Across the Picket Fence - Dealing with Offers

Across the Picket Fence

The buyers interested in my property are represented by a buyer’s broker, who insists that I (the seller) pay her a 6% commission because “this is the way it is done.” What are my options as the seller?

Answer: Maybe this is the way that particular buyer’s broker would like to do it, but you are free to negotiate the amount of the commission paid to a buyer broker, if any at all. The seller is not required to pay the buyer broker at all, but may wish to pay 2-3% so that the purchase goes forward and closes (in an MLS real estate listing, the agency representing the buyer splits the usual 5-6% commission with the seller's agency). Consider asking the broker to reduce the amount of their commission or ask the buyers to pay a portion of the commission. This is negotiable, like many other issues involved in selling and buying real estate. Obviously you are in a better position to negotiate this if there are several potential buyers interested in your property.

Seller: We accepted an offer for our home, but then got a better offer. Do I have 24 hours to renege on the first contract? Is this standard in Vermont?

The contract says tomorrow's date for the seller to accept "on or before".

Attorney: If you and the buyer have signed the Purchase and Sales Agreement, it is a legal contract between both parties. At this point, you have to abide by the terms of the contract. However, do keep the second party's contact information in the event the original buyer's financing falls through or the buyer has issues with the home inspection results and wants to renegotiate the sales price.

If you have not yet signed the contract, you are free to accept the second offer, even if you verbally accepted the first offer. In real estate, "verbal contracts" are not legally binding. However, out of fairness you may want to give the first party the opportunity to match the second party's offer.

Seller: We have two comparable offers on our house and are having a tough time deciding which one to choose. My husband prefers the couple who is local, but I think the man from Connecticut is our best bet because he's pre-approved. I'm hoping you can help us decide one way or the other.

Sorry, you'll have to make this call yourselves. It sounds as though you might be the more pragmatic one, while your husband may be reacting more to his sense of loyalty or friendship toward the local couple. It is important, of course, to consider whether the local couple will qualify for financing and other factors such as whether they have another property to sell first. Without a letter of pre-qualification, or better yet, pre-approval from a lender, you really are taking a chance.

Assuming, however, that they can convince you that obtaining financing is not a problem, other considerations might be closing dates, what type of neighbor the new owner(s) will be to your existing neighbors, or ____________. (Of course, if you still can't come to an agreement, flipping a coin may be the best way to keep peace in the house!)

Seller: What are the rules for accepting an offer? We have a showing scheduled tomorrow and one scheduled today. If the people today give us a full price offer, do we just cancel the appointment tomorrow?

Until you have signed a contract with a buyer, you are not obligated to anyone. We would encourage you, however, to be courteous and fair to the buyers involved. Usually buyers will give you a 24 hour time period to consider their offer. This gives you time to discuss their offer with your lawyer, and weigh the pros and cons -- and prepare a counter-offer if you desire. It also gives you time to show your home to other prospective buyers who might a) make you a better offer, or b) be more qualified to obtain financing. There is nothing wrong with making one buyer aware that you have another offer on your property, providing each party with the opportunity to make their best bid. In fact, not doing so may be unfair to the buyers involved, as each wants an equal chance to "win" the property. Read on for the "jilted buyer's" perspective on this issue...


Buyer: We made an offer on one of the houses advertised in your magazine, but the sellers accepted another offer without getting back to us first. This doesn't seem ethical -- and perhaps even illegal. Do you know what recourse - if any - we can take?

To answer your last question, speak with your lawyer regarding whether any legal matters were violated with your particular contract. If the seller (or you, for that matter) hadn't signed the offer/contract, you didn't have a legal contract. You simply had an offer on paper. As far as the ethics involved, while it would have been more courteous for the seller to give you the opportunity to improve your offer, they may have had other reasons for accepting the other party's offer without notifying you first. Perhaps they had reason to doubt that you would be able to get the financing, the offer followed a difficult negotiation, or your circumstances -- such as having to sell a house first, or not wanting to close right away -- were undesirable. Then again, the other party might have simply made them an offer substantially above yours, making the choice easy. The seller has the right to accept the best offer presented.


Seller: How do people deal with multiple offers? We have three parties interested, and all seem equally qualified. I've told them we have to wait to negotiate tomorrow when my husband is back in town, but I have no idea what to do then!


That's a nice problem to have! The fairest thing to do is let all buyers know that you have two other parties interested so that they have an opportunity to present their best offer. You might want to do a "sealed bid" arrangement where you give them a deadline to make their offer, and there is no further negotiation. This will avoid your being caught in the middle of a bidding war.

Seller: The problem I'm facing is that buyers are automatically offering me 5-6% less than my asking price, arguing that since I don't have to pay a commission I should be able to sell it for that amount. It's priced very competitively now, and I can't afford to go any lower. Should I raise my price 6% to avoid this confusion?

No. If you raise your price, you'll lose your competitive edge. First, are you sure you're "competitively priced"? Have you had an appraisal done within the last year? If the answer is yes, then you should have no problem convincing your prospective buyers that the house is worth what you're asking. You may even want to show them the appraisal document to demonstrate that the asking price is fair.

Also, explain to your buyers that the agent's commission is typically added on to the seller's bottom line! Since you didn't have to inflate you price to cover this fee, yours is already at a bargain.

Seller: Would it make sense for us to offer a seller's rebate to allow for renovations the buyer wants to make? We have had a recent appraisal done ($250K), and would sell it for the appraisal amount, but give the buyer $16,000 back at closing to pay for an addition they wish to put on.

Mortgage lender: It used to be that banks/ mortgage companies would allow for decorating or maintenance expense seller rebates, but this has changed. In general, the guidelines are as follows: if the borrower is putting less than 10% down payment on the property, the bank will allow the seller to contribute up to 3% of the sale amount for closing costs only (renovation expenses and down payment amounts cannot be included as a closing cost). If the downpayment is greater than 10%, the bank will accept up to a 6% seller rebate - again, for closing costs only. So you really can't offer a specific rebate amount until you know more about the buyer's financing.

The other criteria that will affect you is this: the bank will deduct the amount of the rebate from the sales price that exceeds the amount allowed, which affects the amount of money they will lend the borrower. (A bank will lend 95% of the property's appraisal value OR the sale amount, whichever is lower.) In your case, if you are selling for $250K, the bank will allow a seller's concession of up to $15K (6%) if the borrower is putting at least 10% down and if this does not exceed the actual allowable closing costs.

What is a reasonable amount of time to give our buyers to sell their home (to buy ours)? And can I specify that their buyer can't have a house to sell too? I don't want to get into a domino situation...

A reasonable amount of time mostly depends on your closing date. Lets say your closing date is in 60 days. You could give your buyers 15 days to sell their home. A good way to do it is to obligate the buyers to have their house under contract no less than 45 days prior to your closing date and with a closing date on or before your closing date, so that their buyers have enough time to obtain financing and close on your buyers home. It is unreasonable to ask your buyers to only sell to someone who does not have a house to sell, and may be interfering with their contract and would certainly hurt their ability to sell their home and then buy your house. You may encourage your buyers to consider whether or not their buyers have a house to sell, but ultimately, your goal is to sell your house. If your buyers don't sell theirs, then they won't buy yours. Your buyers want to sell their house as much as you want them to! Unfortunately, there is some uncertainty when selling your home, even if your buyer is paying all cash!

Do sellers ever ask for a non-refundable deposit if they take their home off the market for more than 3 months? We were thinking of giving our potential buyers the winter to sell their place, since we'll be in our Arizona home anyway until April.

Sellers can ask for a non-refundable deposit regardless of the length of time they are taking their house off the market. If the buyers and sellers agree, a deposit can be non-refundable for any reason, as long as it would be reasonable compensation to the sellers if the deal fell through. Keep in mind, however, that just because your house is under contract does not mean you cannot still be marketing it and taking back-up offers or names of people who may be interested in buying if your deal falls through.

Seller: When do I take a deposit from my buyer?

Lender: Generally the deposit accompanies the offer, and is deposited to the escrow account after the seller agrees to accept the offer (contract is signed).

Seller: I thought you might want to know about a scam that's happening to your customers. I had a man call, saying he was a cash buyer from Connecticut, who wanted to come see my house. I hung up on him -- I have an expensive home, and know no legitimate buyer carries around that kind of cash...!"

PFP: Your buyer could well have been legitimate. "Cash buyer" doesn't literally mean that they'll give you cash -- usually the transaction is done with a bank Treasurer's check at the closing.

-------

Picket Fence Preview helps homeowners sell real estate on their own without being alone with comprehensive marketing, information, documents and support material. For sale by owner homes, condos, townhouses, land, commercial, investment and rental property.