Negotiating and Closing...
There is no question that selling a property is an important event. Big money is involved. Households move from the known and comfortable to the unknown and a period of adjustment. There may be job changes, new schools, distance from old friends and the possibility of new ones.
No less important, there will be documents to sign and issues to be negotiated.
What's an acceptable offer?The goal of every seller is to have a line of buyers, each clutching higher and higher offers. And while this has been known to happen, in most markets there is some balance between the number of buyers and sellers. A number of factors determine whether a buyer's offer is acceptable. They include:
- Is the offer at or near the asking price? Is the offer above the asking price?
- Has the buyer buried thousands of dollars in discounts and seller costs within tiny clauses and contract additions?
- What is the alternative to the buyer's offer? If a home has not attracted an offer in months, then sellers need to determine if a better deal is possible -- recognizing that each month costs are being incurred for mortgage payments, taxes and insurance.
- Does the seller have enough time to wait for other offers?
- What if no other offers are received?
- What if several offers are received? Do you choose the high offer from the purchaser with questionable finances who may not be able to close, or a somewhat lesser offer from a buyer with pre-approved financing?
In each case, sellers will need to carefully review offers, consider marketplace options and then determine whether an offer is acceptable.
What is a counter-offer?When a property is made available for sale, the owner is essentially making an offer to buyers: For a given number of dollars and other terms you can acquire this home. Buyers, in turn, can respond with several options:
- Not interested.
- Yes, we'll buy on the owner's terms.
- We're interested and here's our counter-offer.
A counter-offer is nothing more than a new offer. And just as the buyer had three options in response to the owner's original price and terms, the seller can now choose one of three reactions: accept the offer, decline the offer or make a fresh counter-offer. Offers and counter-offers reflect the back-and-forth activity of the marketplace. It's an efficient and practical process -- but also one that may contain tricky clauses and hidden costs.
How do you negotiate?It's sometimes argued that negotiation must produce one "winner" and one "loser." Others suggest that a "win/win" situation is possible where each side gets something of value.Real estate bargaining typically involves compromises by both sides. It's not war; it's not winner-take-all; and it's not the time to take personally any comments made by purchasers.Instead, negotiating should be seen as a natural business process; buyers should be treated with respect; and owners should never lose sight of either their best interests or their baseline transaction requirements.Remember, negotiation is not always about price – discussion regarding dates / terms, and contingencies can be equally powerful and important.Closing…It might seem as though once a sale agreement has been signed that the selling process is complete. Not only is it not over yet, but some of the most complex aspects of a real estate transaction now begin...
A Purchase & Sale agreement sets not only a purchase price for the home, but also a series of terms and conditions. For instance:
- Contracts routinely depend on the ability of a buyer to obtain financing, which is why most sellers prefer buyers with pre-approval letters from lenders.
- A growing percentage of transactions involve a home inspection, or a physical review of the home by a trained and independent observer.
- Lenders will establish numerous conditions before granting a loan. They will want a title exam, title insurance to protect against title errors, termite inspections, surveys and an appraisal to assure that the home has sufficient value to secure the loan.
When should you close?With automation now available, closings can occur within a week in some areas -- at least in theory. In practice, it takes time to arrange financing, conduct inspections, obtain appraisals, pack and actually move. In reality, 45 days from contract to close is realistic.While instant closings are not practical, neither are closings too far in the future. The problem with closings over 60 days is that loan rates are difficult to lock in. If mortgage rates go up, it's possible that the buyer will no longer be able to afford the home and thus the deal may fall through. What happens?Closing -- or "settlement" or "escrow" as it is known in some areas -- is essentially a meeting where the closing agent (in our region this is usually an attorney) takes in money from the buyers, pays out money to the owner and makes sure that the purchaser's title is properly recorded in local records along with any mortgage liens. The closing agent reviews the sale agreement to determine what payments and credits the owner should receive and what amounts are due from the buyer. The closing agent also assures that certain transaction costs are paid (taxes and title searches). Closing is also the time when "adjustments" will be made. For instance, suppose you've pre-paid taxes four months in advance. In this case, the closing agent will compensate you for the prepayment at closing by having the buyer pay you additional money.
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