Reviewing The Offer

Christee and or it’s affiliates do not offer legal advice. This article is intended as practical information only and not legal advice.

In this article, we outline the various components of the offer to purchase from price to personal property and the potential impact to a seller. We provide insight to the Agent’s role in representing the best interest of the homeowner.

Hopefully, you have hired an agent that is a skilled negotiator, to represent you, in this the most important phase of selling your home. A skillful negotiator can add thousands of dollars to your bottom-line net proceeds.

The vast majority of real estate firms use contract forms (templates) that have been prepared by lawyers and approved by the local Board of Realtors. These forms and addendums cover the most probable scenarios from contract to closing. Real estates do not provide legal advice; however, your agent should be familiar with contract forms and addendums. Should your situation present more complex issues then you may require the advice of a lawyer.

In today’s electronic world, many offers are transmitted via a link to view a PDF file. Ideally, you should want to have a face-to-face session with your agent to review the offer. At the minimum, you should have virtual call with your agent to review the offer in its totality. In this article whenever, the term ‘you’ is used we are referring to you and your real estate agent.

Considerations Beyond the Written Offer

(1) A skillful listing agent will have gathered additional insight from the buyer agent. What are the buyer’s circumstances? Do the buyer(s) have any urgency? How did they arrive at their offer price? This insight will prove helpful in your deliberations and possible counter-offer. However, you must be skeptical of the buyer’s agent representations – they represent the best interest of the buyer – not you.

(2) Your agent should have reached out to other agents that may have shown the house in an attempt to see if there other offers forthcoming. While it would be unethical, on the part of your agent, to discuss the terms of the current offer with other agents, your agent may create some urgency by simply announcing the prospect of an offer.

(3) You must be leery of buyer’s representation beyond the written offer to purchase. A really cute trick, by the buyer, is to include a letter addressed to the seller to be read prior to considering the offer. The letter will express how much they admire what you have done with the property – they truly admire you! Furthermore, they describe their little children and how much they love their new home. Blah, blah blah. The intent of the letter is to breakdown your defenses as a seller and create an emotional bond with the buyer. It’s a cleaver ploy. As a seller, you must ignore it.

(4) Real estate contracts must be written to be enforceable. However, it is not uncommon for agents to do some verbally jousting with other agents regarding your property. A skilled agent will encourage substantial offers while not violating their obligations to you. Before accepting, declining or making a counter-offer, your agent will counsel you on the prospects of eminent additional offers.

I. Price

Of course, price is perhaps the most import component of the offer. However, price can be offset by the terms. A full price offer may have unacceptable should it have a 180-day closing or is contingent upon the sale of the offeree’s home.

(a) Good Faith Money aka the Earnest Money Deposit. This is the money deposit with the offer to purchase. As a seller, it is in your best interest to have a substantial deposit. In theory, should the buyer breach the terms of the contract, the deposit will be forfeited. A large deposit reminds the buyer to act in a honest and responsible manner. To illustrate the need for a large deposit, consider a contract with a $500 deposit. A short time after the contract is ratified, the buyer is afforded the opportunity to purchase a similar property for less money. Will they honor their contractual obligations or will they simply forfeit their deposit? Would the buyer have a greater ‘moral’ obligation if the deposit was $5000 not $500. Generally, the cost of litigation is a barrier to the seller pursuing legal remedies such as damages or specific performance. The higher the deposit money the more binding the contract.

II. Terms

Beyond the price, the offer is comprised of many terms which could offset the price. Below is a brief description of typical contract terms. Today, sellers are asked to remove their house off the market knowing very little (if anything) about the buyer’s ability to perform other than a ‘pre-approval’ letter. Due to privacy considerations, today most offers do not include a signed financial statement.

1. Loan Approval. Other than cash offers, the contract will be contingent upon the buyer’s ability to obtain loan approval within a period of time. Your house will be off the market, during this period of time, thus it is vital you evaluate the probably of the buyer obtaining loan approval. Other than the pre-approval letter, you will have little or no information regarding the buyer such as; credit report, earnings, debts etc. When in doubt ask for more information.

2. Pre-Approval Letter. Far too often, contracts far apart because the buyer was unable to obtain formal loan approval after being “pre-approved”.

(a) Worthless Pre-Approval. Unfortunately, some ‘pre-approval’ letters are worthless. Some pre-approval letters are subject to (a) credit report and verification of income. In this circumstance, a mortgage company, has issued a document (pre-approval) that really should state – “based upon the buyers’ word, we have issued this worthless document. You are taking a big risk taking your house off the market in this scenario.

(b) Valid Pre-Approval. Prior to issuing a pre-approval, the lender should have obtained a credit report and evidence of income. The credit report will verify credit score, debts and any judgements. Paystubs will allow the Lender, at a minimum, to workup qualifying ratios and do a preliminary AUS submission.

In summary, read and understand the underlining terms of the ‘pre-approval letter’ carefully.

3. Home Inspection. Today, most contracts are contingent upon a ‘home inspection’. Based upon the contract language, the buyer may have clever fully submitted an option to buy subject to the home inspection report.

(a) Terms. You must have a firm understanding of the obligations, of the parties, regarding the home inspection report. Some contracts allow the buyer to unilaterally withdraw the contract upon receipt of the home inspection report – seller has no options. In other words, the home inspection report is absolutely perfect, however, the buyer can withdraw from the contract. Other contracts allow the buyer to submit the report and a list of requested repairs to the seller – in this scenario the seller has the option to negotiate the requested repairs.

(b) Type of inspections. Typical inspection is ‘mechanical or structural inspection and the contract clearly states ‘cosmetic features are not part of the inspection’. Beyond the basic inspection report there could be inspections for: (a) Chimney (b) Swimming pool or Spa (c) Radon (d) Termites (e) Mold (g) Septic (h) Well (i) Lead paint (j) Asbestos (k) Environmental Study.

4. Other Contingencies. Offers may be subject to a vast array of possible contingencies’ such as: (a) sale of another property (b) closing on another property (c) Obtaining a gift letter (d) Job transfer to name just a few. These contingencies are to protect the buyers’ interest and not necessarily the sellers.

(a) Hidden contingencies. You should review the contract for undeclared or unstated contingencies. As an example, the offer is not contingent on the buyer selling their home, however, the required money is equity in their home. If their house doesn’t close how will they close on your home?

5. Seller Concessions. If the contract allows for seller concessions, you should verify that the requested concessions does not extend the allowable limits as set forth for each mortgage type. Furthermore, you should verify the requested concessions do not exceed the buyer’s closing cost.

6. Discount Points. Discount points are paid to the Lender to either (a) reduce the buyer’s interest rate or (b) create a lender concession toward down payment of closing cost. Do other offer terms offset this additional expense?

7. Transfer Fees and other recoding fees. Generally, transfer taxes are controlled by State statue or local custom. Does the offer conform to normal standards for payment of these fees or does the contract obligate you to pay fees that would normally be paid by the buyer?

III. Time

Time is a vital criterion for all real estate contracts. Generally, contracts will define dates and time restraints as either being time being of the essence or not. A ‘time of the essence’ means that a closing date of May 24th must be legally respected, otherwise, the closing will be May 24th or as soon thereafter as possible.

(1) Closing Date. Is the closing date acceptable based upon your commitments?

(2) Loan approval. How many days are stipulated for buyer obtaining formal loan approval.

(3) Possession will be given to the buyers at time of closing. In the event, you need to remain in possession after closing then you will require a written agreement. Should you maintain, in possession, then you are a tenant and as such you should contact your insurance agent to insure your possessions are protected.

IV. Chattel Property

Chattel property is personal property and therefore are not conveyed with the property unless expressly stated in the contract. Fixtures are items, which would be considered personal property, buy due to their manner of attachment are considered real property and thus convey with the property. Examples of ‘fixtures. May be custom built-in shelving pr a built-in oven. The oven was personal property until it was annexed to the property.

Personal property would include deck furniture or the surround sound equipment. Is it your intent to convey the property with the surround sound speakers that screwed to the walls? Are the speakers considered personal or real property? Would the classification, of the speakers, change if they were hard wired or wireless? As you can see, sometimes the distinction between ‘chattel’ (person) and real property is not always crystal clear. Other examples of items that may create confusion are; (a) fireplace accessories (b) window curtains (c) window fans or a/c units (d) water softener (e) hot tub or pool accessories (f) curtain rods (g) wireless security cameras or TV wall mounts. This is not an

The standard contract form will include a section for listings those items that are included in the sale such as appliances, remote controls, window blinds, window shades, carpeting, TV wall mount, etc. However, you should specify any items that are not being conveyed that may otherwise create confusion.

You should identify any leased items, such as propane or oil tanks and water conditioning equipment, that are leased and therefore are not being conveyed.

V. Multiple Offers

You only have one property to sell, therefore, you must judicious when handling simultaneous offers from more than one person. Your agent will handle the mechanics to avoid having entered into contract with two or more buyers.

VI. The Acceptance

You have three options regarding the offer to purchase.

(1) Accept the offer

(2) Reject the offer

(3) Make a counter offer.

VII. Net Proceeds

Your agent should present you with a detailed document showing the breakdown of any costs associated with the pending offer. The ‘net proceeds’ document will include:

(1) Mortgage payoff. You will pay interest on any existing loans until the Lender has received the payoff funds.

(2) Sales Commission.

(3) Closing Cost

(4) Buyer Concessions

(5) Estimate for adjustments for property taxes, HOA or condo fees, water and other items that will be apportioned as of time of closing.

VI. Paperwork

Your agent will provide you with a copy of the ratified agreement and manage the paperwork until time of closing.