In Real Estate, Closing is Everything… How Do You Get to the Offer?
When I first started in Outside Sales 35 years ago I learned that a sale constituted a check and a contract, Period. Everything else in between was the “Sales Process” and basically a pipe dream. What I also learned was that until the product was delivered I had not done my job.
All of the prospecting, the legwork and handholding were only as valuable as the quality of my company and product along with the qualifications of the buyer.
It also meant that I needed to listen to my customer. When I was selling business telephone systems in the 80’s there were no buyers and sellers agents, it was me and the customer. We went back and forth until the needs were met on both sides.
Counter Offers were common for everything. Price, installation time frames. Service outages. You get the picture. The buyer had concerns, the seller answered and made concessions. It was the Negotiation and those terms and conditions of the offers became the Purchase and Sale Agreement.
For The Seller’s Sale Begins with “The Offer”
The Most Important thing to know about Purchase and Sale Agreement is, that until it is signed by both the buyer and the seller it is just an offer and Sellers LOVE OFFERS.
There is no reason to beat around the bush… It is Called Purchase and Sale Agreement for a Reason
Within that agreement is an offer and it contains the nitty gritty details that tell you how much the buyer will pay, how the buyer is going to pay for your house, how much time it will take and what they want from you… (those are known as concessions or contingencies) If you are represented by a real estate agent the standard agreement can be up to 20 pages deep because they try to cover every possible scenario. Then with buyer add ons, lenders requirements and all of the disclosures and you have a file close to the size of War and Peace.
As ominous as that might sound they are very simple agreements and they typically include the following items:
- Name of the Buyers and Name of the Sellers
- The Offer Price for the home
- Earnest money deposit amount and related specifics
- Property address and description
- Time frame for closing
- Terms of the sale
- The buyer’s contingencies (buyer demands if any)
By design they are supposed to outline the details of the offer from the buyer that makes it easy to see how the buyer is proposing to buy your house.
A simple example is:
- Bob and Betty Jones would like to purchase your house located at
- 222 W Elm St, Stockton, CA for
- $250,000 and
- Will close within 45 days
- Earnest Money Deposit of $1,000 upon acceptance
- Sale is Contingent upon FHA Financing (see pre approval letter from XYZ Mortgage Attached) and require 21 days for approval with 123 Mortgage Company
- Buyers Will order inspections of the house within 14 days
- Seller will pay for $500 home warranty from ABC Home Warranty
- Seller to Credit Buyer $5000 for closing cost
- Balance Due at Closing
- Title Company XYZ
What Now? Do you like it? Are you wondering why they want a $5,000 credit from you to pay for their closing cost? What is this Home Warranty about, because we are selling as is? Why Do they want me to pay for it?
What Do You Do When the Offer is Not What You Want?
Perhaps the most disturbing thing that I discovered over the past 11 years is that very few real estate agents understand the real Power of the Offer. It goes back to the sheer numbers of real estate agents in the market that just are not trained. Or maybe its because of the high turnover in real estate agents as 87% wash out within their first five years. Another frightening statistic is that nearly 40% of all real estate listings represented by an agent never receive an accepted offer before the listing agreement expires. That is a big number that is not talked about by most agents. Experience matters and yet most agents that come into real estate, lack not only sales skills but also any background in negotiations. It is why it is so important that a seller that hires an agent, hires the best.
The best real estate agents know that no matter what the initial offer, sellers have lots of options. I know on the surface it looks like you either accept or reject an offer, but if you want to really find out where the buyer is coming from you need to ask. I recommend that you step back and think like the buyer and try to understand what they are trying to accomplish and at the same time not lose sight of your goals.
The other thing that you need to do is NOT Panic. Unless it’s your first offer in 3 months… It probably won’t be your last offer. Look at what the offer says… what do they want as far as pricing? Repairs? Inspections? Financing? Downpayment? Conventional or FHA lending? There is so much to learn from the offer… think outside of the box. Think about any common themes that may be present from this one offer as compared to any previous offers. Repairs… inspections or real estate agent comments. Anything? Then there are options….
You Can Accept the Offer as it stands…
You can Ignore the offer
You are under no obligation to speak with any of the buyers or their agents regarding the offers that you receive. Sometimes that in itself is a great negotiation technique. People that submit offers want to know what the status is and that means that they can call first. If they do, it is an opportunity to probe them, tell them what you are really looking for or why wait? You can beat them to the punch and…
You Can Make a Counter Offer
During the Sales process, there are very few tools as potent and more powerful than accepting a buyer’s offer with a counter offer. Did you hear what I said? You ACCEPT their offer but with your conditions (your changes) by replacing some of theirs. Remember you have no idea yet what is really important to the buyer, except that they like your house. I recommend that you test the waters in a very positive way.
With that counter offer, you get to speak directly to the buyer, albeit on paper. Let’s say that you received an offer for $250,000 for your house that was listed at $255,000. The buyers wants to secure a FHA loan and he wants you to take the house off of the market while they negotiate with their lender. In their initial offer the Buyer delivers a pre-qualification from his lender that says he qualifies for $280,000. Let’s also say that the buyer wants a $5,000.00 seller credit to cover their closing cost with 45 days to close and a home Warranty paid for by the seller not to exceed $500.00.
In evaluating the offer you look at everything including how much the buyers were approved for. You tell your agent that you want to speak to the lender directly to see how qualified (from a credit and documentation of income perspective) the buyer really is especially if they are looking for a discount and a closing cost credit. You personally call the Mortgage Company and they tell you they are fairly confident about the buyers credit and getting a loan approved but that they insist that they need 45 days to close. You look at the pre approval letter from the lender and it states that the buyer is pre approved for up to $280,000. So, you think, I want to sell but… I dont want to accept an offer where the buyer has just discounted my house $10,000.00 (including the $5,000 closing credit) and the lender wants 45 days to close.
So you fire back the following Counter Offer stating that you accept their offer with the following changes;
- The sales Price will be increased to $260,000 (to accommodate the buyer requested $5,000 credit),
- all inspections will be completed within 7 days
- the appraisal will be ordered within 5 days
- Buyer must find another lender: Seller will not work with 123 Mortgage Company as they insist on 45 days to close (your agent will have a recommendation)
- the buyer or buyers agent will deliver to seller a copy of all inspection reports on the date that they are received by the buyer
- the buyer or buyers agent will deliver to seller a copy of the appraisal report on the date that they are received by the lender
- The buyers authorize the lender to communicate directly with the seller and the lender agrees to keep the seller up to date regarding any delays, requests for additional documentation from the buyer or conditions that the lender may have. The lender also agrees to notify you of any delays or potential delays at each step of the process.
- Seller will pay $500 towards the cost of a Home Warranty
- Closing to occur within 30 days.
- Commissions will be paid on Net Sales amount (total sales price minus and seller credits)
With your counter offer you have basically reset the sales process and the sales price back to $255,000 and put the ball back in the buyers lap. It is Now Their Move! Remember this is a game of chess not checkers and the vast majority of buyers and buyers real estate agents play checkers. More often than not, they will accept your counter offer or reply with a buyer counter offer. This is called the Negotiation and do not allow your real estate agent to talk you into something that you are not comfortable with. PERIOD! It is NOT their EQUITY!
This counter offer is no rookie move. It has saved many sales. I developed it over the past 11 years and I have never had a buyer reject it outright without a counter offer from them. These counter offers always start the real conversation and I would say that it is also ironic that I have never had a listing agent that represented me, suggest a counter offer as extensive as this. In fact most think that it is too extensive and will turn off buyers… They have always been dead wrong. They are powerful because you get to to find out right away how serious your buyers are about your house.
Remember, a Purchase and Sale Agreement is just an Offer. When it is signed by both parties it becomes a Contract and it governs the sale.
My name is peter Westbrook and I am a real estate investor in Stockton, Sacramento and Modesto CA. I make a living buying and selling houses and I have learned that there is only one person that can protect your asset… YOU! Selling a house in any market, especially in this sellers market, means that you have the advantage. Don’t relinquish that advantage by giving control to anyone. Maximize it by knowing just how your house can compete. If it is old tired and suffers from years of neglect and deferred maintenance, market it accordingly… It is the only way that the buyers that would be interested will ever see your house.
Here is Your To Do List
Decide on the criteria that you want to see in the offer
Ask yourself what’s most important to you. For example, do you want to sell quickly and get a fast closing date? Maybe you want to get the most out of the house in terms of the sales price… Both might be important to you, but one of them will be more important, so determine which is most important for you.
Second, think about what you want for your Baseline price (the price that is your bottom line).
In a seller’s market, you may get a higher price than anticipated but it’s also very common for sellers to overestimate the price they think they’ll get for their house. Unfortunately the Comparative Market Analysis is an estimate and the house will still need to be inspected and appraised. If the appraisal comes in lower than the sales price you need to either lower your price or renegotiate with the buyer for more cash to make up the difference. Determine your baseline price. Chances are, you’ll get an offer somewhere between that and your asking price.
Third, think about the Closing date you want and consider any flexibility you have.
Most Sellers want to sell right away, but the offers that you are receiving are lower than anticipated. Do you extend the time to sell hoping for better offers or are they pretty much consistent with each other and indicative of what your house is worth? If you hold out for more money, will you just end up lowering the price in 30 days anyway and end up spending even more money in terms of holding cost?
Fourth,remember that you’re still the seller.
Even though it’s a seller’s market, the buyer is still the one with the money and they can easily decide to buy a different house. You need to determine your priorities and which terms and conditions are absolutely imperative for you and which ones you’re more flexible on. What if a buyer has the cash without contingencies and is willing to close within your preferred timeline? Would that be a better option? Should you look at it?
What Makes Sense?
In a seller’s market, it’s often thought that the seller has all of the advantages but, there are times when you might want to sell now instead of putting your house up for sale, fixing it, updating it, cleaning it up, and seeing what buyers will offer.
You have options and Counter Offers are a series of conversations that help you and the buyer flush out different ideas and nail down the details towards that sale. It really is that simple.
Sell My House in Stockton The Counter Offer.
Sellers should humbly accept that houses come in all shapes and sizes with different kinds of issues that determine its actual condition and value. Buyers are skittish and if they perceive a problem, they walk. Real Estate Agents are no different and they have vastly different levels of experience with different types of houses. The truth is that most real estate agents have no experience in selling distressed houses at all and their abysmal performance in selling them is obvious.
Here is another fact… Unless your house is in move-in, near-perfect condition and is priced right, the average buyer is going to pass. The truth of the matter is 98% of all buyers are looking to buy houses that are move-in ready, that need no repairs or updates, which is also evidenced by the fact that over 98% of all buyers order home inspections and expect the seller to pay for the repairs.
If you have a house with any problems whatsoever, what are the chances that you are really going to pull a fast one on the buyer, the inspectors, and finally the bank?
So in a world where buyers are looking for move in ready and sellers are looking to cash out, the only thing that they have in common is a real estate agent that is trying the best they can to match things up and as the above statistics point out, it works only 60% of the time.