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For many sellers, the sale price is all that matters when it comes time to review an offer. But there is more to an offer than the price. A residential purchase agreement—the technical name for an offer—is a legally binding contract and it encompasses all the terms and conditions that will apply to the sale transaction.
Recently, a Piedmont seller received three offers to purchase his home. One was for significantly more than the asking price. However, the terms were less than desirable.
The offer included a commission to the buyer's agent that was higher than the seller had agreed to pay when he listed the property for sale. The offer provided for the seller to pay the entire city transfer tax, which is normally shared 50-50 by the buyer and seller. And even though the sale was "as is," the buyers wanted the seller to pay to have work done.
After taking the terms into consideration, the over-priced offer wasn't over-priced at all. The seller rejected the offer because the buyer's agent indicated that the terms were not negotiable.
The price of the second offer was acceptable to the seller, but the buyers were nervous about their own house selling. The seller wasn't willing to accept an offer that was contingent upon the sale of another property, so that offer was also rejected.
The seller ended up accepting the lowest of the three offers. The winning offer was from well-qualified buyers who didn't have a home to sell. Their offer was what real estate agents refer to as a "clean offer." A clean offer is one that is relatively free of complicated terms and conditions.
The buyers in the above example were pre-approved for a mortgage, so their offer didn't have a financing contingency. They were confident of the property's value, so they didn't include an appraisal contingency. The only contingency was a five-day inspection contingency, and the offer promised a quick close.
HOME SELLER TIP:
The highest priced offer is not always the best offer. Before jumping to a conclusion based on price, be sure to review all the terms of the contract. If you receive a contingency-free offer, be sure that the buyers understand the significance of making an offer without contingencies.
For instance, if the offer doesn't have an appraisal contingency, ask what the buyers will do if the house appraises for less than the purchase price. Make sure that the buyer is willing and able to put more cash down if necessary. You don't want to end up in a situation where the house doesn't appraise and the buyers back out.
Think twice before accepting an offer that doesn't have an inspection contingency. Recently, a Montclair seller accepted such an offer from first-time buyers who were bidding in competition. To out-bid the competition, they offered $150,000 over the list price, with no inspection contingency. After their offer was accepted, the buyers had second thoughts about having the property inspected. They subsequently had the property inspected, found defects and backed out of the deal a few days before closing.
Consider countering an offer that doesn't have an inspection contingency to give the buyers a short period of time to do inspections. This way, inspection related issues could be resolved early on.
THE CLOSING:
If you're lucky and you receive an all-cash offer from a buyer who can buy without a mortgage, be sure to include a provision in the contract that requires the buyer to quickly provide proof of the funds required to close.
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