Making The Deal

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The Offer

If you cannot accept the buyer’s offer, you may want to present a counteroffer between the original sale price and the buyer’s offer. Reducing the price even a small amount, or making other concessions, keeps the negotiations open. This type of negotiation can be done in a matter of hours or over several weeks. To avoid a long process, you can include a response time and deadline. The important thing is to remain calm. Until an offer is accepted and there is an agreement in writing by both parties, the buyer can walk away from the negotiations without losing any money.

When a buyer intends to purchase your home with a Veterans Administration (VA) or Federal Housing Authority (FHA) loan, there are requirements that you, as the seller, should know. Special language in your contract must be used and traditionally the seller participates in assuming some of the costs associated with financing a VA or FHA loan. Legislation sets some limitations on allowable expenses to the parties. Contact your real estate agent or lender for current information.

If you are selling the home yourself, the actual offer can vary from a verbal offer to one generated by the buyer’s attorney. You should insist on a written contract with the buyer. You can purchase standard contracts from title companies, bookstores or office supply stores. You may want to keep several blank contracts on hand. If at any point you are unsure of what you should do, consult your attorney.

If you are being represented by a real estate agent, the negotiation process is somewhat more formal and your real estate agent will handle negotiations. In most states, the offer will be in writing on a special form required of the licensed broker by your state’s Real Estate Commission. In some states, an attorney will prepare the offer and final contract for both parties. Some buyers hire their own agents to help them get the best possible deal. Buyers’ agents must disclose this relationship to the seller.

Generally, the negotiation format is as follows. The buyer’s real estate agent will notify the listing agent that an offer needs to be presented. The listing agent will call the seller and schedule an appointment for the presentation. Prior to the actual presentation, both agents will meet and review the offer, prepare any updates of the neighborhood sales activity and complete a “Seller’s Estimated Proceeds and Closing Cost Sheet.”

Real estate agents often invite the selling agent to the offer presentation. This enables the selling agent to answer any questions that may come up, such as the buyer’s financial qualifications. If a counteroffer is generated, the selling agent can communicate it to the buyer. It may not be wise to reveal to either agent how low you are willing to go in the negotiations or how desperate you are to sell. While that information should be considered privileged, it may unintentionally be conveyed to buyers and influence their offer.

Remember, you are paying the selling agent to represent you. It is unethical for an agent to disclose any confidential information without your permission.

If the buyer and seller are close to agreeing on the terms of the contract but are deadlocked, creative options may encourage continued negotiations. If the home has been on the market only a short time, the seller may be able to convince the real estate agents to reduce their commission slightly. In addition to the price, other factors may be negotiable, depending on the situation.

Contingent Offers

The Contract

The contract should spell out the rights and obligations of the seller and buyer to be fulfilled at a future date, called the settlement or closing. The contract serves as a direction sheet for all parties, indicating what to do next. The real estate agents should see that all parties get copies for their review and records.

Earnest Money

Earnest money is generally a cash payment in the form of check or money order that is given with the contract. It assures the seller that the buyer is acting in good faith and is sincere in his intentions to purchase the home.

If you are selling through a real estate company, your real estate agent will deposit the money in the company’s escrow account or with an escrow company. If you are selling the home yourself, do not combine earnest money with personal funds. The earnest money should be held by the attorney or title company who will conduct the closing. This will assure the buyer that the deposit is accounted for and protect the funds in the event of an applicable refund.

When there is a contract on a property, most other real estate agents will not show the home to potential buyers. In some very active markets, there may be other interested buyers who are willing to put in back-up contracts to purchase the property if the first contract does not go through. However, for practical purposes, the home is off the market. If the lender does not approve the buyer’s loan application, the buyer can generally walk away from the deal and take back the earnest money. However, if the buyer simply has a change of heart and decides not to purchase the home, the seller may receive the earnest money as compensation for having taken the home off the market. For this reason, sellers need to be cautious of entering into a contract with buyers who are unwilling to put down adequate earnest money.

At least 1 percent of the selling price with a $500 minimum is generally acceptable. The more earnest money there is, the less likely the buyer will back out of the contract.

The Escrow Agent

The law or “custom of the marketplace” and agreement of the parties dictate the actual procedure. Within the time frame prescribed by law, the completed contract and earnest money will be “receipted for” by the escrow agent agreed upon by the parties. This means that the escrow agent will open a file on the transaction, cash the earnest money check by depositing it in a trust account and issue a receipt to the seller and the buyer.