What You Need to Know about Negotiating
Once an Offer comes in from a prospective purchased, you will need to make some decisions about its price and terms. Ask me as many questions as possible. The questions below are a good place to start.
· What do I do when an offer comes in? And, what about multiple offers?
· Are any other buyers ready to make an offer?
· Does the current offer outline both price and terms? And, are the dates for performance acceptable?
· What are the requirements under Massachusetts law that make an offer legal?
· Can I make a counter offer?
· Is the buyer asking for any contingencies that disadvantage me?
· Is the buyer’s request for financing reasonable?
· What is the best strategy for getting the buyer to meet my price?
BIDS & OFFERS
From Your Perspective
When selling your home, there are two main factors to consider: how much are you willing to accept for your home and in what time frame do you have to sell it. The price of your home will play a big part in how quickly it sells. Therefore, it is important to price your home based on its true market value. A good agent will help you set a price that is fair to both you and the home buyer. For more detailed information on pricing a home, reference the "Pricing Your Home" article.
Legally, an agent representing a buyer must present all offers to you, regardless of the amount. Take all offers seriously, and do not be offended by low offers. It is always your decision to accept or reject an offer.
When prospective buyers make offers they may include contingencies for certain events. For example, they will buy your home when their current home sells. Or, they will buy your home if you repair the roof. Often, earnest money is given as a non-refundable deposit to show the seriousness of the offer. You also have the right to include contingencies to the contract, such as allowing you to continue to market your home in case the contingent offer falls through. By including a "kick-out" clause, if another bid is made during the contingency period, you can accept that offer after giving the first buyer notice of the new offer and time to respond.
If you have multiple bids, it is up to you which one to accept. If one buyer makes a higher offer but includes several contingencies, you may find it more advantageous to choose the buyer with a lower bid who has no contingencies. Legally you can not discriminate against a buyer because of race.
As a seller, use the following guidelines:
· Let the Realtor® do the negotiating.
· Look at all offers seriously.
· Don't get emotional over offers.
· And don’t focus just on price, dates and terms are important
· Be open-minded to all prospective buyers.
· If you make a counter offer, make the best one possible.
· Don't judge buyers by appearance.
Buyers should be aware that traditionally the agent who is working with the buyer has legal responsibility to the seller of the home because the commission is paid by the seller. The buyer's agent is a "sub-agent" of the seller's agent. The "sub-agent" has disclosure responsibility to the seller even though they are helping the buyer. This means if you make an offer but tell the agent you would be willing to pay more if the offer is rejected, your agent must reveal this information to the seller if asked.
You need to be aware that the “old” system where the agent working with the buyer is still a “sub-agent” working on the sellers behalf is finished. All agents working with buyers, with very few exceptions, are mandated to work on behalf of their buyers. This "buyer agency" means that the agent working with the buyer is contracted to work exclusively for the buyer and has legal responsibility only to the buyer
Typical Contracts for Selling Your Home
Selling a home can seem like a daunting task to many. This transaction is the largest investment in most people’s lives and requires both financial and legal expertise. Although many residential real estate transactions are relatively straightforward, it is a good idea to have a basic familiarity with the legal issues involved to avoid problems.
After finding a house a buyer wants to buy, usually with the help of a agent, the buyer will sign a document called an Offer to Purchase. This offer is typically a legally binding contract. When it is accepted and signed by both parties, the buyer is obligated to deliver the purchase money and you as the seller are obligated to deliver the deed on or before the closing date as outlined in the offer. This document contains several important provisions:
1) Price: Most obviously it contains an offer to pay a certain price for your property.
2) Deposit: the offer states the amount of the deposits that will be included to validate the offer. Typically, the initial deposit which accompanies the offer may be a modest $ 500 to $1,000. The secondary, or main, deposit is usually the balance of 5 percent to 10 percent of the purchase price. This latter amount is typically due at the signing of the Purchase & Sales Agreement, or within a 10-day period.
3) Home Inspection: the offer states that it is contingent on the outcome of a home inspection. This is done by the buyer. In the event it is discovered the house has structural or unacknowledged issues, the offer will be revoked and the deposit returned. A termite and woodboring insect inspection will also be done, but is not part of the official home inspection done by the buyer. In fact, the termite inspection is usually paid for by you’re the seller and is done near the impending closing. If your house has a private sewerage system, Massachusetts requires that the system pass a Title V septic examination.
4) Purchase and Sale Agreement: the offer usually states that it is conditioned on a satisfactory purchase and sale agreement. However, this clause isn't enough to terminate the agreement if problems do arise in negotiating the Purchase and Sale Agreement. As this agreement is usually written by the parties’ respective attorneys, agreement on miscellaneous terms can cause delays in signing, therefore Massachusetts courts have held that the initial written offer remains valid.
5) Mortgage financing: the offer usually states that the sale is contingent on the buyer obtaining a mortgage. It specifies the amount the buyer intends to borrow, the deadline for applying for the loan, and the deadline for getting approval from the bank.
Purchase and Sale Agreement
After both the buyer and seller sign the offer, another document called the Purchase and Sale Agreement is drafted, usually by the attorneys representing each party starting with the seller’s attorney sending the buyer’s attorney a draft of this document. This agreement is a long document which fully defines the rights and obligations of the parties. This is an important document and it is a good idea to discuss it thoroughly with your attorney before signing it. In general the purchase and sale agreement contains:
1) Parties: all of the people who hold title are likely to be included. The buyer’s attorney and/or the bank’s attorney will do a title search to ensure no one else has a claim to the property. A common problem involves people who have died but are still in the chain of title as an owner of the property. The bank will require title insurance to cover the amount of the loan, and the buyer may buy insurance for the remainder. For example, if the bank loan is $150,000 on a $200,000 home, the bank will only have insurance on $150,000 and the buyer may buy insurance for the remaining $50,000. Note all title insurance fees are paid for by the buyer.
2) Description of the Property: The property should be fully described. This includes not only the house and the lot size, but also everything included with the house; items such as refrigerators, shrubs, and chandeliers. Many deals have fallen apart because someone thought the garbage compacter was included. The general rule is that anything attached to the property such as lighting fixtures and dishwasher are part of the property unless the Purchase and Sale Agreement specifically gives you the seller a right to those items.
3) Insurance: make sure your home is adequately insured in case it is struck by lightning before the deed is delivered.
4) Mortgage Contingency: This clause is in both the Offer and Purchase and Sale Agreement. Make sure it is clear how long the buyer has to secure a loan. Make sure it is spelled out what constitutes a denial by a lender. Since banks are increasingly stringent in requiring documentation, it is a good idea to prepare for delays and clearly articulate procedures for extending the period the buyer has to get financing. Fortunately, many buyers are prequalified or preapproved when they sign the purchase and sale agreement.
5) Deposit: A second deposit is typically due when the Purchase and Sale Agreement is signed. This deposit is usually 5% to 10% of the purchase price. All deposits are held in escrow.
The closing is when the deed is delivered and the purchase price is paid. The buyer brings a certified check for the down payment. The buyer is also responsible for a number of closing costs. These costs include the points on the loan which are fees charged by the bank for lending money. A point equals one percent of the loan amount, thus on a $200,000 loan, one point would be $2000. The buyer is also responsible for paying legal fees to his or her own attorney and to the banks. Other costs to the buyer include prepaid taxes, insurance, utilities, and fuel, etc. Of course, you as the seller will pay for your own attorney.
Note that sellers don’t usually attend the closing on their own property. Your attorney usually will have you sign the deed in the days leading up to the passing of papers and then on the day of the closing meets the buyer’s attorney at the Registry of Deeds and exchanges the deed for the proper amount of money.
The buyer has most of the burden of the closing as his or her attorney typically does much of the preliminary accounting and arranges with the lender for the proper paperwork. In fact, there are a large number of forms at the closing including truth-in-lending statement from the bank, the terms of the note and the mortgage, the certification of title, as well as the plot plan and the deed description. The closing, then, is usually spent with the buyers going over and signing with their attorney this paperwork.