STEP #5: RECEIVING AN OFFER AND NEGOTIATING TERMS
Sellers often make a counteroffer after receiving an offer to purchase, which can be countered again by the buyer. This is common practice as both sides attempt to negotiate an agreement that meets their individual needs.
How strong is the buyer? Your agent will check with the lender to see how likely the buyer is to close. Purchase offers come in with a “pre-approval” letter, but these so not ensure that the buyer will end up qualifying for a loan. So many homes fall out of escrow because of this. A buyer with a good chance of closing is a strong buyer.
What kind of a loan is it? An FHA loan for instance may require work to be done by the seller before the loan is approved. Also the buyer will be putting down 3.5% versus the 20% buyers with conventional loans will be putting down.
An all cash offer should be accompanied by proof of funds. These kinds of offers generally come without a loan or appraisal contingency period and are worth their weight in gold. You might consider a lower price on these because the chances of closing are higher. However beware. Make sure the cash buyer is not an investor because chances are you will not be the only property on which they are presenting an offer. Dig deeper.
- The Good Faith Deposit. This should not be less than 3% of the total list price.
- The escrow period. Usually this is between 30-45 days.
- The inspection contingency period? This is the period the buyer has to do all their inspections. The standard on the contract is 17 days, but a good offer will reduce that to 7 or 10 days. This is plenty of time to complete the due diligence period.
- Home Warranty. This is insurance the seller usually pays for to cover appliances, HVAC, etc. in the home for the first year. Generally the buyer asks for a policy between $350 to $500. This is a small amount and usually is not an issue, but it is worth noting.
- Requested items. Is the seller asking for personal items such as the living room chandelier, a piece of furniture etc?
- Special requests. Is the buyer asking for anything unusual like a long escrow? Is the offer contingent upon them selling another property? The cleaner the offer, the better the chances of the buyer closing.
Any or all of the above items may be countered by the seller. Or if everything is acceptable then the seller may accept the offer
In the case of a multiple offer situation, each offer will be taken into consideration. The same applies as above, and if one offer stands above the others, it may be accepted. If not all offers may be countered with the same terms or each one with individual terms. Often a price will be suggested on the Multiple Counter Offer form or the term “Best and Final”, which will encourage the buyers to make their best offer.
Time is of the essence when receiving offers, so be prepared to sit down with your Realtor® to review each one as it comes in.
Reviewing Purchase Offers
- For each offer, note the proposed offer price, pre-approval letter, contingencies, earnest money amount, proposed closing date and offer expiry date.
- Have a process in place if you expect to get multiple offers.
- Keep emotions in check when receiving lowball offers.
Make Counter-Offers and Negotiate
- Approach each offer as an opportunity to negotiate.
- If the buyer’s offer is contingent on selling a home, counter with a Removal of Sale Contingency.
- If you won’t budge on price, offer financial incentives that don’t require cash out of your pocket, such as paying for part or all of the buyer’s closing costs, repairs found during the property inspections or points.
- Offer to include furniture, appliances, window treatments or lighting fixtures.
- If you’re worried you won’t be able to buy a home after you sell, include a “rent back” clause which lets you rent back your home from the buyers after escrow closes.
- Make a full-price counteroffer, if your comps can back it up.
- Make the sale contingent on your buying a home.
- Don’t forget to set a closing date and move-in date.
- If you find a serious buyer who is having trouble qualifying for a mortgage, consider offering seller financing, a mortgage assumption or a lease-to-own deal.