We’ve just received our first offer on your home. Most sellers review each one as they arrive rather than set a date to review all at once. Either way, there is a lot to review and consider at this stage of the home-selling process.
Naturally, the aim is to decide whether to accept the offer without change, counter the offer or reject the offer. If we decide to counter, realize that some negotiations can move quickly – a matter of hours – and others can last weeks. It often depends on the party’s response time and other outside factors. Yes, sometimes this stage in the process can feel like a “hurry up and wait” experience.
We should review the offer together, in person or teleconference, if possible. It allows us to discuss strategies and, if we decide to counter, prepare for possible buyer responses. Here are three key areas in an offer that should stand out first:
Offer price: What’s the offer price, how does it compare to the list price and what is the least amount you would be willing to sell? (Don’t worry: We’re not going to share your thoughts on this last question with anyone!)
Closing date: Closing typically takes 30-45 days after mutual acceptance. How does the buyer’s suggested closing date work with your timeline? Sometimes buyers will ask for a longer closing period – if they need to sell their home, if they are applying for a special mortgage (FHA, VA) or bridge loan, or to give their landlord longer notice if they are renting. If the buyers offer an all-cash purchase or they are already fully underwritten by their mortgage lender, the deal can close in as little as 10 days.
Contingencies: Most offers include a set of conditions – known as contingency clauses – to protect a buyer’s interests. Review contingent offers with a clear mind. There are several types of contingencies but one in particular can be quite tricky.
Sellers that accept an offer with a “buyer’s sale of property” contingency (meaning the buyer must sell his/her home to complete the purchase of the new home) should know the facts about the buyer’s home listing before responding to the offer. That’s where your listing agent becomes pivotal to his/her client.
A good seller’s agent should perform his/her due diligence and find out as much as possible about the buyer and the buyer’s home. For example, if representing this seller and with his/her blessing, I would speak with the buyer’s broker (or the buyer’s listing agent if they are different people) to convince his/her client to immediately put the home on a “30-day sale” or expect to have the offer on the seller’s home rejected.
Why be so demanding? No seller wants to be held “hostage” by a buyer’s contingent home sale that is overpriced. Instead of trimming the sale period to 30 days, sellers can also consider issuing a counteroffer that asks the buyer to lower the price of his/her listed home and requests the buyer put down more earnest money on their desired property. (In this scenario, the listing agent can attach a few forms with the counteroffer that would better protect his/her client’s interests.)
Another point on this topic: How important is it for the buyer to use the home-sale proceeds to cover the purchase of the new property? A seller’s agent can speak with both the listing agent representing the buyer’s home sale and lender to try and determine whether the buyer has to sell or simply prefers to sell to complete the new purchase. The question can be as simple as: “Can the buyer acquire a bridge loan to cover the earnest money, down payment and closing costs while keeping the home-sale contingency out of the picture altogether?”
Did you know that when a buyer waives the home-sale contingency he/she also waives all other conditions in the offer – such as home inspection, appraisal and financing contingencies? That’s Washington state law. But think of this scenario: By not including a home-sale contingency and having a bridge loan to cover costs to complete the sale, a buyer can still retain other contingencies in an offer (assuming the seller agrees) and keep the bid alive.
A seller typically wants to keep the sale moving forward and come to a satisfactory conclusion – not stretch out the process any further than it needs to run. How long could a buyer hold a seller “hostage” in a home-sale contingent sale? We figured it’s possible to legally string this scenario out – even though unlikely – for up to 135 days (a 45-day contingency offer, a request to close on the sold home in 60 days and a 30-day extension to that closing), or 4 ½ months, damaging the chances of finding new buyers when the home is listed on the market as “Sold Contingent.”
To deal with these potential pitfalls to a sale, a sharp listing agent will urge his/her client to include a so-called bump clause in the offer response. This clause enables the seller to keep the property on the market pending fulfillment of any contingency. It’s common to include one when the transaction depends on the sale of the buyer’s current home. If the seller receives another offer before the buyer’s home is sold, the seller can demand that the first buyer waive the contingency or rescind the contract.
Is your head spinning yet? This is why it’s absolutely critical for sellers to have a trained and qualified real estate professional as their negotiator – someone who is a certified negotiator (like me!) and will protect the sellers’ best interests.
Other important sections in the offer include:
Earnest money: How much earnest money is the buyer putting down? The typical amount is 1%-3% of the purchase price. Did the offer come with a check for that amount or are buyers planning to deliver the funds after the offer is accepted? The higher the amount and whether the offer included a check can indicate to sellers how sincere the buyer is to quickly completing a deal. (When a buyer fails to meet all requirements in the offer, state law says the seller can keep up to 5% of the offer price in damages.)
Down payment: Depending on the buyer’s particular loan program, the down payment could run the gamut – even no money down (such as for a VA loan). National figures indicate buyers put 13% down on average (7% for first-time buyers). Buyers are incentivized to put 20% (or more) down to avoid paying mortgage insurance. The more a buyer puts down on the purchase the greater the chance that the loan will be approved and the better the odds a deal will be consummated.
Closing cost credits: Do the buyers want you, the seller, to pay a portion of their closing costs? Please keep in mind the amount they are seeking from you comes off your net proceeds. For example, if a buyer is offering $700,000 for your home but wants a $10,000 closing cost credit, that means the offer is really $690,000. Move forward with caution, particularly in this sellers’ market.
Home warranty: Did the buyer ask you to provide a home warranty (or extending an existing warranty)? Depending on your home and the level of coverage, a new warranty can cost $250-$750 and is paid by you at the closing table. Buyer brokers also are known to purchase the warranty as a house-warming gift to their clients.
Personal property: Did the buyer ask for any of your personal property to be included in the contract such as that nice patio furniture or chandelier? Best practice is to sell the items separately from the purchase and sale agreement, as most lenders will balk at financing personal (as opposed to real) property. You do NOT have to include these items if you wanted to take them with you – and at least you know the buyer approves of your good taste!
This is probably the most difficult and challenging part of the entire home-selling process. It can come with tension, angst and self-doubts because there can be many variables to consider. And we haven’t even discussed multiple-offer situations!
Not to worry. We will weigh the offers and get through this together.