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Thursday, March 30, 2017

My Realtor® called and we have an offer. What happens now?


 Understanding the Real Estate Process from A – Z – A Seller’s Guide to Real Estate – Part 7

This is the seventh post of a series in an FAQ format that I hope will help would be sellers better understand the real estate process that they are about to go through. There will be a follow-on series for real estate buyers.

FAQ – My Realtor® called and we have an offer. What happens now?
Great! Offers were what you set out to get. Your Realtor will want to “present the offer” to you,
which is to say to sit with your and go over the details of the offer and discuss with your how to react to it. Sometimes the buyers’ agent may insist on presenting the offer to you, so that he can elaborate on the buyers’ capability to get to the closing table. You can decide if you want that agent to actually present it to you or insist that he/she let your agent handle that.

This post and the next two will deal with how to react to an offer.

Low-ball offers – There will always be people out there posing as buyers who are really out to see if they can steal your house for some ridiculously low offer price. Many of these people spend all of their time lobbing low-ball offers in on almost any house that they see. I don’t know why any Realtor would continually waste their time with those people, but some do. Don’t get offended. Listen to your Realtor’s advice on how to handle the situation. He/she will have already talked to the buyer’s agent
and will probably have some idea whether this is an offer even worth making a counter-offer upon. In cases of it being a fishing trip by a serial low-baller, I usually advise that the seller just reject the offer. One good way to get across the sellers’ displeasure with the offer is to use a Sharpie or magic marker and have them print the word REJECTED across the front page of the offer and sign right below that. I then scan and email that back to the buyer’s agent.

Reasonable offers – Notice that I did not say that it is an acceptable offer, just one that is at least reasonable to entertain. Most offers will start lower than the asking price and lower than the buyers are actually willing to pay. You can’t fault them for trying to get a better deal, you would probably do the same thing. If you have listened to your Realtor and they have listened to theirs the offer probably will be close enough to consider and to make some form of counteroffer. It is important, however, to look at the whole offer and not just the price. Most offers these days may have terms and conditions specified in the Purchase Agreement (PA) that, when taken into consideration (even on a full price offer), may make the offer unattractive for the sellers. Many buyers (and their agents) got used to some practices during the Great Recession that no longer seem reasonable, but which are still in common use today.

Here are a few things to look for in the offer, other than price:
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  •       Low Earnest Money Deposits (EMD) were one thing that has been slow to correct to the current market. The days of putting only $500 down in EMD are gone and sellers should demand more. The traditional EMD before the Great Recession was 3% of the offer price and that is still a good guideline today. Buyers who cannot afford to put more than $500-1,000 down in Earnest Money may be an indication of a lower probability of getting to the closing table.
  • ·         Sellers’ Concessions – It is quite common in this area for buyers to ask the seller for help with their closing costs by asking for a Seller’s Concession at closing. This means that the seller is giving back a portion of the sale price for use by the buyer to cover things like points, mortgage fees, taxes, insurance and other costs that would be due from the buyer at closing. Most mortgage companies will restrict how much those concessions can total, but it is not uncommon locally that they might range from 3-6% of the sale price. That money comes right out of the seller’ proceeds from the sale and will impact the sellers’ net from the sale. Since the cost of the sale is already about 7-8% of the proceeds, adding a Sellers’ Concession of 3% means that you are discounting the price of the house by about 11%. That is 11% that does not go into your pocket.
  • ·         Possession – Most buyers want to take possession of the house as soon as they can get it, so the offer may specify “At Closing” for possession. Most sellers would like a few days after the closing to get their stuff out of the house, so they may ask for a few days to weeks of
    possession after closing. This is an item that must be negotiated. Sellers must remember that they will become renters in the houses that they used to own as soon as closing is over. Sellers should pay attention to the daily rental rate specified in the PA. The norm in this area is to specify that the daily rental rate will be 1/30 of the buyers’ new mortgage amount, to include principal, interest, insurance and taxes. The seller should ask what that daily rate will be. The mortgage company for the buyer can supply that rate. Sellers may also see a damage deposit requirement in the amount that is retained out of the proceeds to cover post-closing occupancy. That damage deposit is just like the deposit that a renter makes on the front end of a lease and could be used by the new owners to cover any damage that is done to the place during the rental period after closing. Make sure you understand how that process will work and how any decision on damages will be negotiated. The process for turning over the keys at the end of the post-closing occupancy period should also be clearly stated.
  • ·         What goes with the house – Most often the seller will offer certain appliances and other things with the house. Those are usually listed in the MLS, as well as any exclusions - items that the Seller is specifically stating that they will be taking out of the house (which could include items like special drapes or light fixtures). Sellers need to make sure that the Buyers clearly understand any items that are specifically excluded and the best way is to make sure that those items are listed in the Purchase Agreement paperwork. Sometimes buyers will see other things in the house that they want thrown in on the deal, so they will list them in the PA. Often that will be the washer and dryer, which the seller might not have offered to leave.  Maybe it is the play structure out in the yard, which the seller may or may not have wanted to take anyway. It could be special or custom window treatments that go beyond the expected curtains. Whatever it is, the seller should carefully read and consider a response to anything that the buyers have added to the PA that they wish to be left in the house. This is another negotiated thing and is separate from any furniture or lawn equipment or other items that the seller may wish to offer to sell to the buyers.
  • ·         Prorating prepaid items – Most Purchase Agreements will specify how things like pre-paid taxes or association fees will be pro-rated at closing. The basic idea is that the Sellers will be given back money (be the Buyers) to cover the period that they pre-paid for services, but which they will not be able to use. In this area of Michigan, we pre-pay our property taxes, so those would be prorated. Association fees and other fees that may be assessed or paid on a quarterly or an annual basis will also be pro-rated.
  • ·         The type of Title Insurance required – All purchases, at least in Michigan, will require that two title Insurance policies be issued, one to insure the Buyer against future claims against the title and one that insures the mortgage company against those same claims. In Michigan it is customary that the Seller pays for the Buyers’ title Insurance policy and that the Buyer pays for the policy that insures the mortgage company. Many Buyers’ agents will insist that the Buyers ask for an “Eagle brand” or extended coverage policy, which costs a bit more than a standard title insurance policy. It is a small incremental amount to pay and covers a multitude of sins that the Seller may have committed over time, such as making home improvements without pulling permits or the presence of unrecorded easements on the property. It’s not worth arguing over and does give the Buyers peace of mind, so I recommend going along with that request.
  •       The closing date. This is usually a "target" date 30-45 days from the acceptance of the offer, but it, like everything else in the offer is negotiable. The Seller doesn't have to accept an offered closing date that is too close in or too far out; however, some attempt should be made to understand the needs of the Buyers that are driving that date. In general, it will take 30-45 days for the mortgage company to to be ready to close, so that is a somewhat standard timeline. This is a demand that the Seller should try to be flexible on because it might be a show-stopper for the Buyers, if their needs cannot be met. The Sellers should have done their move planning ahead, so that they can adjust and react to the requested closing date. The day you accept an offer is not the day that you should start thinking about where you will go and how you will get there.
  • ·         The “strength” of the offer. Your Realtor may indicate to you that one offer is stronger than another. What that means is that he/she has looked at factors like the buyers down payment, the
    mortgage type that they are going to use and the type of pre-approval that they submitted with the offer.
      A buyer who is putting 20% down, is pre-approved (not just pre-qualified) for a Conventional mortgage is a stronger buyer than one who submits the same offer price, but who is only putting 3% down on and FHA mortgage and who so far has just been pre-qualified (maybe a credit check run, but no underwriting approval, yet). Ask you Realtor who has the “strongest offer”, because that is the one most likely to actually get to the closing table.


Additional or special contingencies will be covered in the next post in this series and a post on the processes available to actually respond to an offer will follow. Your main role as the Seller at this point is to thoroughly read and understand what is in the offer. Your Realtor will go over it with you, but it is you who will be signing it and it is a binding contract, so know what you are signing up for. We’ll continue to look at the offer and how to react to it in the next two posts.

1 comment:

Subarna said...

Great, Thank you for sharing with us. Very nice article & have great information.

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