One of the things that Realtors do for buyers and sellers that helps them get to the closing table is to help them negotiate Home Offers that include the terms and conditions of the sale. Right now, the inventory is at historical low levels and the buyers are finding the market incredibly competitive. While sellers may primarily be interested in price, there are other terms and conditions that buyers attempt to ‘sweeten’ so they win the competitive bidding process. We will review them below and consider how they could impact your sale.
Negotiating Home Offers in Real Estate
There are as many tactics and ways of negotiating offers as there are people. Each buyer and seller is unique and brings various goals to the closing table, thus they may negotiate different things whether it's the purchase price, closing costs, or required repairs from the beginning. While it may be tempting to adopt a ‘take it or leave it’ attitude at times, especially if the other side is playing hard to get, remember that all sales should be a meeting of the minds. Do not let your emotions get in the way of making the best of the situation. Let us review some basics of negotiating offers in Real Estate for Tallahassee.
1. The answer is always no if you do not ask.
This goes for buyers and sellers. This is often why sellers will receive low-ball offers. We have had more than one seller hang up when the hear what the buyer has offered only to call back with a cooler head. It is a natural response, we understand. There are always three options to a low-ball offer.
A) Say no formally.
B) Ridiculously counter offer their ridiculous offer.
C) Do nothing and let the offer die.
We recommend responding to the buyers in one of the first two ways so that buyer knows that you have seen their offer and it was stinky.
2. Do not be negative in your response.
Recognize that buyers, even you when you buy your next home, want a good deal. People go about getting to that ‘good deal’ (however it is defined by their personal circumstances) in different ways. Buying and selling a home is an emotional process and even when you feel like telling the buyer to go away, remember that people are more willing to work with people who are kind. You do not have to respond to offers right away. Take some time, especially if the offer made you mad, and consider several responses before choosing a response.
3. Have as much information as possible.
Here is another reason to have a home inspection prior to listing. Offer to share it with the buyer making an offer, along with any items you have addressed. Doing so makes you look more honest and helps appeal to the buyer’s pocketbook as well. If you have your old survey and can mark the posts, even better. If you have a copy of your title policy when you bought, that too can save the buyer money. Some contracts used by Realtors require the seller to provide it if they have it. Know what the local and latest sales were and what concessions were made to get to the closing table. Know the neighborhood statistics as well and how it is stacking up to the rest of Tallahassee and Florida.
4. Know your priorities and when to walk away.
When you start negotiating offers, you should already know what you hope to get out of it. Most the time sellers are looking at the cash they take away from the sale, but timing and required repairs can also play a big part in the desirability of an offer. Know your priorities up front so that when emotions are high, you have something to guide you. It is also a extremely good idea to let your agent know what to tell buyer’s agents when they ask why you are selling or what you are looking for in an offer.
5. Fair housing laws apply to the seller of Real Estate.
You may receive many competing offers and feel compelled to pick the one with the heartfelt buyer’s letter. Their story about opening presents under the Christmas tree near the fireplace can make you feel like you want the house to go to someone like your family – and why not since the offers are so close anyway? That letter reveals at least two protected classes – religion and familial status. The attorneys for the Florida Association of Realtors says that reading those letters and letting them influence your decision making could lead to you losing an anti-discrimination lawsuit over the sale of your home. So, make sure you base your decision on factual items and not the heartfelt letter.
Evaluating the Offer
Finally! Weeks of preparing your home and lives for the market, and you have an offer! Here are some questions to ask yourself and your agent to decide if this offer is a good deal.
1. Do you have an updated comparative market analysis for your house?
The market can and sometimes does change from the time you first speak with an agent until you receive that first contract.
?Storytime: We had a listing on a quiet corner near Costco. The seller was older and needed to get some things in order near her daughter before she could put her house on the market. Three months later, we are looking at her first offer. When we had first met and determined the price, we used comparable homes in nearby neighborhoods because nothing had sold in her neighborhood in two years. By the time she had prepped her home and went active on the market, three of her neighbors, all priced lower than she was, had joined her. Because buyers saw a bigger value in the lower priced homes, the other all went under contract before her. She was disappointed by the offer, but it was in line with the other homes in her neighborhood that were selling. Also, do not be the one that sells your neighbor’s house.
2. Ask your agent if they see any red flags.
Experience agents will see problems before they occur. Sometimes they see or smell something that you may have missed. Red flags do not need to be deal breakers but recognizing an issue will help you plan and prepare for it before it becomes a crisis. Some lenders are better at getting customers to the closing table than others. Our advice is to rely on local lenders over the national franchise brands.
3. How much is offered for an earnest money deposit?
Usually this is between $2,000 and $5,000 in our market – depending on the price point. We have seen offers accepted with a $500 or even $0 earnest money offered. This is something that can be negotiated and the higher the amount the more resources the buyer will have and the more likely they are to be able to finance a mortgage. We worked with one buyer that put down their entire loan down payment as earnest money (over $210K). Note: This money is the buyers as long as the buyer follows the contract. It is rare for a buyer to lose their earnest money deposit and what happens to this money is something you will negotiate with your listing agent and is documented on your listing agreement.
4. How much will you take from the closing table?
Your agent should be able to provide you with an estimate of what your closing costs and seller’s proceeds will be for each offer. We have a spreadsheet that helps sellers compare multiple buyers offers across several terms and conditions.
Commonly Negotiated Terms and Conditions in Tallahassee
1. Closing Costs:
Closing costs exist on both sides. Much of the buyer’s costs are for their home loan and due diligence. Sellers pay the Realtor’s commission and transfer fees to the municipal body. A buyer’s closing costs are generally between 3%-5% and it is common for Tallahassee buyers to ask the seller to cover some of the costs. Some loans cap the percentage a buyer can ask a seller to pay on the buyer’s behalf.
The recent near misses in Tallahassee from the hurricanes has led to insurance companies reevaluating their risks in Tallahassee. Insurance claims involving roofs being blown off during hurricanes are some of the largest in the industry. Insurance companies are looking for ways to minimize their risk of paying these claims. Insurance companies will offer discounts for new roofs that meet certain criteria. If your roof is at the end of its life, get some quotes on the replacement in preparation for negotiations. This is one of the few repairs that can be paid from the closing proceeds. We have several roofers we have worked with and can recommend.
3. Personal Property:
Personal property cannot be counted towards the value of the house per most lending rules. That does not mean that it should be ignored in negotiations. This should be handled carefully since some banks do not like to see personal property listed on the offer contract. That pool table that you have spent so many Saturdays hanging around as a family, it has loads of sentimental value, but have you considered how you are going to move it? Or the piano? These items in particular need special movers to make sure they are level and property reinstalled. It may be easier to purchase a new one (if you have space for it in your new home) and use this one as a bargaining chip.
Some buyers may have lenders require certain repairs before closing on the home and transferring ownership, especially VA loans. If the appliances are not working, some loans will require that be repaired or replaced. Most repairs are required due to homeowners insurance requirements, like the issue with roofs mentioned above. In most cases, it is better to offer the buyer money towards the repair instead of agreeing to make the repair. For example, you may have already planned to replace the windows and chose the ones that are clear and the buyer will ask (too late for the contractor to change it) for those with muntins. Give the repair concession and let the buyer’s contractor be on the hook for doing what the buyer wants. Just a note here, while as-is contracts usually means the buyer is accepting the house in the current conditions, that does not mean they will not come back and ask for repairs. People are people and if they do not ask, the answer is always no.
5. Closing date:
Some sellers want a quick sale and some want time to find their next place or to find a temporary next place. This is a conversation you should have with your agent before listing. Excellent selling agents will call and ask why you are selling and what, besides price, you are looking for in a contract.
Things to Consider When Reviewing Multiple Offers
It is not uncommon in this market for a seller to receive multiple offers after only days on the market. If you agent recommends posting your home as ‘coming soon’ on the MLS before going live, understand that without the house being actively marketed you may miss out on opportunities for a bigger audience and offer. As the seller, you are in control until you have accepted an offer. Most of the contracts used in the Tallahassee market allows the buyers to walk away from a contract, but not the seller. If you go back to the market after an offer falls through, buyers will wonder what is wrong with your house. Surely if one buyer rejected it, there may be a good reason for another buyer to reject it as well. It may have nothing to do with the house or the inspections, but buyers will wonder and may keep on swiping just to avoid any POTENTIAL problem.
1. Escalation clause
Some agents will send an addendum stating that their offer is $___, and if there are higher offers, they will match any other offer and increase it by $___ amount to a top price. Meaning, the buyer says they offer $300,000, but they will match and increase any other offer by $5,000 up to $420,000. In this situation, most sellers either accept an offer higher than the buyer's highest offer, or counter back at the buyer’s top price as noted in their addendum.
2. Let the appraiser call it.
Some buyers will offer way above and over what the last home sold for in a neighborhood. In this case they are trusting that the appraiser will bring the price of the house back in line with the rest of the homes on the street. This makes the appraiser the bad guy in this transaction, but if the house does not appraise, the seller can refuse to sell. It is one of the few times the seller can walk away from the contract without penalty. One the other hand, if this is a cash offer, or the buyer has waived the financing contingency, then the buyer may not have an appraisal completed and the risk to the seller are reduced considerably. Most contracts used in the Tallahassee area state that the buyer or the seller can terminate the contract if the house does not appraise.
3. Waive all contingencies.
This is something most agents in our area do not do, even in competitive bidding situations. The risks are too high. There are parts of Florida where the buyers are offering cash, way above list price, and agreeing to take the house no matter what the appraiser or inspector says. That is not Tallahassee. Contingencies are there to protect the buyers and most Realtors in Tallahassee are transaction brokers and do not encourage buyers to waive their contingencies.
4. Giving the seller extra time in the house.
This is not common, but something more than one seller has asked about. It would help a buyer win the bid in some cases. In cases where seller is closing on the home they are buying on the same day, some buyers are allowing the seller to occupy the home (with or without compensation to the buyer) for a few days after closing. Again, not something that Tallahassee agents typically negotiate, but it is something seen around the state. The downside would be the seller not moving out or damaging the house on the move-out.
5. You do not have to accept any of the offers.
If you have several good, but not a perfect offer, you can send counter offers back to the buyers and see which ones will meet your terms. Best to do this one buyer at a time to keep from having two active contracts on your house and a lawsuit waiting to happen.
6. You can share with the other buyers the details of the contract.
The only ones that can are the buyer and seller (not their agents), but if you have a really good offer and want to see if any of the buyers can beat it, you are allowed to share the terms and conditions of the contract or the contract itself. This is probably a good way to make buyer’s agents mad, and it is not the way things are typically done in Tallahassee.
Next Steps, Buyer’s Inspections and What You Need to Know.
After negotiating the terms of the inspection, the buyer will schedule inspections. Even if you have had a pre-listing inspection, the buyers may have their own contractor or inspector come take a look (or dad and uncle who used to build homes back in the day…).
In Tallahassee, most contracts have a 15-day contingency period for buyers to perform their due diligence and order any and all inspections they need in order to feel comfortable with their investment. Buyers can cancel the contract during these 15 days for any reason and the buyer is not required to pay for an inspection in order to terminate the contract. If the buyer finds something unexpected, they may ask the seller to repair it. It can be fun when you have conflicting opinions on code compliance, and we have some resources to help sort it out.
How to Prepare for a Home Inspection
We have talked before about how you have entered a beauty pageant and there are many judges we have to convince of your house's value before we get to the closing table. After the buyers and their agent, comes the home inspector. Here are some rules for dealing with inspections.
1. Do not conceal any defects.
Any home inspector worthy of their license will find it and you may have broken the law and/or find yourself in court even if the inspector does not find it.
2. Keep the utilities on – even the gas.
Many Tallahassee homes have gas fireplaces that the sellers will have the city turn off. If you are selling your house, have the city turn the gas back on so that the buyer can complete their inspections.
3. Replace all the lightbulbs.
Any lights that do not come on will be marked on the inspection report. That could raise red flags of electrical problems when it is just a burned out lightbulb.
4. Make sure the inspector can get to the electrical panel.
Remove everything that stands in front of it. The inspector is dealing with a panel that has thousands of volts in it. If he falls into it because he was trying to step around it, he could put himself in danger.
5. Clean out closets and do not block walls or doors.
Anything that is inaccessible will be noted and could raise concerns.
?Storytime: We once worked with buyers purchasing a home in a popular subdivision. During the inspections there was one wall that the inspector could not see so he noted it on the report. We asked the sellers to move their things so we could finish inspections but were told that the seller’s things were not going to be moved out until just before closing. During the final walk through, the wall was revealed to have an active infestation of termites. Things worked out in the end – the buyers had a termite treatment, two years termite bond, and money towards repairing the damage caused by the termites to the boards.
These Are the Problems That Can Kill Home Sales:
According to a poll conducted on Facebook with experienced agents in Florida, the most common issues that kill homes sales are:
- Hot Water Heaters - If it is more than 15 years old insurance companies are requiring it be replaced.
- Structural problems
- Active termites or other infestation
- Drainage and water issues (Tallahassee downpours!!)
- Mold/mildew problems
- Radon issues
- Wiring and electrical issues
- Plumbing issues
- Well water safety
- Heating or air conditioning system at the end of it’s life
- A bad roof
If you suspect your home may have any of these issues, you must disclose to a potential buyer. Since you will be required to disclose issues, consider having proposals for the repair completed by licensed contractors. You will need the information during negotiations, because buyers will often have no idea of the true cost so they let their fear pick a number randomly. Inoculate against that fear by obtaining the information and even if the buyer does not want to use that contractor, they will know the ballpark number they can expect.
Buying and Selling a Home with Lead Paint.
One of the additional inspections we see in Tallahassee is for lead-based paint. Most of the homes built before 1978 have lead paint in them somewhere. If your home was built before 1978, there is an additional disclosure you will be required to fill out about your knowledge of the lead paint. Lead is highly toxic, especially to children. Sellers do not have to remove the lead, but they must disclose their knowledge of it. The lead paint disclosure law is the only federally mandated disclosure law required for every state.
What a Real Estate Agent Wants from a Home Inspector.
Sellers and buyers should take the home inspection process seriously. Reputable Real Estate agents want to work with home inspectors that have customer’s best interests at heart. Agents want someone skilled at identifying issues and explaining those issues to clients – without unnecessary drama. An home inspector worth recommending will be as skilled at presenting information as they are at finding potential issues. Great Real Estate agents do not prevent a home inspector from doing their job.
What is Next? The Final Judge - the Home Appraiser.
We have finished the contingency period. Keep reading for what happens during the ‘pending’ period.