method of delivery of notification specified? Do the research on these contingency items.
Find out if the buyer’s existing home is under contract, listed with a Realtor, or if it’s just sitting without any activity. Ask for written verification when you are concerned about ambiguity. Change the contingency language in the contract if it is not clear and direct.
Do the purchasers have the financial wherewithal to purchase your home?
How much money are they putting in the down payment? Have they been pre-qualified by a lender and do they have written verification of their pre-qualification?
If it is a large quantity of cash, do they have written third party verification of funds to settle the contract? Make sure you are dealing with a legitimate buyer and not someone who has no setbacks if the transaction doesn’t work out.
Is the seller being asked to pay a portion of the closing costs?
How much? Is the cost specified as a percentage of the loan amount, or is it a set dollar limit?
It is not uncommon for buyers in the Atlanta market to ask for assistance with closing costs, but the amount paid by the seller is negotiable. It should be considered along with other financial items in the contract, including price and cost of repairs.
Be aware that some buyers, who are stretching themselves on a small down payment, may require closing cost assistance from the seller. However, these buyers should be more willing to pay closer to the asking price.
What other issues is the seller responsible for?
Do you have to pay for an appraisal, survey, or home warranty? If yes, how much will these items cost? How long does it take for a vendor to make the item available? Home warranties are common in our market as a method of protecting sellers from irate buyers after the closing. Sellers can buy a lot of peace of mind for around $400.
Is my seller’s disclosure statement made a part of the contract offer?
This could be important to settling disputes arising from hidden defects down the road.
Finally, how much are they offering for the home?
Is it a reasonable price? Does the sales price meet my financial needs for paying off mortgage loans and purchasing a new residence?
We will talk more about price and negotiation in the next post: Negotiating the Purchase Offer: Price Does Matter
SALLY ENGLISH and The English Team
SALLY ENGLISH and The English Team are experienced real estate negotiators. We specialize in homes convenient to Emory University and the Centers for Disease Control. Call us at 770-939-3174 or email firstname.lastname@example.org to get started buying or selling your Atlanta Georgia home.