Reviewing and negotiating offers
When you or your real estate brokerage firm have priced and marketed your home effectively, you will receive offers. When you receive an offer, there are several things you will need to do prior to responding:
- Check for deadlines: Each offer will come with a specific deadline for responding. If you don’t respond by the end of the deadline, the offer is no longer valid. So, the first thing you should do is verify how much time you have to respond.
- Write down your goals and requirements: Hopefully, you did this when you first decided to sell your home. It is now time to pull out that list or recreate it. Have your goals and requirements changed? If so, update them. You will use this list to see how the offer compares to your needs.
- Summarize the offer: Purchase and sale contracts used to be one or two pages. Now, with addendums, they can be 20-30 pages. Go through the contract and list out the important elements. Note all dates and deadlines, the offer price, any requests for seller concessions, etc.
- Compare the offer to your requirements: Check to see if the offer meets your requirements. On rare occasions, the buyer offers the asking price, pays all cash and doesn’t ask for an inspection or have any other contingency. In that case there isn’t much to review. Accept the offer and move on. In most cases though, there will at least be an inspection contingency or a financing contingency. Depending on your asking price and the state of the market, the buyer may have offered less than the asking price and/or asked you, the seller, to pay some of their closing costs. You will want to ‘do the math’ to see what how much money you will receive from the transaction and if paying some of the closing costs is feasible. You will also want to look at contingencies and estimate what they might mean with regard to deadlines and timing and the likelihood the sale will actually close.
After you have reviewed the offer, you will want to respond:
- Counter offer and acceptance: If the buyer provides an offer that meets all of your needs, you may simply want to accept the offer. In many cases, there will be some things you wish to negotiate, so you will provide the buyer with a counteroffer. Like the offer they gave to you, the counteroffer you give to them will come with a deadline for their response. So, one of the first things you will do is decide just how much time to give them to respond. The deadline should be close enough to encourage a quick response and keep you from wasting time, but should be enough time for them to actually seriously consider the counteroffer. It is a good idea to prioritize the items you are negotiating although you might give the buyer a hint at your priorities. However, each negotiation is different. Having a list of your priorities allows you to quickly decide how to respond if or when the buyer counters back to you. The offer and counteroffer process will go back and forth until all parties agree on a set of terms.
- Get to a final agreement: At Tellus Real Estate Solutions, we find it helpful to speak via telephone, Skype or email to the buyer or their agent if it looks like we are going to go into multiple rounds of offer/counteroffer. This is simply because the contract can quickly become unreadable if the parties are marking it up by hand. By talking ‘in person’ we can handle a lot of negotiation more quickly than if we do it all in writing. Just keep in mind that the only real contract is the written one. Verbal agreements are only worth the paper they are written on. If the contract does get messy, re-write it using the final terms and have everyone sign that version. Once you have a final agreement, called a Mutual Acceptance in industry jargon, a copy of the contract will be sent to the title and escrow companies, the buyer’s lender and any other parties who have an interest in the transaction.
Should you ever choose not to respond to an offer?
Our rule of thumb at Tellus Real Estate Solutions is “Always respond to an offer or counteroffer”, even if you a responding with the same terms as the last time you responded. It makes it clear where you stand. And, it leaves walking away from the negotiations, which can feel like a failure, to the other party. Of course, if everyone takes this approach and you can’t come to an agreement, then you would simply keep sending the same terms back and forth forever. In this case, it would be a good time for the parties to speak in person (or more specifically, outside of the actual contract paperwork) to ascertain if the process is at an impasse. If the parties agree, then whomever has the paperwork at that point can end the negotiations by mutual consent.