Know Your Buyer Before You Sign
When presented with an offer it is important to understand the commitment you are making to this buyer just as they are committing to you. When you accept an offer you are taking your home off the market and bypassing other potential buyers for anywhere from 15-45 days on average. For this reason it is important to go beyond offer price and look at some of the other details of the contract AND THE BUYER!
Before We Get Started
First, let's be absolutely clear, when I talk about knowing your buyer, I am referring solely to their financial capacity to satisfy the commitments they made in the Agreement of Sale and successfully close on their purchase. It is not only immoral, but prohibited to discriminate on the basis of race; color; sex; religion; national origin; ancestry; age (40 and over); pregnancy; familial status; handicap or disability.
When working with a REALTOR you are generally kept at arm's length from the buyer and will not be privy to any of this additional information. In addition, our code of ethics protects you from this exposure as we are committed to upholding the law. However, when selling by owner, you may be made aware of additional information about a potential buyer as you will be interacting personally with them and will need to be sure you are not violating any state laws in your interactions or offer selection.
Know Your Buyer
Whether in a single or multiple offer situation, reviewing the buyer's capacity to purchase the home is a very important step. Some items to consider about the buyer when reviewing an offer:
- Does the buyer have a CURRENT pre-approval from a lender or is it just a pre-qualification (and do you know the difference)?
- If financing, what type of loan (conventional, FHA, VA) and the impact of their loan type on inspections and settlement?
- Do they have enough funds to close the loan?
- Do they have to sell their home first before they can close?
- Are they flexible?
- Are they represented?
Know Your Contract
Now onto the contract. If you are not represented by a REALTOR, it is important to understand that even if the buyer has an agent who drew up the contract, their agent does not represent you. It is recommended that if you are not using a REALTOR that you seek legal advice and review prior to executing a contract.
The standard Agreement of Sale is a complex legal document that should be evaluated in detail. However, at a high level, here are some of the items that are most commonly negotiated or varied between offers:
- Price (obviously). While an over-ask offer might be appealing, be sure the rest of the contract isn't lacking. An appraisal contingency could put a damper on a bloated offer.
- How much deposit are they willing to put down? 3-5% of the sale price is about right.
- Settlement Date - The further out the date, the more risk you are accepting as your home sits off the market.
- What are the contingencies (home sale, inspections, appraisal, mortgage) where the buyer can back out of the deal and receive their deposit back?
- When do the contingencies expire?
- When will the mortgage company commit to the loan?
I am always happy to answer any questions you may have.
Matt Kapusta, Licensed PA & NJ REALTOR