Selling your Home - An Offer? What happens now?
This blog post is the fifth in a series on 'Selling your home'. The series will explain, step by step, important considerations and events that will occur if you plan to sell your home in the near future. The first four steps in the series, Preparation, Marketing, Pricing Strategies and 'On the Market', can be found on our blog.
In the last few blogs we've talked about all of the steps involved in getting a home onto the market, from preparation, to marketing, to pricing strategies, to what happens when the home comes on the market. All of these steps lead to one desired goal. Selling your home.
We generally say that the first offer made on a home is going to be the best - this is often because when the first offer is made the home has less days on the market than any future offers, but this adage doesn't necessarily always hold true. It often depends on the market and the type of buyer out looking. If we're in the very slowest season in terms of buyer activity then often we find that the buyers who actually are out looking are generally looking for a 'deal'. If we are in a period of high buyer activity then often the offers reflect true market conditions because of the amount of competition that generally exists during these seasons.
If you've paid serious attention to the homes that have sold recently in your location, and within the same season, then you should have a pretty good idea of what a realistic price is for your home. When I mention the same season, it is important because the market often changes from season to season, and to have a good understanding of what your home will sell for it is important to use current sales data.
In most circumstances, when an offer is made the buyers have become emotionally involved in your home. They have imagined where their furniture will fit, and how they will decorate, what rooms they will paint, and how they will enjoy the general environment. This is a good thing. When a buyer is emotionally involved in your home then they will 'work' to buy it. There are emotions on both sides, and effort on both sides, to bring a home purchase/sale to fruition. I am a firm believer in treating both parties with respect and consideration so that the end result is a win-win situation. If you begin with this principle during the offer negotiations and then continue along the process in this manner, the end result is far more satisfying to all concerned than it being an acrimonious and stressful. If there has been a downturn in the market since you bought your home, then as a seller, you may be very resentful of the drop in value of your home from when you purchased it, and often this translates into bitter feelings toward the buyer. But, if this is the case, then the price that the buyer is offering is not cause for bitterness toward the buyer, because it is not the buyers fault that the market has dropped since you bought the home. A buyer would have to be very foolish indeed to pay you over market value just because you paid more for your home.
You should read the offer very carefully and understand what it entails, and what contingencies the offer holds. Ask your agent to explain it if they are not offering to do so. You should look at what it includes - too often I have seen sellers accept offers without realizing that their washer and dryer are included, or grandma's foyer table has been included in the terms....once you have accepted the offer it is very difficult to renegotiate because you didn't read the offer fully.
Dates in the offer
Understanding the time frames that are mentioned in the offer are important also. When an offer is written it has an offer validity date/time. Generally an offer is only 'good' for a certain time frame - they are not indefinite. You need to respond to the buyer within the time frame specified, unless you are going to reject the offer outright then it doesn't matter if the offer expires or not. Once you 'counter' an offer, it is effectively you rejecting the offer and proposing a new offer to the buyer, and the original offer is no longer valid.
Inspection contingency date
Most offers contain an inspection contingency - a 'standard' period of time for an inspection contingency is 7-10 days from offer acceptance. By the date of the inspection contingency the buyer should have had an inspection and either:
- exited the contract,
- articulated various concerns that have arisen as a result of the inspection and proposed a solution (either financial or remedial) that would encourage them to move forward, or
- move forward without raising any concerns.
Reasonableness is important - if a buyer is reasonable in their requests then this encourages the seller to be reasonable and work with the buyer either financially or by repairing certain items around the home. If a buyer is unreasonable then it is more likely that the seller will not agree to any of the buyers requests. At this point, if the buyer pulls out based on the inspection then they are entitled to the return of their deposit. Often the bigger picture needs to be considered at this point - sometimes it is easy to get 'caught up' in petty requests totaling $50, yet lose sight of the bigger picture of the house purchase/sale.
Purchase and Sale date
Assuming that you have resolved any negotiations that arose from the inspection, the next phase is the Purchase and Sale. The P&S is a standard document which has the buyers and sellers attorney rewording, or adding Riders to the standard document. The date for the P&S to be finalized is generally within 10-14 days from offer acceptance. This is often a 'floating' date because it depends on the two attorneys schedules and agreement over the various terms within the P&S. Once finalized the buyers sign the P&S and write a check for the balance of the deposit, and the seller then signs the P&S and it is a fully executed contract.
Mortgage contingency date
After the P&S has been executed the next phase of the dates is for the mortgage contingency if one has been written into the offer. As a seller, you don't want the mortgage contingency date to be 'way out there'...until your buyer has their mortgage commitment then there is a chance that your home sale will not occur. It is only when the buyer has a mortgage commitment that you have a high degree of certainty that the sale is going to occur. The mortgage contingency date should be no later than about 5 weeks from the offer date. This takes into account the fact that the buyer will not want to apply for a mortgage, and thus incur costs, until they know for certain that your home is the right one for them and they have conducted the inspection and the P&S has been executed.
A closing date is proposed in the offer by the buyers. If this does not agree with your future plans then this date can be negotiated at the time of the offer. In fact, all of the dates can be negotiated at the time of the offer. How amenable the buyers will be with regard to negotiating dates, or let alone price, depends on how badly they want to buy your home. If there has been competition on your home then the buyers will be far more willing to work with you to give you what you want rather than you take someone else's offer. A 'normal' closing date is between 6-8 weeks from offer date, sometimes stretching to 10 weeks, and rarely going beyond this...although if both seller and buyer agree to a longer closing date then this can work well for both parties.
The deposit is generally $1000 to bind the offer, with the balance of a 5% deposit due at signing of the P&S agreement.
What's a strong offer?
So, what are considered 'strong' offers and what should you be looking for, as a seller, to pick the best offer. Price is very much a consideration, but if you are comparing one offer that is, say, $5000 less than another offer but has no mortgage contingency then your best offer might actually be the one with the lower price. Obviously, the less contingencies there are on an offer, the better. Very rarely these days are sellers accepting offers that are contingent on the buyer selling their home. Most buyers write offers that have inspection contingencies, although if a home will have competing offers on it, some buyers will have an inspector come to do an informal inspection prior to the buyer writing the offer so that they can write an offer that has no inspection contingency. Obviously if there is no inspection contingency then this removes the opportunity for the buyer to renegotiate the price. If there is a mortgage contingency, then a consideration is how much the buyer is needing financing for - it is a completely different story if a buyer is looking for 90% financing versus a buyer who is looking for 50% financing. The buyer who is only looking for 50% financing is a far stronger buyer than the buyer who needs 90% financing and is far less likely to exit the contract 5 weeks later on the basis of not being able to secure financing. When the offer has been presented, it should have been presented with a pre-approval, or pre-qualification, if the offer has a mortgage contingency component. This is an important guide as to how able the buyer is to be able to secure financing. Considerations with regard to this are whether the bank is a reputable bank, does it have a physical address, is there a name and phone number for your agent to call to validate the pre-qualification/pre-approval.
You should watch out for these...
You should beware of offers that contain 'odd' components. I've seen offers that require a third party involvement as a contingency... you never want to accept an offer that requires a third party to agree, or to do, something as a component of whether the sale will hold together. You may see something that involves a contingency on checking out zoning or permit information, but these should be time bounded. If you are selling a condo, you may see a contingency that is based on the buyers attorney reviewing the condo documents. If your property is on septic or well water, you may see a contingency where tests are performed and any issues addressed.
Once you sign...
An important final consideration is that when you sign the offer, you as a seller, cannot exit the contract. Even if you receive a backup offer that is for, say $50,000 more, you cannot exit the original contract to take the new one. The only party that can exit the contract once the offer is signed, is the buyer if there are contingencies and the buyer is exiting based on one of the contingencies. After having reviewed the offer carefully, and fully negotiated any items within, to the point that you are happy with the outcome, then congratulations, you are well on the way to completing your ultimate goal of selling your home.
If you have any questions on anything raised in this blog then please don't hesitate to reach out. We would be more than happy to answer any questions.