Read The Entire Offer to Purchase
Here in Michigan, real estate companies all have different Purchase Agreements. I wish we had a uniform Purchase Agreement like some states, but we do not. The purchase agreement you will receive on your sale is typically not from your agent’s brokerage, but a competing broker. They won’t be as familiar with it as they are their own.
Most conflicts in real estate occur due to something unread or misunderstood; this is an easy fix.
Have your agent go over it paragraph by paragraph so you understand what you are signing and there’s nothing hidden in there. There is a company in my area that has a tiny little sentence buried in their fine print that states the seller will purchase their company’s home warranty. There’s another company that automatically includes kitchen appliances. If you are not reading the fine print, you will miss it. I think that’s the intent. I read everything. Every time.
Negotiate All of the Sticking Points at The Same Time
Agents have a tendency to go directly to the price and negotiate that first. Once an agreement is reached, they will go back and address all the other points; this is a poor negotiating strategy.
Having a meeting of the minds on price and going back for additional rounds of negotiations gives the impression that one is not negotiating in good faith. It makes people feel cheated and creates animosity.
All of the sticking points of the offer should be negotiated at the same time.
How to Handle a Bidding War
A bidding war happens when multiple buyers are competing to win the bid on a home. Bidding wars are awesome if you’re a seller, frustrating if you’re the buyer.
If you are fortunate enough to have a bidding war on your home, the manner in which your agent handles them is crucial. If the buyer gets too frustrated, they will leave the table, and the seller could lose money.
Sometimes after winning the bid, the buyer regrets paying as much as they did and backs out citing some bogus inspection issue. The fall-through rate on an accepted offer is higher in a bidding war, as buyer’s remorse is more significant.
To effectively manage this situation, your agent needs to use both tact and diplomacy while negotiating, especially with the buyers who initially lost the bid. It is not unusual for the sale to go to the second or third buyer who offered in a bidding war.
There are strategies to protect you and make the most of this situation. Again, an experienced agent is pivotal in this circumstance.
Your agent will take you through what to expect at offer time, but you can expect to see at least the following two contingencies in an offer:
- A financing condition, which makes the purchase contingent upon the home appraising for the full offer amount and mortgage approval.
- A home inspection condition, which allows the Buyer to bring in any and all inspectors of their choosing and at their expense to inspect the home.
Typical inspections may include a general home inspection, pest, radon, and any inspections the buyer desires including trade specialists, such as furnace or roof contractors.
All the inspections should be concluded within 7-10 days of the date of acceptance of the offer.
Other Points of Negotiation
Of course, there is a lot more to negotiate other than financing and inspections:
- Price – Consider carrying costs if the closing date is extended.
- Seller concessions – Expenses the seller covers on behalf of the buyer, such as paying a portion of their closing costs, waiving tax pro-rations, etc.
- Closing date – it should be noted that closing dates in the purchase agreement should be respected if at all possible, but they are “targets”, not “drop dead” breach of contract dates.
The courts have ruled that closing dates are not considered breach of contract dates, because you cannot legally obligate a third party to a deadline. Since the closing is also dependent on a mortgage lender and title company, the buyer is not responsible if they are not ready to close on time.
Short extensions are common, and you would be wise to anticipate them.
We recommend 50 days from offer acceptance as a reasonable amount of time for everyone to be able to close.
Finding a buyer is sometimes the easiest part of the transaction. Getting to the closing table is often the most challenging. Stay calm, build in little margins of time, and be cooperative. You’ll get through it.
- Occupancy Date – Date keys are surrendered, and utilities are assumed by the buyer.
- Inclusions – Personal property included in a purchase agreement. Common inclusions are appliances, mounted TVs, speakers, window treatments including draperies, play gyms, hot tubs, etc.
- Earnest Money Deposit (EMD) – This is the amount the buyer is willing to risk should they change their minds and default on the purchase. We wrote extensively about the earnest money deposit here.
In the terms of most purchase agreements, and under certain time constraints, the deposit may be refunded to the buyer under the following circumstances:
- Dissatisfaction with inspection
- The mortgage is declined
- Appraisal fails
Review the details of your purchase agreement with your attorney or agent. Make a note important dates, deadlines, and details. Don’t depend on your agent for inspection, legal or tax advice.
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