ACCEPTING AN OFFER

Negotiating an Offer

At this point, you have done a nice job keeping your home tidy for all showing requests, and you have now received an offer on your home.  There are 7 key terms that define “most” offers.

1. Price – This is the term that most of us jump to right off the bat, and while it represents the “top line”, it is very important to understand how the following 5 terms below impact the solidity of the offer.
2. Seller Paid Closing Costs –  Is the buyer asking you to pay for any of their closing costs?  Technically speaking, the buyer always pays their own closing costs…they either pay for them in full at closing, or they finance them into their offer.  If they finance them into their offer, what’s really happening is that they are offering you a “net” sales price and then “financing” their closing costs on top of that “net” offer price.  For example, if you receive a $200,000 offer with 3% applied to buyer closing costs., this is really a “net” offer of $194,000 on your home, and the buyer is then financing the remaining $6,000 on top of their offer.  It’s important to think in terms of the “net” offer, as it then removes the confusion of any seller paid closing costs from the discussion.
3. Pre-Approval Letter – There should be a pre-approval letter included with the buyer’s offer.  This letter signifies that a qualified lending institution has collected all of the necessary financial documents from the buyer to determine their financial eligibility to purchase your home.  Without a pre-approval letter, an offer holds little merit.
4. Earnest Money Amount – It is most common for buyers to offer earnest money in the amount of 0.5% – 1.0% of their offer amount.  The higher the earnest money amount, the more implied commitment/interest the buyer has.  The buyer’s earnest money is fully refundable during their inspection window, but the earnest money then becomes forfeitable to the seller should the buyer back out of the sale for any reason outside of the allowed Financing Contingency.
5. Closing Date – Does the closing date align with your future moving goals?  Does it give you enough time to find your new home?  Or maybe you’d like to close sooner than the buyer is proposing?  This is a very negotiable term, so don’t be afraid to propose a different closing date.
6. Home Selling Contingency – Does the buyer have a home to sell before they can execute the purchasing of your home?  If so, this is typically a red flag.  This means that the buyer is not able to purchase your home “unless” they first sell their own house.  And you will have zero influence or control over that sale…so it could sell quickly, or it could sit without ever selling.
7. Type of Financing – This is such a critical term, as it will help define the success of the sale in the latter stages of the transaction.  From seller’s perspective, the least attractive type of financing is FHA and VA (veteran) financing.  FHA financing requires an FHA appraisal (which tend to be more conservative than conventional financing appraisals), and it requires the property to pass the minimum FHA safety inspection (i.e. no peeling paint, handrails on 4 or more steps, no exposed wiring, aut0-reverse sensors on garage door, etc).  The VA financing appraisal process is nearly identical in rigor.  Conventional financing, on the other hand, is the most attractive type of financing, and it poses the least risk through the appraisal process of all financing types.