Most sellers assume that their agent’s primary role is to list their house on the Multiple Listing Service and to host prospective buyers and agents during showings. In fact, that’s the easiest part of the job. The most important and complicated parts of our job take place once the house has been shown and interested buyers begin submitting offers. That’s when it gets interesting (and possibly quite messy as well).
The more you understand about what’s going on at this stage, regardless of how involved you have been up to that point, the more efficiently you can work with your agent and the more smoothly the transaction is likely to go.
Accepting an offer
You’ve worked really hard to this point, finding the right agent and preparing your house for the market. Up until now you’ve had reasonable control over the process. Now it’s time to see what the market will bare, but there’s still plenty for you to do. In fact, being active and involved at this point is crucial to accomplishing your goals.
The first step to retaining control over the process of accepting an offer is to set will informed and realistic expectations. Keep a close eye on the current market and talk to your agent about where he or she thinks the market is heading and how strong or weak it is. Review your goals once again and remind yourself what is most important to you. Also, what are your alternatives if things don’t go according to plan? Can you take the house off the market? Could you rent it out? Knowing all of these things in advance will prevent you from being distracted by whatever situation may arise during the process. Finally, you want to figure out your bottom line.
Keep your bottom line in mind
Your bottom line is the absolute lowest price you could conceivably accept and still be better off than if you chose one of your alternative plans. This is not the price that you should expect to ever accept but just a “floor” to keep in mind when entertaining offers. We’re usually very confident that the listing price we’ve selected is an accurate reflection of the value of a house. But when sellers know their lowest acceptable price it helps them see the big picture and not focus exclusively on meeting or beating their asking price.
Once you know your bottom line, you’ll have an easy way to determine whether an offer is even in your ballpark, which can help you deal with the offer more objectively. Often sellers get offended when they receive offers even just a few thousand dollars below their asking price. But, with a bottom line in mind, you’ll immediately know if an offer is reasonable and whether you can deal with it constructively.
Working with your agent, determine the probability that you’ll sell your house for the asking price within the average days on the market for comparable local properties. It’s impossible to know the exact probability, but it’s more important to be realistic than to be perfect. In this case, let’s use as an example the probability of a house listed for $400 000, selling in one month. Assuming you priced your house correctly and prepared it well, the probability of getting close to or right at your asking price should be pretty high, but of course it depends on your local market. In an average market we would guess that any house we list for sale has a 70 percent chance of selling for listing price within the local average market time.
If there’s a 70 percent chance that the house will sell for the asking price in one month, then there’s a 30 percent chance that something else will happen. The next step is to determine the likelihood of the other possible outcomes. For example, you might believe that if you lower the price to $360 000, there will be a 90 percent chance of selling at that price. That leaves a 10 percent chance of not selling even at that lower price. In this case, you might decide to rent out the house for two years with a net rental income of $30 000 for that period.
When you receive an offer (or offers, if you are fortunate enough), it’s important to remember that you start off with the upper hand in any negotiations. The listing price, which you and your agent originally set, “anchors” the negotiation and is the most salient factor when buyers think about what to offer for the house. While they do look at comparable homes and consider other factors, buyers are powerfully influenced by the asking price when determining your home’s value.
You know what your bottom line is, and you’ve carefully figured your goals, so you have clear boundaries and expectations for the negotiation. It’s relatively easy for buyers to increase their offers. Since they will pay down their loan over many years, adding several thousand dollars to their offer will result in only a slight increase in their monthly payment. In case, on the other hand, lowering the asking price takes that money right out of your jeans. Every dollar you lower your asking price is a dollar you won’t get at the closing. I’m not suggesting that you get greedy and become obsessed with your sale price, but you do need to understand that there is a difference between how you and the buyer will approach the negotiation.
As we move forward through the negotiation process, I’ll make sure that you retain as much control as possible.
Stay open (minded) for business
Dealing with low-ball offers, you never know who the buyer might be, and what they are capable of doing. Everyone has to start somewhere. They need to know what they can’t buy the house for sometimes. So, it just makes good business sense to treat every potential customer with respect. Always keep the lines of communication open. An interested buyer may be inexperienced and might be forcing their agent to submit the offer, which he or she is obligated to submit. A strong counteroffer or simply a written memo would communicate to the buyer that his offer was unreasonable and he needs to increase it substantially. Be sure that you encourage the buyer to rethink his offer but still maintain the powerful anchor of the listing price. Your communication should invite him to make a better offer.
Of course, there are some offers that just do not require a response. Assuming that you and your agent have priced your home at current market value, offers more than 20 percent below the asking price are probably bottom feeders looking for a steal. Offers with outrageous contingencies can show that the buyer isn’t serious.
In some cases, though, it’s perfectly acceptable to reject an offer that seems to be more trouble than it’s worth. As always, your agent should offer guidance throughout this part of the process.
An offer you can’t refuse
Oddly enough, receiving a reasonable offer can get sellers into trouble. They start imagining more and higher offers rolling in and they lose sight of their goals. I’ve seen many sellers reject that first offer, assuming that something better will come along. If the second offer doesn’t immediately materialize, they start regretting the decision. Then, when another offer does arrive, it is often accepted hastily despite its shortcomings.
Remember, accepting an offer is just the beginning. Once the sales agreement is signed there still could be a lot of negotiation.
The sales agreement
The purpose of the sales agreement is to lay out the details of the sale, while protecting you financially (as well as emotionally). Your ultimate goal is to make sure that the sale is completed successfully and to specify all of the requirements that you and the buyer must complete before closing the sale and transferring the property. If the buyer does not perform according to the contract, a properly written sales agreement will ensure that you are adequately compensated. Remember, if this sale falls through, it doesn’t affect just the timing of your move. It is also likely to negatively affect your eventual sale price.
It is definitely useful for all sellers to be familiar with the basic components of the sales agreement. With this knowledge, you can bring up any specific concerns or details pertaining to you and the buyer so that each agent can tailor the agreement to meet everone’s particular needs.
Price: Hopefully this figure warms your heart and sends visions of early retirement dancing though your head. Just don’t allow a high offer price to blind you to other flaws that can cause trouble down the road.
Initial deposit: Generally speaking, you want the buyer to put down as large a deposit as possible. It not only indicates just how serious and financially capable the buyers are, but if the deal does fall through you’ll want the maximum possible financial remuneration to compensate you for lost time and possible impact on your home’s market value.
The closing process
For many sellers, and particularly those with good agents, the closing process is a relatively quite part of selling a house. Hopefully the only activity will be a few phone calls and a handful of straightforward decisions regarding any negotiating points. Beyond that, the most difficult part about the closing for sellers is signing that huge stack of legal documents without succumbing to a nasty case of writer’s cramp. But behind the scenes, many different parties are working feverishly to make sure everything is in place so that all you have to do is get up and start signing. Its our job as agents to keep that circus running smoothly and on time, and to address any issues that can arise at any time along the way.
For any closing, sellers really feel the weight of the transaction as they reach the end of this major chapter in the process. There’s the joy and pride of a job well done, then there’s the relief of no longer being sellers, and finally there’s the realization that a new exciting transition lies ahead.