An Offer Comes In

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After numerous showings, a little inconvenience here and there to accommodate potential buyers, working through some comments and criticisms… you get an offer.  Now what.  See, most people think that’s it.  It’s sort of like the fairy tales where the princess marries the prince and ‘they live happily ever after.’  Of course we all know they don’t.  We all know that once the princess and prince marry, there are conflicts over whose castle they should live in, how often the in-laws can visit, the prince’s inability to put down the toilet seat, and all the difficulties presented when two human beings merge all their stuff together.

Well, getting an offer on a home is similar.  Once you get the offer, it doesn’t end there.  Oh now, it’s just the beginning! And this is where you will be really grateful for the involvement of your agent.  Before we go any further, let’s talk about the offer itself, the Purchase & Sale Agreement.  Most agents in Georgia will probably use the Purchase & Sale Agreement offered in the forms package of the Georgia Association of REALTORS®.  These are created for the use of it’s members and designed to protect the parties.

Let’s look at the different elements that make up an offer as outlined by the GAR Purchase & Sale Agreement:

• Purchase Price: how much the buyer is willing to pay for your home
• Earnest money: how much the buyer is willing to put down as a show of his ‘earnest’ intentions to carry out the obligations of this contract and who is going to hold that money
• Closing Cost contribution: how much the buyer is asking from the seller towards his closing costs
• Closing Date and Possession: when the buyer would like to close and take possession
• Due Diligence or As Is: is the buyer willing to buy the property in ‘As Is’ condition or will the buyer be retaining to right to ask for repairs and/or terminate this agreement?
• Length of Due Diligence Period
• Special Stipulations

In evaluating the quality of an offer, you need to work with your REALTOR® to assess the best options for you.  Be careful and don’t get caught up with the Purchase Price as the sole indicator of the offer’s merits.  You should consider the entire contract – the terms and conditions of that contract.  Take a look at the following scenarios and decide for yourself which may be the best offer to accept:

It is April 15 and you have a home for sale and it’s list price is $300,000.

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These offers say something about both buyers. It is your responsibility to evaluate these offers. Having an experienced real estate professional also helps. Technically, they are both viable offers. It is up to you to decide which one to accept or counter, but understanding a few things helps.

First of all, don’t get too caught up in the offer price. Look at it in conjunction with the overall contract. While Offer #1 is full-price, look at the closing date. Now look at the price and closing date of Offer #2. Consider how much four more months of payments will cost you in relation to Offer #1. It may actually be a wash compared to the lower offer price of Offer #2 who can close in 30 days. Right?

Consider now that Offer#1 is only putting down $1,000  in earnest money while Offer#2 is putting down $5,000 – which one of these buyers is more committed to making this deal work?

Notice the Seller Contribution to Closing Cost… Offer#1 is asking for $5,000… so now, is that offer really $300,000 or $300,000 less $5,000?  Offer#2 is asking for $1,ooo in closing costs only…

Now, look at the financing. The buyer in Offer #1 is planning on financing 95% of the purchase and is intending on finding a 5% interest loan. So technically, if interest rates are running higher than 5% and if this buyer can’t get a loan at 5%, then the deal can fall apart. Meanwhile, Offer #2 is not contingent on any financing.

Lastly, check out the special stipulations. Both buyers need to sell their house before they can close on yours. Offer #1 merely states that the home is on the market. When will it sell? Will it sell? Your guess is as good as mine. However, Offer #2 states that the home is under contract and scheduled to close on the 13th of the next month. Obviously, the buyers are planning to take the proceeds from this sale to use towards the purchase of your home.

And let’s not forget that second stipulation on Offer #2. Does this contingency on appraisal make this contract less attractive? It could if you know you’re home is listed for much higher than market value. But if that is the case, don’t be fooled just because Offer #1 doesn’t have this same contingency. Offer #1 is being financed by a lender. That lender will have an appraisal conducted on the property for their own safety. What do you think happens if the home fails to appraise for the amount of the loan requested by the Buyer? Do you think they will make a loan higher than the value of the home?

There’s a lot to consider, based on your own specific needs and time frame. Work with your REALTOR® to help sift through the pros and cons of each offer you may receive to help determine how you should proceed.

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Making Some Decisions

Once you’ve thought about any offer presented to you, you have several options before you. You can:

1) Accept the offer as-is: If everything on the contract looks acceptable to you then you can simply sign the bottom of the contract, date the acceptance box, and get this copy back to your agent. Your agent will then deliver it back to the Buyer or Buyer’s agent and you have a binding agreement!

2) Counter-Offer: If you want to make any changes to the offer presented, you must do so on a Counter-Offer form. On this contract, you simply state that you accept all the terms of the original offer “with the exception of:” and then you get to list your terms, anything from offer price, closing date, what will or will not stay, etc. Once submitted, you are now the Offeror and the Buyer is now the Offeree.

• Now, the Buyer has the exact same right as you did, as noted here, having the right to accept your offer, counter-offer or reject it.
• If the Buyer chooses to counter offer, then it goes back to you and so forth until you reach a mutual agreement. This can turn into a regular ping-pong match, going back and forth between buyer and seller repeatedly over a long period of time.

3) Do nothing at all: Why would you do this?  Outside of one of reason… I wouldn’t recommend this at all.  If you are lucky enough to be in a multiple offer situation, you may counter-offer or accept one offer and simply let the other one(s) lapse.

• If you find the offer unacceptable and you don’t want to counter-offer, then you can simply do nothing and allow the offer to lapse. Often, this happens when an offer is so low or unreasonable that the Seller doesn’t even want to acknowledge it.   Personally, I think it’s always in the Seller’s best interest to counter-offer on all offers. Don’t take the low-ball personally. Just counter-offer at a more reasonable price or reasonable term and see what the Buyer does. If they were simply ‘fishing’ for your bottom line price, then they will know that you are not biting. Other times, it can happen if the Seller is in a multiple offer position. He accepts or counters the best one and allows the others to lapse.

Once the contract is accepted by both parties, signed and delivered to both parties, you have a binding agreement!This means that both Buyer and Seller are legally and contractually obligated to fulfill the terms of the contract they’ve just signed.

Now if you think that the REALTOR®’s role ends here, think again.  This is yet another part where the assistance of a real estate professional can be awfully helpful.    We’ll talk more about that as we start counting down towards closing!
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