Evaluating Offers from Buyers
While preparing your home for showings may seem like the most stressful part of selling your home, most sellers end up saying after the fact that it was the process of evaluating offers and negotiating the terms of the sale with the buyer.
• For many sellers, the process of evaluating offers is stressful because they are always concerned about regret. Most sellers fear "seller's remorse," which is the feeling after the sale that possibly you made a mistake and that you may have been able to sell your home for more.
• It's impossible to know what a future buyer might pay for your home. However, that sort of thinking will almost certainly hinder your ability to effectively evaluate current offers on your home. You need to put aside any feelings of possible regret or seller's remorse when evaluating offers from buyers.
• In Vermont an offer is typically presented to the seller by a buyer. The buyer typically prepares a written document known as a Purchase and Sale Contract (or P&S) for the seller's review. In Vermont for an agreement for the sale of property to be enforceable it must be: (1) in writing; (2) signed by the parties; (3) provide sufficient details to identify the property involved; and, (4) specify the essential terms of the transaction, such as price.
• If the seller is represented by a real estate agent, the offer will be sent to the agent. The agent will then present the offer to the seller. Even if the agent thinks the offer is too low, the agent has a duty under Vermont law to present all offers to the seller.
• There is no formality required when the agent presents the offer. The offer can be emailed or faxed if the seller so desires.
Once you receive the buyer's offer, you can do one of three things: You can accept it as it is, you can reject it, or you can make the buyer a counteroffer. A counteroffer is technically a rejection of the buyer's original offer and then a new offer made by you to the buyer. Thus, once the counteroffer is made, the buyer's initial offer is considered legally dead. You cannot change your mind after making a counteroffer and simply say you will accept their original offer. From a purely technical perspective the buyer would have to revive their original offer for you to accept it.
• In many cases, the legal requirements do not coincide with the practical realities of our technological age. Despite the legal requirement that all offers be in writing to be enforceable, from a practical perspective it is usually only the initial offer that is presented in writing. The parties or their agents usually then conduct negotiations by phone or email until an agreement is reached. Once the agreement is reached the parties then put the final agreement in writing and sign the documents.
• You will oftentimes see agents use the original documents and just have any changes that were made as a result of the negotiations initialed by the buyer and seller. This can be more efficient than writing up a new document. However, some prefer to have a new document drafted.
• While price is the most common area for negotiations, it is not the only area that is open to negotiation. You can use items such as contingencies to make your offer stronger.
The most common contract contingencies in Vermont are financing and inspection.
• The financing contingency typically says that the buyer has a set period of time from the day the contract is signed to obtain a written loan commitment from a bank. Most financing contingencies are 30-45 days and state the interest rate and amount of the downpayment of the buyer's desired loan program. The contingency allows the buyer to terminate if they cannot secure the written loan commitment within the allotted time period. The buyer must terminate the contract in writing and the dates are important. Obviously from your perspective, an offer that is not contingent upon financing will be preferred. However, there are very few buyers who can afford a home without a loan.
• Inspection contingencies vary depending upon the contract. Most buyers prefer an inspection contingency that is worded broadly to allow the buyer to terminate should they not be happy with any aspect of the inspection. Sellers, on the other hand, would like to limit the buyer's ability to terminate so they look for contingencies that allow the buyer to terminate only if there is a violation of some safety code or there are repairs that amount to $500 or more. Again these contingencies will vary, but from the seller's perspective it is better to have a narrowly worded contingency that only allows the buyer to terminate if there are real problems or concerns.
• Evaluating all of the terms will help decide the strategy as to price. If for instance, the offer does not contain any contingencies then you may consider accepting slightly less money than you would had the buyer made the offer contingent upon an inspection or obtaining a loan. There is less risk to you as the seller if the buyer does not have provisions in the offer such as these contingencies allowing them to terminate.
• In contrast, if the offer is contingent upon 100% financing from a bank then you are going to carry much greater risk so you may want to hold out for more money then you would from a buyer looking for only 75% financing.
• You should also look to the personal property included in the offer. Sometimes instead of rejecting an offer you might exclude items like the refrigerator or washer and dryer from the sale to help make up the difference in price.
• Ultimately, a buyer does not want to pay more than fair market value so that is going to drive their decision making. Also, for any buyer obtaining a loan, the bank will require an appraisal of the property and the appraisal will be based almost entirely on what comparable homes have sold for in the area.
• Your goal is to limit your risk of the buyer terminating down the road against the highest market value for the property. Balancing these interests is important. For instance, you might get a buyer to accept your asking price but if the asking price is not within the price of recent sales and the buyer's purchase is contingent upon financing, the transaction will likely fall apart prior to closing because the appraisal will be too low for the buyer to obtain their loan.
The old adage "a bird in the hand is better than two in the bush" can be used when selling property. You never know when the next offer is going to come so you want to keep this in mind when evaluating each offer.
• There is no one correct strategy for negotiating an offer with a buyer. In most cases the buyer will offer you less than your asking price. The initial offer is usually an indication of how high the buyer is likely to go with future offers. If the initial offer is considerably less than the asking price then it is less likely that you will ultimately get your asking price from this buyer. If, however, the initial offer is close to your asking price there is a much better chance that you can convince the buyer to pay your asking price on a subsequent offer or counteroffer.
• Some buyers will present you with a first and final offer. Buyers should only utilize this strategy if they are serious so you should assume that an offer that is presented as the "first and final" is just that.
• If you are able to come to an agreement with the buyer then you will need to sign the agreement. The buyer will provide a deposit check and your agent or your attorney will hold the check as the escrow agent until the closing. The deposit check will be credited towards the buyer's purchase price at closing.