Everything you and your REALTOR® have completed to this point has been done with the goal of obtaining an offer on your home. All of the advertising, open houses, cleaning, repairs, staging, etc. have finally paid off - or have they? Getting an offer on your property is a good first step but there are usually a few more hurdles to clear before you can start packing your belongings.
Unless the offer you receive is unconditional and perfect in every way, you can anticipate having to 'negotiate' and then having some conditions 'waived' before the process is complete. I'll discuss these topics later in the article.
When the offer is received, regardless of the amount of money and conditions offered, it must be presented to you. The offer is normally written on a form called a Purchase and Sale Agreement (PSA). The 'pre-printed' clauses contain information that pertains to all offers and, while your REALTOR® will ensure you read and understand the fine print, I will only discuss the offer-specific information in this article. The REALTOR® working with the Buyer will normally complete offer specific information such as the property address, names, conditions, and so forth.
Offer specific information you should be familiar with includes:
• Price - this is what will initially probably interest you the most. Keep in mind that the first offer may not be the highest amount the Buyer is willing to pay. However, if you reject the offer or decide to counter the offer, the Buyer would be free to turn his or her attention elsewhere. Don't base your decision on price alone. Take a close look at what the rest of the offer looks like.
• Conditions - these are clauses that prevent the offer from being a legal contract. Your home will not be officially sold until all the conditions are waived by the Buyer/s. For example, if the Buyer's offer is for full list price, but is conditional on the sale of his/her home and on obtaining suitable financing, you may not have much of an offer. Perhaps the Buyer has an overpriced, poorly located, run-down home to sell. Furthermore, the Buyer's interpretation of suitable financing may be much different than yours. Maybe the Buyer wants a mortgage for 100% of the purchase price at an interest rate of prime less 1%! In this case, it might be better to accept an offer of less money but that has a greater likelihood of arriving at a successful conclusion. Be very aware of the conditions placed on an offer and solicit your REALTOR®'s input as to the strength of the offer given the conditions attached.
• Deposit - this is usually given to the listing Brokerage by the potential Buyers to show they are serious about their offer. The deposit is held in trust by the listing Brokerage and applied to the purchase price at the time of closing. 'Closing' normally refers to the day the house key and money change hands. The amount of the deposit depends on the area in which you live and whether it's a Buyer's or a Seller's market. The deposit could range from $500 to 10% of the purchase price. The deposit is usually returned if an honest attempt has been made by the Purchasers to fulfill their conditions but they were unsuccessful in doing so. For example, although their house was listed on the MLS system, priced competitively, and actively marketed, they were unable to sell their home to buy yours.
• Possession Date - following price, this is usually the item that requires the most negotiation on the PSA. The date the home changes hands often has many ramifications for both the Buyer and the Seller. For example, there may be children who need to complete the school year prior to moving or perhaps the Sellers have to wait until they can get into their next home. Regardless of the circumstances, any date that is not satisfactory to both parties will ultimately cause aggravation and possibly cost someone money. Quite often, one party will have to find interim lodgings while they wait for their new home to become available. Hence, the added cost of interim accommodation and the aggravation of moving twice! The party that compromises on the possession date may ask for compensation through a reduction on the final purchase price of the property.
• Irrevocable Period - like any contract, the offer or subsequent counter offer cannot be left on the table indefinitely. As such, all offers have a deadline and responses are required within the given period or the offer is null and void. In a Seller's market and when Buyers are only in town for a short period of time, the deadlines are often very short. Hence, you may want to ensure your REALTOR® knows how to reach you at work or if you go out of town. Thanks to technology, sending documents to alternate locations has become easier!
• Fixtures and Chattels - usually fixtures are permanently attached items such as wall-to-wall carpeting. Chattels are items that can be moved such as washers and dryers. Problems with these items don't normally appear until the Buyer moves into the home. It is then that he/she discovers something they thought was staying with the home has gone missing i.e., a specific light fixture or window covering. The Listing Agreement and Purchase and Sale Agreement should clearly delineate all items that may come into question. When in doubt put it in writing! Moreover, if you are going to replace an item when you move, such as your antique dining room light fixture, change it before you list your property for sale. Then it will never become part of the negotiations.
While the points noted above are important, they are but a few of the components of a PSA and offer. Given the variety and complexity of offers, Buyers, Sellers, and homes it is impossible to cover all the scenarios. Suffice it to say, your real estate professional is the one who can guide you through the maze of jargon and potential pitfalls. This assistance should minimize the stress during the offer process and ensure conditional offers are dealt with properly.
David Weir BA, CD is a Broker with Royal LePage ProAlliance Realty, Brokerage in Trenton. His sales in the Quinte area have ranked him in the Top 1% of all Royal LePage REALTORS® in Canada since 2005.