The Smart First-Time Home Seller's Guide (2015)
Chapter 6: Managing and Settling The Offer
Every strategy you have implemented thus far in this guide has been leading up to this moment. This is the moment you have been waiting for. You have a purchase offer on your property. Should you accept the offer? Deciding on an offer and setting the terms of the settlement are often the hardest parts of the selling process, but they are also the most exciting. You may choose to accept an offer, reject it, or make a counteroffer. When you receive a buyer's offer, the buyer will submit a purchase agreement including some earnest money—a partial down payment—which is refundable if you decline. The purchase agreement will include the price being offered, how the buyer will pay for the property, and the date the transaction will be completed. Upon receiving an offer, you will want to review the following before making a decision.
The bid price. If the bid price is within 3% to 5% of you asking price, you have a great offer. Most agents will urge you to consider accepting such a great offer, unless you have another prospect that might make a higher bid. A buyer's ability to pay is essential. A buyer or their Realtor should be able to provide you with a lender qualification letter that proves the buyer is qualified to pay for the home.
Contingencies are another factor up for review. If a buyer makes an offer dependent on the sale of his or her own home, or based on something in your house that needs fixing, it is up to you to decide if the buyer is being unrealistic. It is possible for buyer to be particular and ask for too much, so weigh the contingencies against the bid price.
As a seller, you may want to consider adding your own contingencies. Consider loan approval. Sometimes purchase agreements can be made based on the buyer being approved for a loan within a designated time frame. Usually they have thirty days or less. If you decide that you want to help finance the home, put all of the precise terms of your contract in writing.
Also, do not forget the contingency of property. Putting all agreements that involve the property in writing benefits both the buyer and seller. To elaborate, if the buyer stipulates that they will only buy the property if the roof is repaired or the furniture comes with it, you should include this is the agreement. Be sure to include the highest price you have agreed to pay for repairs in the purchase agreement.
Now that you know what factors to consider, how you choose to handle your offer is important. So how do you respond? How do you protect your interests without sending buyers running for the hills? The first thing to remember is that all offers are good due to the fact that a buyer has chosen your home over all others on the market. Any offer should be taken as an extreme compliment, regardless of how high or low it might be. The hard part is deciding if you should accept the offer.
As a seller, you always have three main options. First, you can accept the offer. Second, you can reject the offer, which effectively tells the buyer off. Or third, you can counteroffer. Many sellers will instinctively want to counter all offers. Wise sellers are more cautious when making this decision.
Many sellers think that making a counteroffer is a natural part of negotiation procedure during the sale process, but what many fail to realize is that they are actually rejecting the buyer's offer and then presenting a new one in its place. The problem with this is, the second you give the buyer a chance to pause and reconsider their proposal, you run the risk of losing the buyer entirely.
Successful sellers have learned to ask themselves if it will be worth it to counteroffer. In many cases, the risk is simply not worth the reward.
If you are forced to make a counteroffer, consider the following negotiation strategies. Strategy consideration number one is attempting to put yourself in the buyer's shoes. Try to understand the buyer's position. A negotiation is never a one way street because there are always different perspectives involved. In order to reach the point of a successful sale, both parties must feel that they are receiving a good value. Learn as much about the buyer as you can, including their background and their reasons for making their initial offer. By doing this, you may be able to find a common ground that can lead to a smooth sale.
The second strategy is to use the “give and take” technique. When making a counteroffer, think in terms of what you want and what you might be willing to sacrifice in order to make the sale happen. For instance, if you are asking for a higher price, can you help the buyer pay for their closing costs or maybe pay points to help them obtain lower payments? Unwilling first time sellers often make the mistake of not compromising, which costs them the sale in the end.
Thirdly and lastly, emphasize the positives. When you write your counteroffer, you may want to emphasize the areas that you do agree on before you start requesting modifications. Point out all of the details of the original offer you find acceptable. This might include the closing date, the possession date, the price, the down payment, the financing type, contingencies, inclusions and exclusions, or even something as simple as the amount of the earnest money deposit.
Take the time to evaluate each offer and create a negotiating strategy with the help of your real estate agent. An unemotional analysis of the market and of your needs as a seller will put you far ahead of your competition. Your Top Agent will be able to negotiate on your behalf and proceed with a strategy that you approve of, relieving you of unneeded stress if things heat up. There are many opinions out there, so come up with your own negotiation strategy.
Do not make the mistake of letting your ego get in the way when negotiating. Too many sellers take the process personally and lose out on creating a win-win scenario. It is a business transaction, so keeping your ego out of the equation and putting your head back into it is absolutely mandatory for success.
Selling your house is most likely one of the largest financial transactions you will undertake in your lifetime. The decisions you make when agreeing upon a price with a buyer will have a great impact on how much money you actually walk away with. If you want a more cut-throat strategy, discuss it with your Realtor and see if it would be a good idea based on the kind of buyers you are dealing with. Here are some “hardball” negotiating techniques that will help you achieve top dollar for your home in any market.
Counteroffer at your listing price. As a seller, you probably will not want to agree to a potential buyer's initial offer on your house. Buyers usually expect a back-and-forth negotiation, so their initial offer is almost always lower than what they are actually willing to pay and lower than your listing price.
At this point, most sellers will counteroffer with a price that is below their listing price because they are afraid of the sale slipping through their fingers. They want to seem flexible and open to negotiation in order to seal a deal. This strategy works in terms of getting the property sold, but it is not necessarily the best way to get the highest price, which is your goal as a first time home seller.
Instead of dropping your initial price to get closer to the buyer's bid, counter at your list price. A buyer who is serious about purchasing will stay engaged and come back with a higher bid. Assuming you have priced your home appropriately from the start, countering at your list price says that you know what your house is worth and that you have every intention of getting the money you deserve.
Buyers may be surprised at this strategy and some will be turned off by your unwillingness to cooperate and walk away. However, you will also avoid wasting your time on the buyers who try to low-ball sellers, and who are not so interested in buying your house as they are in getting a deal.
If you really want to play hardball, you can try a negotiation tactic that is more extreme than countering at your list price. Reject the buyer's offer and do not counteroffer at all. To keep them in the game, you then request that they submit another offer. If they are truly interested and you have not turned them off, they will. This strategy sends a much stronger message that you know your property is worth what you are asking for. If the buyer does resubmit, they will have to make a better offer.
Additionally, if you do not counter, you are not tied down or locked into a negotiation with a specific buyer, and you can accept a higher bid if it comes along. For the buyer, knowing that others could come along and make better offers at any moment creates pressure to submit a competitive offer quickly, especially if they really want the house. This strategy can be very effective if house has only been on the market for a short period or if you have an open house approaching.
Another strategy is to hold off all offers until a certain date to try to create a bidding war. After the home is on the market and available to be shown, schedule an open house for a few days later. Refuse to accept any offers until after the initial open house is over. Potential buyers will assume they are dealing with real competition and may place higher bids as a result. You might only get a single offer, but the buyer is unaware of that. On the flip side, if you get multiple offers, you can return to the top bidders and ask for their highest and best offers.
A good tactic is to put an expiration date and time on your counteroffer. When a buyer submits a bid you do not wish to accept, you counter their offer. You are then involved in a legally binding negotiation with that person, so you are not allowed to accept a better offer if it comes up. In the interest of selling your home as quickly as possible, consider assigning a short expiration date to your counteroffer. This method compels the buyer to make a decision so that you can either get your house under contract or move on.
You do not want to make the deadline so short that the buyers are turned off, but consider making it shorter than the typical time frame specified in your state's standard real estate contract. So, if the default expiration is four days, you might want to shorten it to two or three days.
Sellers must make fast decisions if they hope to close a deal quickly. While the counteroffer is outstanding, your property is effectively off the market. Many buyers will not place an offer when they see another negotiation is underway. If the deal falls through, you have added time to the number of days your property has sat on the market. The more days a home sits on the market, the less desirable it appears. It is therefore more likely that you will have to lower your asking price to reel in a buyer.
Agree to pay the buyer's closing costs, but increase the purchase price. It seems to have become standard practice for buyers to request that the seller pay their closing costs. These fees generally add up to about 3% of the purchase price, covering what seems to be a lot of frivolous charges. Buyers will often feel financially drained from having to come up with a down payment, moving expenses, redecorating costs, and furniture, so dealing with closing costs becomes unappealing. Some buyers cannot even afford to close the deal at all without the seller's assistance for closing costs.
While a lot of buyers do not have or do not want to spend extra money up front to get into the home, they can often afford to borrow a little more. If you decide to help them with closing costs, the sale may be more likely to proceed.
When a buyer submits a bid and then asks you to pay their closing fees, counter with a willingness to pay but only at a higher purchase price, even if that means going above your listing price. Buyers often forget that when they ask the seller to pay their closing costs, the are effectively decreasing the home's sale price. As a seller, you will be able to see the bottom line clearly.
You can raise your asking price by enough to still get as much as your list price after paying the buyer's closing fees. For example, say your listing price is $200,000. If the buyer offers $190,000 with $6,000 toward closing costs, you would counter with an offer between $196,000 with $6,000 for closing and $206,000 with $6,000 for closing. The only catch is that the price plus any closing costs must be supported when the house is appraised. Otherwise, you will have to lower it later in order to close the deal because the buyer's lender will not approve an overpriced sale.
The key to implementing these negotiation strategies is offering a superior product. The home has to show well, be in excellent working condition, and offer something that the competition does not. This will earn you to upper hand in negotiations. If buyers are not excited about the house you are selling, they will be turned off by hardball tactics and most likely walk away.
When in doubt, just ask your Top Producer. Closing is the final step in this guide and it is so important for you as a first time home seller. If you have made it this far, odds are you have experienced a long journey and have worked hard to implement the appropriate methods described in order to reach the finish line. However, you have not crossed the finish line just yet. At this point in the game, you should have an exit strategy, or a moving plan, ready to go. Your Realtor will assist you with that if needed by suggesting movers. Closing entails a lot, but your Realtor will see you through the process.
A lot of sellers make the mistake of failing to complete a full set of disclosures prior to closing. They run the risk of paying a lot of money because they did not reveal it all. Be upfront and forthcoming about any of your home's issues. Being honest will save you a lot of time and money, especially if the buyers should end up uncovering problems themselves, and they usually do. Do not forget to complete a full disclosure for your property.
Closing is when the home buyer and home seller fulfill all of the agreements made in the sales contract. A more literal translation would be that it is the transfer of money and documents so that you, the seller, can transfer ownership and possession of the property free and clear to the buyer. You will pay off all loans you still carry on the house and pay all parties who contributed documents or services to facilitate the sale and the closing.
If you agreed to make repairs to the home or any other improvements, they should be completed before the closing. The exception would be if you and the buyer had a separate contract for the improvements to be completed at a later time.
There are numerous requirements and costs associated with closing that make it much more complex than just buying something at a store. Costs and requirements result from the sales contract, from traditional and local custom, and from local, state, and federal laws. A closing is also referred to as “settlement” because the seller, together with everyone else involved in the sale process, is “settling up” amongst all parties who provided services or documents to the transaction.
Closing usually involves the service of an escrow agent who acts as a third party that both the buyer and seller can trust and who coordinates the activities between each party according to the sale and purchase agreement. The duration of the steps required to close a real estate transaction is known as “escrow”.
Right before escrow is closed, the buyer and the seller receive a closing statement from the escrow agent, who lists the purchase price and all expenses associated with buying the property and how those expenses will be allocated between the buyer and seller. At closing, the expenses that either the buyer or seller are responsible are called “closing costs”, which pay for closing itself rather than for the property or any bills associated with it. Your closing costs as a seller will include various expenses, some of which are the broker's commission, the title search, any prepayment penalties accrued, and the certificate of satisfaction fee.
Do not make the mistake of overlooking any fees and expenses at closing. Home sellers throw away thousands of dollars by not requesting and confirming a list of fees beforehand. Your Realtor will review any estimated closing cost statements with you long before it is time to hand over the keys.
The main benefit to closing in escrow is that the parties and their representatives do not have to meet. They can just send the required documents to the escrow agent, who then makes sure everything is in order, then effects the settlement and the transfer. Escrow agents have the right to examine the title to make sure that there are not defects and that all conditions have been met. Once everything is in order, the escrow agent will send the seller the purchase money and record the deed for the buyer, including the mortgage if necessary.
Once all parties are satisfied and the contract is signed, a “closing date” is included. The closing date is normally a few weeks into the future to allow the buyer to get all their affairs in order. This also allows you, the seller, plenty of time to move out and finish any agreed upon projects. Once the contract closes, the buyer has the full rights to occupy the home, so you will need to make sure you are out by that time, or, if you have a problem, negotiate a working alternative recourse with the new homeowner. Some sellers are able to rent back from buyers. In some instances, depending on which part of the country you are in, the buyer only gives the seller a day or two after closing to move. In any case, before you agree to anything you have to make sure it is in writing.
You will want to prepare by having a checklist ready for your moving plan. As soon as you can, book your actual moving date. Be sure to confirm your moving date, your new address, and establish new agreements with gas, electricity, water, and telephone companies. Book a moving van, or arrange for family and friends to help you move if needed. You should have already gotten a head start on sorting all of your things and packing them away in the preparation phase before you put your home on the market, so pack up anything else you want to take with you. A great tip for packing is to make a scaled floor plan of your new place and use color coded stickers. Use a different color for each room and put the stickers on your furniture and boxes. That way those helping you move will know where everything needs to go and everything will already be in the space to which they belong.
Do not forget to set up insurance coverage for your new home, if applicable. If you are moving into a rented residence, you will have already signed a written tenancy agreement and paid a deposit. Stay alert and be aware of safety issues when moving into any new place. Check all of the doors, windows, and locks. Make sure smoke alarms are functional and you have an emergency escape plan in the event of a fire. You may have covered all of your bases, but others are not always keen on doing the same. Try to have fun and get creative by unpacking and arranging your things. Bask in your security and relax knowing you have been successful in such a huge undertaking that at first seemed so confounding. Now you know that it is possible.
Reaching closure and achieving maximum profit for your home is subject to many different variables, which is why it is critical that you have someone fighting in your corner. Your Realtor will be able to provide you with the best strategy in each step of the selling process, from how you choose to present your home to how you will negotiate terms and offers at the closing. The best method to achieve the best outcome is subjective to a number of factors, including what situation you are in and what conditions are at play. Use this advice to your advantage and set a guideline as you conduct your own standpoint.
This guide has taken you through all of the essentials involved in selling your home for the first time, including things to consider before you sell, ensuring the house is ready for potential buyers, and what to do to speed the sale of your home. The home selling process can be complicated and confusing, but with the aid of a top producing Realtor and the tips and techniques that have brought to light, it is possible to sell your home successfully. If you follow these professional guidelines, you will put yourself in a better position, giving yourself the optimal chances allowable in this fight. so understand that it will take hard work and determination every step of the way.
Everyone wants to turn a profit, but there are many things to consider that directly influence the outcome of your success in real estate, including how a home is presented and what kind of market a home is sitting in. The real estate market can be intimidating and unfair, but navigating through it with a Top Realtor using advanced tools to ensure your success will be the best decision you make. Not everyone can sell a home and turn a profit in a particular market setting due to certain conditions, but you can be sure that, if you follow the advice provided, you will receive the maximum price attainable for your home.
As you have been shown, marketing and selling homes successfully requires thoughtfulness, planning, and creativity. The advice, examples, and tools presented in this guide will advance your efforts and abilities as a newcomer in the real estate world. You can continue with your life with a cushion of security to fall on when times are, shall we say, less than favorable. It is a comforting thought knowing that your will is the way. You can settle down in a new house with new neighbors or travel to another land and meet people from an entirely different culture. The choice is yours to make. You can do anything you set your mind to, so you can sell your home with the right information. You now have that information.