What Buyers and Sellers Should Know About the Offer
The offer is the initiation of formal communication about the transaction between buyers and sellers of a property. It’s a legal document that becomes a binding contract once the sellers have accepted the offer. The offer is also a complicated document that encompasses every aspect of the purchase you can imagine. Unfortunately, many buyers and sellers don’t understand the offer, which can lead to problems.
What the Buyer Needs to Know
The buyer is the one to initiate the offer on a property they are interested in purchasing. In essence, it tells the amount and terms of your offer, which includes numerous aspects of the agreement.
- Purchase price of the property
- When you would like to close
- Terms of the home inspection
- Details on the purchase, such as location and names of all parties involved in the purchase
These broad categories come with many specific details which must be attended to ensure the closing goes as planned without delays. Your realtor will walk you through all of the pages, explaining everything as they go. However, you should ask questions if you don’t understand any aspect of the offer.
Many offers include one or more contingencies, which are stipulations that must be met or else the contract will no longer be valid. The two most common are financing and inspection contingencies. In the financing contingency, the buyer is allowed a certain number of days to obtain financing on the property without being penalized.
With the inspection contingency, the buyer has a right to cancel the contract if the inspection shows problems they aren’t prepared to deal with or that the seller refuses to resolve. You are usually given a limited time to opt out of the contract before these contingencies are no longer in effect.
The seller must provide a clear title, which is also stipulated in the offer. This just means they prove they are the owner and no one else has a right to the property. It also shows no outstanding liens or other interested parties hold any claim to the property being purchased.
What the Seller Should Know
Once the buyer signs the offer, it’s sent to the seller’s agent who brings it to the seller. The task of the seller’s agent is to ensure the homeowners understand the terms of the offer. Once the owners have had time to review the terms, they have three choices:
- They can accept the offer as it is
- They can reject the offer
- They can make changes and submit a counter-offer
The issue many sellers face is which option is the best choice for them. While they may not like every detail of the offer, there may be times when they should and must accept it as it is. This scenario often happens in a buyers’ market when the seller may know this is the only offer they will receive.
More often, the case comes down to whether the offer should be rejected or altered. If the seller has multiple issues with the offer or the buyer is far off from what the seller is willing to accept, an outright rejection may be the timeliest option. Also, if the seller has multiple offers, it doesn’t make sense to try to save one that doesn’t meet their needs.
The best case for a counteroffer is when the buyer and seller is close in terms, but they have a few slight differences. Pricing is often the biggest cause of counteroffers. When the prices for the seller and buyer are too far apart, a counteroffer may not resolve the problem. On the other hand, if the seller can offer other concessions, such as paying part of the closing costs, the pricing difference may be managed successfully.
Other issues include the closing date or lack of pre-approval for financing. The seller may want to shorten the timeframe the buyer has to get approved with a lender to ensure the property doesn’t stay off the market only to have the buyer back out because they couldn’t obtain financing.
The challenge for the seller, when deciding how to handle an offer that’s not perfect, is to determine if it’s worth working through a counter-offer or if an outright rejection will be the better choice. In a seller’s market where the homeowner is likely to receive multiple offers, they will have more options and won’t feel “stuck” with the first offer they receive. In a buyer’s market or if they have a home that is difficult to sell, they may need to expect some negotiation in the process.
Both buyers and sellers must pay attention to the terms of the offer and realize that, once signed, the offer becomes a contract both parties are obligated to follow.