This is a very exciting step, you received an offer from a willing and able buyer, someone who has both the desire to buy your house in Alexandria and the ability to pay, which are prerequisites to achieving your goal, It also gives a sense of validation, someone other than me likes my house! So, you have an offer on a house in Alexandria, what happens next
- Accept the offer as is
- Counter the offer
- Reject the offer
Before you decide lets review the facts of “market conditions” first. The Real Estate market, as in any market (Stock Market etc) has both general cyclical components be they month to month, day to day, seasonal cycles and for sure location. These ups and downs occur (are driven by) the overall economy, by factors in a specific location, some neighborhoods might be “the in location” at some point, but might loose appeal over time. Before you decide whether to Accept, Counter, or Reject understand your leverage with respect to “market conditions”. For instance, you may think twice about rejecting a low ball offer, if the “market conditions” show a weak and/or deteriorating sellers environment. When in doubt always Counter.
- MULTIPLE OFFERS: Old Town Alexandria has been considered a hot market for some time just as Arlington and Washington DC are. Don’t be surprised if you receive more than one Offer. This is the best scenario for you as a seller, you are in CONTROL you can pick and choose and you have more lee way to counter to your favor and reject requests made by the buyers. It does not get any better than this.
- OFFER within a Day OR BEFORE Listing in the MLS: This scenario is also great for you! It means your priced your home Just Right and the Marketing your Agent did paid off. This is time to celebrate, right?. If you are like most sellers you might feel, “wait a second WHY did I receive an offer so fast, WAS the price too low? You might start second guessing your strategy but worse, second guessing all the work your agent put in ahead of time. But you need to understand that pricing the house correctly brings in the most buyers that are able and desire to purchase your house, in which case the price will rise to the market price (price buyers are willing to buy) quickly, especially with multiple offers – once you acknowledge this market fact you realize, the strategy WORKED! this is exactly what I was waiting for, not only did I priced my home right but my agent did a terrific job!
- LOW BALL OFFER. This sometimes happens, regardless of market conditions. Some people just feel they have to “try” and see if the seller will accept a price that is clearly a lot lower than the average going price in the area. Unfortunately this tactic backfires on the buyer more often than not. By low-balling, prospective buyers risk offending the seller, with the result being the seller refuses to counter or refusing to communicate at all, with the offending party, not even if that prospective buyer later changes his mind and brings a more reasonable offer, right or wrong, emotions play a big part in buying and selling. Instead of writing low ball offers review the information your buyer agent gave you for comparable house sales in the area and offer something that you feel comfortable with, be it on the low end or high end of the reasonable comparable range.
The next step would be to validate and research the ability of the prospective buyer to close the deal. We would not want to accept an offer, taking the listing Off the market for a month only to later realize the prospective byer is not solvent.
A valid offer must include either a pre-qualification or a pre-approval letter from a lender. Your agent will call the lender noted on that letter and ask her a series of questions to verify first, the accuracy of the information in the document, the second, borrowers overall financial conditions and third, check the competency and expertise of the lender as well. Often times deals don’t close because of poor follow up by the lender or poor record keeping and misinformation on the part of the prospective buyer. Banks have very strict rules and the steps they have to be follow with documentation every step of the way, including numerous times when they double check the loan specifics up to 3 days prior going to under-writing for final approval – if you are buying another house don’t make any big financial moves until final approval.
TERMS OF THE OFFER:
- Price: The obvious primary focus
- Subsidies: Does the offer request that the seller contribute towards buyers closing costs? This amount would be deducted from the offered price. So let’s say they offered you $500,000 but they also want $10,000 in subsidy. It means your NET is actually 490,000
- Type of loan: Conventional, FHA, VA, VHDA or perhaps there is no loan and the offer is all Cash (best!).
- Escrow deposit: How much are they giving as escrow to hold their offer?
- Contingencies. What type of contingencies and how many does this offer have?
- Time Frames: How long before they can go to settlement. Example – No contingencies and all cash close the fastest (no one to check with outside the usual inspections). Multiple contingencies and odd ball financing can stretch to 60+ days, and longer!!
- Others: Their current home needs to sell first, desire to do a 1031 exchange, desire to stay in the house pre-settlement or request for a home warranty are just a few examples of the most common contingencies – Remember, more contingencies equates to potentially longer waits to close and more opportunities for the deal to fall apart.
All these variables should be analyzed by you with your luxury real estate agent before submitting a counter-offer. Rarely do you find a Perfect Offer. In my mind a Dream offer would be the List Price, all Cash, No contingencies, and settle when you want. So the second best is finding the terms that work for both parties.
According to the dictionary: ” Negotiating is a dialogue between two or more people or parties intended to reach a mutually beneficial outcome, resolve points of difference, to gain advantage for an individual or collective, or to craft outcomes to satisfy various interests”
We are certain of something, The seller wants to SELL and the buyer wants to BUY. Unfortunately sometimes when emotions get in the mix we tend to not see the forest because of the trees. Having an agent represent you during this phase is important. And most importantly an agent that is a Negotiations Expert. This agent is your advocate and can help YOU achieve YOUR GOALS. Sometimes it IS all about the PRICE, but amazingly not ALL the time you!
The five steps in Preparing to Negotiate are:
- Assess your BATNA (Best Alternative to Negotiated Agreement) Or in other terms your Next best option (back-up) if the preferred negotiation fails.
- Calculate your walkaway price (or other terms)
- Assess the other party’s BATNA
- Calculate the other party’s walkaway price (or other terms)
- Evaluate the ZOPA (Zone of possible agreement) Which is the zone between the Lowest Price the seller is willing to accept AND the Highest Price a buyer is willing to pay.
- PRICE: The list price (or the price the seller wishes to receive for his house) is just that, a wish. The Market determines the Price, which is what a buyer is willing to pay for a house at a specific time and location. If you did the pricing correctly then your house should sell promptly at about that calculated number. Often times sellers feel they HAVE to price the house higher to get a higher price, but that is exactly the wrong approach. Check my “PRICING a home RIGHT” guide.
- SUBSIDIES: The buyer can request that the seller helps with closing costs (a subsidy). This closing costs depend on their Lender and the type of loan they have secured. In most cases this is occurs when the buyer prefers NOT to use their cash for all their closing costs but rather use their available cash for renovations on their home, buying furniture, etc. Although, sometimes the buyer DOES NOT have enough cash for the down payment AND closing costs , this does not mean they are not qualified, but if the other terms are agreeable, the seller might be glad to help with closing to get the deal done.
- TYPE OF LOAN: The best loan is NO loan, better known as CASH. If a person is Pre-Approved then the type of loan is of no importance to you, the seller, to a point. There was a time when VA (Veteran Loan) loans were more strict with their appraisals, meaning the value that a VA appraiser would assign to a house was consistently less than other non-VA loans, which was not very good for sellers. These days VA Appraiser estimates are more in line tune with others.
- ESCROW DEPOSIT: This is the note or check the buyer presents to you showing how serious they are with their offer. The higher the amount the more serious they are. The reason, if they default they LOOSE that money. Note here that I said DEFAULT, there are ways for a buyer to walk away and still be within contract terms. I will explain later. This escrow money is held by the Holding Agent which is usually a broker or a title company. In the event the buyer later pulls out of the contract another form explaining how this money will be distributed needs to be signed by both parties.
- TIME FRAMES: Is there a specific time you need to move? Maybe the school year starting OR you have a new job that requires you to move by a certain time. If the buyer is securing a loan, then for the most part the settlement date will be tied to the approval of the loan. It is very important to talk to the buyer’s preferred lender and inquiry about their due diligence and process to make sure their specified time frames in their offer are accurate. A safe guess is to plan for between 30 to 45 days, though some lenders have been able to process paper work a lot faster. If time is of the essence for a seller, part of their counter offer could be requesting the buyer to close within a certain time frame, switching lenders may be a way to achieve that request. You can estimate time frames for other contingency scenarios, but as you can see, as the number of contingencies goes up, the time frame to close increases.
- CONTINGENCIES: There are several contingencies the buyer could ask for. The most common ones in Alexandria are: Financing, Appraisal, Home Inspection, Radon Test. These steps that need to occur within a certain timeframe in order for the process to continue. Think of contingencies as Road Blocks that you need to overcome, negotiate and move past. The less contingencies the better. Once all contingencies are met, you are closer to achieving your goal.
- OTHER: There can be “Other Terms or clauses”, study in detail what the buyer is proposing and see if it makes sense for you.
- Let’s say the buyer needs to sell their house first before they can qualify or buy your house. This is a tricky situation and very hard to pull off. It means the buyer has to have a bullet proof contract in their hands and make absolutely sure they WILL close by the time YOU go to settlement. It Can Happen, but it is very difficult to coordinate. Discuss with your agent if this is an offer you are able to accept.
- The buyer could have started a 1031 Exchange process, in which he/she sells an investment property and needs to by another “In Kind” property within a certain amount of time, also tricky, but doable.
- Or maybe, You, the Seller, might need to stay in the house past closing. In this case you can request a Post-Settlement occupancy as part of your counter offer, the maximum time frames here are set by the buyers lender.
- Or maybe the buyer needs to move into the house, pre-closing, this can also be written into the offer.
- The buyer might also request a Home Warranty, or better yet, you might offer a Home Warranty. The prices vary but at this time usually the one year warranty for all systems in a house that cover both the seller and buyer is of about $500, money well spent.
While you are deciding what your “Counter” will be, your agent will be in contact with the buyer’s agent, he/she will try to find out what are the most important issues for the buyer and report back to you so you can make and submitt a good and hopefully acceptable Counter-offer.
Remember, your GOAL “Sell your House”.
If everything goes as planned, your Counter offer will be accepted, although people change their minds for no apparent reason, so do not be surprised if they Counter again. Not to worry, we can work that out too.
After you Both have have a “Meeting of the Minds” the offer is RATIFIED and becomes a CONTRACT between the seller and the buyer. The clock starts ticking from this date. All deadlines are counted from the Ratified Date. Time is of the Essence. We have made it through this phase, but it is not OVER YET. Let’s review what happens next during the Contract Phase.