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What is the right offer for my home?

By Trulia | Published: Oct 14, 2009 | 6 Comments

It finally happened. You received an offer on your home! But is it the right offer? Should you accept it or should you tell the potential buyer to go fly a kite? What is your best strategy? To help answer these questions let's take a look at how experienced negotiators handle a negotiation.

First, savvy deal makers establish a decision touchstone as a guide to a successful negotiation. In ancient times, a touchstone was a literal stone, such as jasper or basalt that was often used to test the quality of gold or silver. Likewise, today your decision touchstone can test the quality of a buyer's offer.

To build your own decision touchstone, first identify what housing goals you wish to accomplish as a result of your home sale. For instance let's look at Susans goals, she has three:

  1. Net $30,000 - $50,000 from the sale of the home.

  2. Relocate to her new job by no later than June 30th.

  3. Have the fewest headaches possible. (A cash sale would be great.)

Susan knows what she wants and has taken the time to think about what her most important priorities are before she receives an offer. Her number one goal is to net $30,000-$50,000 dollars from the sale of her home. Notice that she hasn't named a specific number. Why? Sellers who set a price in concrete often face disappointment and frustration by not giving themselves the opportunity to flex on other issues. For instance, what if a buyer rolled in who offered cash (fewer headaches), would agree to close by June 1, but would only agree to pay her enough to net $42,000 from the sale. Susan has wisely discovered that expert negotiators look at each offer in the context of their entire priority list rather than just according to one item.

So even when you revisit your decision touchstone, what if you're still left scratching your head? What then? Reject the offer? Not yet. The next step is to ask your self - What if? For instance, a wise seller might ask themselves: What if I don't sell my home to this buyer - what is the next best possible outcome? And the reverse: What if I don't sell my home to this buyer - what is the worst possible outcome? In today's market, real estate offers are a rare commodity and assuming that another one is just around the corner is a dangerous mindset to adopt. Because of this savvy sellers resist the urge assume a strong negotiating position when in reality they are in a very weak position. In addition to these fundamentals, wise sellers often look for five essential elements within the offer itself to help make their decision.

  1. A substantial earnest money deposit

    The larger the deposit a buyer makes, the more serious and committed the buyer is and the better you should feel. On the other hand a small deposit, or worse, a promissory note, may indicate a buyer's unwillingness to fully commit. Decide in advance what you feel is an appropriate earnest money deposit relative to the price of your home. In many markets, this may be 1%-2% of the sale price, but it can also be much, much more.

  2. A pre-approved loan

    A letter of pre-approval states that the buyer has been qualified to purchase the home based on the information they have provided the lender at the time of the loan application. This doesn't mean they are fully approved, as the lender still has to verify assets and liabilities, run a credit report, and verify income, employment, and residency, but it does provide a sense that the buyer is a legitimate prospect.

  3. Time-limits for condition and contingency removal

    A condition or contingency that has not been satisfied means that the buyer still has an opportunity to back out of the sale, potentially without penalty, all the way until the day of closing. The trouble is a buyer who has open ended condition, and one that they can use as an excuse to exit the sale without penalty, may decide during a sudden panic attack that they should bail out of the sale. To prevent this, wise sellers require that conditions and contingencies be removed as quickly as possible.

  4. Clearly understood terms of sale

    The first question to ask yourself while studying the offer is this: Could someone not in the real estate business understand this agreement? A poorly written sale agreement allows room for interpretation. Successful sellers reduce the risk of an offer failing by working with a highly qualified real estate agent or real estate attorney to create agreements that are clearly understood by all parties in the transaction.

  5. Progress benchmarks

    In a real estate transaction how do you know that the sale is progressing forward? If you're using a poorly written real estate contract you might not know if the sale is moving forward, backward, or sideways. What you're missing are benchmarks, beacons of hope that signal that your transaction is flying in the right direction and that you are on course for a successful landing. Thankfully, many standard real estate agreements have built in benchmarks, like requiring the buyer to submit an application by a specific deadline, or requiring the buyer to approve the preliminary title report by a certain deadline.

Successful negotiators are those people that understand and embrace the simple but powerful techniques that can enable anyone to create a successful sale - the fundamentals.

Comments

By Horace Bryan,  Thu Dec 31 2009, 15:33
This is good "stuff".

And most importamt of all, is that the seller should not be just trying to find a lawyer after she receive the offer. That attorney ought to have been prepped an ready to receive and evaluate that offer.

So many are penny wise and pound foolish, being afraid to rack up charges too esrly, when most attorneys won't even start the clock until you have a viable contract.
By Joseph C. Hastings,  Sat Jan 23 2010, 21:23
Good stuff indeed.

I liked the aspect of understanding the terms of the sale. As Horace stated, you should have an Attorney ready to go. Once the offer is made it should include in writing the amount of the offer along with a letter of pre-approval from a lender (if financing), a credit check with FICO score and proof of assets and liabilities. The offer should also state what amount the downpayment will be, if there is a financial contingency, and any fix up or request of the buyer. These requests will be specified in the Contract so there are no misunderstandings or confusion. An example would be if the buyer wants the seller to leave all appliances, window treatment, lighting fixtures, etc. Lastly, the offer should indicate when the buyer is looking to close.

I can't stress enough the importance of using a Broker to help with the sale of the property. If this is a residential sale and the house was built before 1978 there will need to be disclosure of any lead based paint. There also has to be a property disclosure form which is a multi-page form stating any known defects. Without the prop disclosure the seller would be required to give a $500 credit at the closing to the buyer.
By Gerard J. Carney,  Mon Dec 6 2010, 16:58
You are not going to see to many perfect sales in today's market, so don't expect perfect. That said, do look for that almost perfect sale and be happy to get it. Above Susan says that she wants to net $30,000 to $50,000 on the sale of her house, so for all purposes anything that hits the $30,000 mark is perfect, the fact that she has an offer that will actually hit $42,000 is awesome! The fact is though that if you set limits on what you want, then anything that hits you minimum is perfect! To exceed the minimum is called Gravy! If the Buyer has solid credit then Financing is as good as cash! so again perfect is in play above. The few as possible headaches also seems to apply since the other two limits were met!
As to letting this offer go in an attempt to get a better deal, well now you don't need a Realtor, you Need Howy Mandell, you are now in an episode of Deal or No Deal, and if you watch the game show you know very few walk away with the big prize! Take a good offer and never look back, in this market there may never be another offer, never mind one that might be better!
By Fran Rokicki,  Thu Jan 6 2011, 10:20
I suggest to my clients, that the offer should make them feel okay, with leaving that particular home. Moving on to the next home, with no regrets, is such a good feeling. In our current economy, this is not always possible. You just have to do, the best you can. Remember why you are selling and see if that offer meets that criteria.
By Shawn Rosa,  Tue Dec 13 2011, 10:43
the actual dollar amount of an offer is not discussed. good offers are generally considered to be with 2-5% of list price on a properly priced home.
By Matie,  Tue Jun 26 2012, 05:52
Selling is also a difficult, strssfull process, where you can be truly robbed!

http://www.indexpost.com/

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