Entertaining Purchase Offers
Any day now, a potential buyer, or a buyer's agent, is going to call you or your agent and say they would like to present an offer to purchase your home. You set a time and place to meet - probably at your place - and start dreaming.
Will it be a full-price offer? An offer above the listing price?
- Remember this is a business deal.
Read through a set of documents so you'll know in advance the terms used in an offer, a purchase and sale agreement, inspection reports, and closing papers. The appropriate forms vary from state-to-state and town-to-town. Get them from an agent, attorney, office supply store, or off the Internet. Just make sure they're tailored to where you live. It's a good idea to understand the Fair Housing Act as well, so you are reminded not to discriminate against a buyer for such things as race.
So What's in an Offer?
First of all, a legitimate offer is in writing and it's dated and signed. It could be as simple as something scribbled on a piece of paper, although not likely. Offers usually are presented on a form common to the area where you live.
In PA a full purchase contract must be filled with every offer. It usually includes:
- A purchase price - probably not your full listing price unless it's a hot seller's market
- A statement describing how the buyer plans to finance the purchase
- A request that you agree to an inspection by a buyer-hired inspector
- The requirement that a satisfactory contract be reached - a multi-page purchase and sale agreement or whatever the document is called in your area
- A deadline for accepting the offer - up to 48 hours is typical
Note: State and local laws differ, as do the forms for making an offer and drawing up a sales contract. Thus the offer you receive from a buyer may cover more than the basics listed here.
Earnest money: The offer should be accompanied by a check, called the good faith deposit, or earnest money, that tells you the buyer is serious about negotiating with you.
Some experts say the larger the check, the more serious the buyer, and advise a check from 1 to 10 percent of the purchase price. In other parts of the country, a check for $1,000 is customary. Check on the custom where you live. The buyer will forfeit the deposit if she doesn't live up to her obligations, so from the seller's point of view, the larger the check the less likely the buyer will walk away.
Pre-approval letter: If the buyer has been pre-approved for a mortgage loan, a letter from the lender should be attached to the offer. Remember that being pre-approved is better than being pre-qualified. As the seller, you can assume you are dealing with a viable buyer whose financing will come through quickly. And it doesn't hurt to have your agent call the lender to verify that the letter is bona fide.
Reacting to the $$$ Offered
A smart buyer listens to advice and is unlikely to insult you with a low-ball offer. A know-it-all, make 'em bleed buyer could very well hand you an offer so low you want to tear the offer into tiny pieces. But remember, an offer - any offer - is better than no offer at all.
Word to the wise: Remember, you want to move to another home and you need to make a deal to sell the one you're in now. Think about your negotiation strategy before knee-jerk dismissing the know-it-all.
Curb the Emotional Reactions
If neither you nor the buyer have an agent negotiating for you, you may overhear things that leave you seething inside. Say, for example, the would-be buyer drags her best friend along and tells her that she plans to spray weed killer all over your prize-winning organic garden and, for sure, will tear down that ugly fence you had custom made by a local artist.
How will you react? If you can't stay calm, remove yourself from negotiations. Your agent will handle it, or if you don't have one, make a deal with one for a less than standard commission if she'll take on the negotiation and closing parts of the transaction. Or hire an attorney to do so.
Real Life Example
Who: A couple enjoying a robust return on their investments
The problem: They found they were overextended when they built their dream home. When the economy faltered, reality hit. They needed a smaller, less expensive property. So with heavy hearts they put their "dream" on the market.
The offer: At their very first open house, a couple walked through the door and fell instantly in love. They appreciated every special detail the sellers had created. They made an offer at an acceptable price contingent on getting financing.
The back-up: The sellers also accepted a back-up offer, just in case the first deal fell through. They could not abide the second-in-line buyers. They barely noticed the details the sellers most loved about their home. They had no appreciation for the native-plant garden. They had unruly, undisciplined children. The sellers knew their beloved dream home would be in nightmare condition in months.
The acceptance: Alas, the first couple could not get financing so the couple sold to the family that made the second offer. Months later they still avoided going anywhere near their cherished home, saying, "We didn't like our buyers."
The lesson: Don't let your dislike of buyers kill a business deal that works for you.
How to Accept an Offer
When an offer comes in, you can accept it, reject it, or make a counteroffer. If you want to accept an offer as-is, you simply sign and date it in the appropriate space and return it to the buyer or the buyer's agent by the deadline.
You are most likely to accept the first version of an offer if it's one of many you received in a bidding war or if you are desperate to sell and have only this one buyer in sight. More likely you will make a counteroffer attempting to get more money for your home and perhaps changing some of the terms.
When you and a buyer both agree on content and sign and date an offer to purchase, you are legally bound to proceed to the next step. Your house isn't sold yet, but it is off the market for all practical purposes. At this stage you have a "pending sale." You still can accept "backup offers" in case your buyer doesn't get a loan or the inspector finds a problem and the buyer backs out. However, you are obligated to pursue the deal with the first buyer.
Things still can go wrong after accepting an offer. The fat lady doesn't sing in a real estate transaction until the deal is closed and recorded at the appropriate government office. At this stage, she's still warming up her voice.
Play It Again Advice
- Review the entire packet of forms used in your community's home sales transactions before you accept an offer and start negotiating a contract. Yes, you must read the fine print!
- Don't forget the big picture - your own bottom line - when you evaluate offers.
Next article: Seller Purchase Agreements and Contracts
Previous article: Negotiating Goals for the Seller
- Negotiating Goals for the Seller
- Seller Purchase Agreements and Contracts
- Structuring a Seller's Counteroffer
- Last edited October 12 2012
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