Chapter 8: The Road To an Accepted Offer

Tips for Counteroffers

Based on this norm, you will be helping your clients write counteroffers. Although it is legal to make changes directly to the original purchase and sale agreement, it's best not to do that. If too many changes are made directly on the agreement, it may become difficult to read and interpret. If this happens, the agreement could become unenforceable. Whenever your clients are making a counteroffer, it's best to follow a format that is specially designed for just that purpose. Remember, if the Commission has not approved a form, you must use an attorney.

The Basics of Closing the Deal: Use an inducement.

Be prepared to offer the buyer something if the buyer moves forward now. For example, depending upon the interest rates, you could say something like, "I saw that interest rates were lower today. If we make an offer now, perhaps we can take advantage of the dip in rates." Be careful with this technique that you only offer something you have the reasonable assurance you can deliver.

Types of Earnest Money

Cash Personal check Cashier's check Postdated check Promissory note Personal property NOTE**: This disclosure is not optional. You could face disciplinary action of you fail to make the disclosure to the sellers. You must also inform the sellers if something happened to the deposit, such as the check bounced or the promissory note was not paid. You could also be liable for damages if you don't disclose to the sellers the information about the earnest money and then for some reason the buyers don't give the deposit.

Cash

Cash deposits are less common than personal checks, but they do occur. However, they pose their own special issues, most importantly the problem of loss or mishandling.

More Tips

Often sellers are tempted to counter the offering price with the original asking price. This is not a good idea. Many buyers would rather walk away from a sale than pay full price, so you need to counsel your sellers to allow the buyers to see some advantage to the negotiation. One approach that works well is to suggest that the sellers "split the difference" between the offering and asking prices.

Handling Deposits:Personal Property

On rare occasions, you may come across a buyer who wants to use personal property as an earnest money deposit. Such a deposit could be in the form of stocks, bonds, jewelry or even a car. Only the sellers can decide if they are willing to accept personal property as a deposit. If they decide to do so, the sellers and the broker will have to decide how they will safeguard the items until the transaction closes.

The Offer Presentation

Organize your presentation to cover: A brief review of what has happened over the life of the listing Information about the buyers The offer itself Review the Listing Take a few minutes to review what has happened over the life of the listing, including such things as: Advertising efforts Open houses Showings Responses to showings Previous offers that may have been received on the property Make sure this part of the presentation is brief, because the sellers will be anxious to hear the offer. However, this review is important because it helps set the stage for the sellers' reaction to the offer you're about to present.

The three most common forms of earnest money deposit are:

Personal check Cash Promissory note

Although every provision of the offer is important to explain and discuss, these are particularly important:

Proposed closing date Proposed possession date Included items list - this includes personal property that transfers with the sale Contingencies - financing, inspections, sale of buyers' home or other contingencies Seller actions prior to closing - repairs, trash cleanup, etc.

More About Low Offers

First of all, a broker is not obligated to present an offer that is ridiculously low. A broker is obligated to present all offers they write, but no law requires a broker to write an offer that is embarrassingly low. If the offer being presented is significantly lower than the asking price, assure the seller that the offer is financially based, not personally based. The buyer and the seller do not know each other, so there is nothing personal about the offer. If the house is overpriced, focus on the fair market value of the house and have the support to back up what you are saying.

Handling Deposits

When you receive an earnest money deposit from your buyers, you must turn it over to your broker right away. A combination of real estate license law and the terms of the particular buyers' purchase and sale agreement dictates how your broker handles the deposit after he or she receives it from you. As we said earlier, most earnest money deposits are personal checks, so let's take a closer look at how checks are handled.

The Basics of Closing the Deal: Proceeding as if the buyer has decided to make an offer

With this technique, you just go ahead and start writing it up once you get the signal the buyer is almost across the finish line. Don't wait for them to say, "Okay, let's make an offer." As soon as you get the signal, grab the Contract and start filling it out. Ask a couple of assumptive questions to get started. For example, "What closing date would be best for you?" or "How much do you think you will put down?"

When accepting an offer, these three things are of paramount importance:

1. The person or persons who made the offer or counteroffer must receive notice of the acceptance. 2. The acceptance must be made in a certain manner. 3. None of the terms of the offer can change as a result of the acceptance.

Methods of Communication

A party can communicate the acceptance of an offer in several ways: In person - When a party delivers the acceptance to the other party in person, acceptance takes place at delivery. By mail - This is governed by what's called the "mailbox" rule. This means that the contract is created at the time the party drops the agreement acceptance in the mail, even though the other party doesn't receive it immediately. By telegram - This method is governed by the mailbox rule, making this method as legitimate as the original documents. By fax - This method is also governed by the mailbox rule, making it as legitimate as the original documents. -To the agent - When a party delivers the signed contract to the other party's agent, it is considered to be communicated, even before the agent has a chance to tell the client.

E-4. Document preparation and duplicates

A real estate broker shall immediately deliver a duplicate of the original of any instrument (except deeds, notes and trust deeds or mortgages, prepared by and for the benefit of third party lenders) to all parties executing the same when such instrument has been prepared by the broker or the broker's employed licensee or closing entity and relates to the employment or engagement of the broker or pertains to the consummation of the leasing, purchase, sale or exchange of real property in which the broker may participate as a broker. For purposes of this rule, duplicate shall mean legible photocopy, carbon copy, facsimile, or electronic copies which contain a digital or electronic signature as defined in 24-71-101(1) C.R.S. Such broker shall retain a copy of the duplicate instruments for future use or inspection by an authorized representative of the Real Estate Commission. If a broker or the broker's agent prepares a mortgage or trust deed for the benefit of a buyer or seller, an unsigned duplicate of such security instrument, together with a copy of the note, unsigned or prominently marked "copy," shall be furnished to the purchaser; copies shall also be retained in such broker's office for further use or inspection by an authorized representative of the Real Estate Commission. Cooperating brokers, including brokers acting as agents for buyers in a specific real estate transaction, shall have the same requirements for retention of copies as stated above, except that a cooperating broker who is not a party to the listing contract need not retain a copy of the listing contract or the seller's settlement statement. Pursuant to Rule E-3, a broker is not required to obtain and retain copies of existing public records, title commitments, loan applications, lender required disclosures or related affirmations from independent third party closing entities after the settlement date.

The Basics of Closing the Deal: Give the buyer a choice between two possibilities, both of which assume a purchase

All of us who have purchased cars are familiar with this technique. The salesman sees us wavering and asks, "Would you prefer the six- cylinder or the four?" He is assuming we are going to buy and is knocking the "no" response out of the box. Use the same technique on the buyer. Ask, "Would you rather try for conventional financing or an FHA loan?" By not letting them off the hook, you get them to focus on filling out the offer.

Fair Housing and Offers

As you remember, it's against the law to: Refuse to sell, rent or negotiate with any person Change terms, conditions or services for different individuals as a means of discrimination State or advertise that the property is restricted Tell persons that a property is not for sale or rent when it is Deny membership in any multiple listing service (MLS) or any broker's organization Use discriminatory advertising Give different terms for loans to buy or repair or deny a loan altogether

Communicating Acceptance

An offer is not a valid contract until it has been accepted and the person who made the offer is notified of the acceptance.

Breech of Contract

As a listing agent, you want to be sure that your sellers don't accept two offers. Since only one set of buyers could actually complete the purchase, this situation would put your sellers in the position of having to breach the contract with whichever set of buyers don't get the property. Also, never suggest to your sellers that they try to break an existing agreement in favor of a subsequent offer that comes along. If you were to do so, you could also be held liable for any damages that were caused by the sellers' breaching the first contract. If at any time your sellers tell you that they want to end one contract in order to accept another, more favorable one, you should recommend to them that they seek the advice of a real estate lawyer before they act.

Earnest Money Refunds

As you know, if a transaction doesn't close, the earnest money will either be returned to the buyers or given to the sellers, depending on the circumstances. Earnest money is usually returned to the buyers if one of these situations occurs The sellers reject the offer. The buyers withdraw the offer before the sellers have accepted it. The sellers have accepted the offer, but one or more of the contingencies fail.

Fair Housing Law also prohibits:

Blockbusting, panic peddling or panic selling - Making a profit by inducing owners to sell by telling them that persons of a protected class are moving into the neighborhood, which will have detrimental results, such as the lowering of the property values. Steering - Channeling homebuyers toward or away from homes in certain neighborhoods in order to preserve or alter the makeup of that neighborhood. Redlining - Restricting the number of loans in certain areas of a community because of its racial or ethnic makeup.

Rule E-1

Checks received as earnest money under an earnest money contract must be identified as a check in the contract and may be withheld from presentment for payment only if so disclosed in the contract or pursuant to the written instructions of the seller. If a note is received as earnest money under an earnest money contract, the seller must be informed by identifying the note in the contract and by informing the seller of the date such note becomes due by stating the due date in the contract or attaching a copy of the note to the contract. The broker must present the note or check for payment in a timely manner and if payment is not made, the broker shall promptly notify the seller. All money belonging to others which is received by a broker as a property manager shall be deposited in such broker's escrow or trust account not later than five business days following receipt. All other money belonging to others which is received by a broker shall be deposited in such broker's escrow or trust account not later than the third business day following receipt. Except as otherwise agreed to in writing, in any real estate transaction in which one broker holds a listing contract on a property and where the selling broker receipts for earnest money under a contract, the selling broker shall deliver the contract and the earnest money to the listing broker who shall deposit the earnest money in the broker's escrow or trustee account in a recognized depository not later than the third business day following the day on which the broker receives notice of acceptance of such contract. If such selling broker receipts for a promissory note, or thing of value, such note or thing of value shall be delivered with the contract to the listing broker to be held by the listing broker. Any check or note shall be payable to, or assigned to, the listing broker.

Preparing for the Presentation

Complete a "Seller's Estimate Net Proceeds" worksheet. If the offer is less than the asking price, you might want to prepare an estimate of the costs of the sale based on the offering price. Preparing this form shows the owners what they will net from this particular offer and gives you some back-up for the recommendations you are planning to make. If the property has been listed for several months and the market values have fallen during that time, update the CMA you did at the time of listing. This is especially helpful if one of the comparables you used in the original CMA has since sold.

Actions that would be judged as discriminatory include:

Discrimination in the terms, conditions, or privileges of a real estate transaction. Refusal to receive or failure to transmit a bona fide offer. Refusal to negotiate a real estate transaction. Discrimination in the negotiation or execution of any item or service related to a real estate transaction, such as title insurance, mortgage insurance, or loan guarantee. Insertion into a written instrument, such as a purchase and sale agreement, any provision which professes to prevent or restrict the conveyance, encumbrance, occupancy, or lease of the property to individuals in a protected class (Any such provision would be void). Insertion into a written instrument, such as a purchase and sale agreement, any condition, restriction, or prohibition which directly or indirectly limits the use or occupancy of real property to individuals in a protected class (Any such provision would be void). The attempt to honor any such provision or condition as described in the previous two statements.

Here are some important tips to follow when drafting a counteroffer:

Don't exert pressure on your clients to include something the other party wants When changing important terms, rewrite the whole paragraph so it will be clear Refer to the paragraph number of the original purchase offer when appropriate Don't make changes just for the sake of change Be sure to date and properly attach any supplements Make sure the document is signed properly

Keeping Tabs on the Deal

During this period, you should check frequently to see that things are happening on schedule and keep your clients informed about how things are progressing. If you discover small problems, you can get them addressed before they blossom into bigger problems. Keep in mind that many deals fail during escrow, so paying attention during this period can reap great rewards.

Other Aspects of the Offer to look at include:

Earnest money amount - Does the deposit amount show that the buyers are very serious? Type of financing - Does the buyer have a large down payment or, even better, is it a cash sale? Contingencies - Is the contract contingent on the sale of another home or an appraisal amount or is it free of those potential stumbling blocks? Closing/possession date - Do the dates give the sellers the flexibility they need to find their next home?

Disposition of Earnest Money

Earnest money is usually given to the sellers if the buyers decide to back out of the sale after the sellers have accepted the offer. Most purchase and sale agreements state that the earnest money will be treated as liquidated damages if the contract is breached. By agreeing to this, the buyers can avoid being sued by the sellers for actual damages. Note: Even though the sellers will receive the earnest money as liquidated damages, some purchase and sale agreements state that any expenses already paid out that were to be paid at closing will be deducted from the earnest money BEFORE the sellers get it. In addition, most listing agreements state that the sellers will split the earnest money they receive with the brokers to help take the place of the commission they would have received if the sale had closed.

Back-Up Offers

Every so often you will deal with buyers who want a particular home so badly that they are willing to write a back-up offer. A back-up offer consists of the usual purchase and sale agreement with an attached addendum stipulating that the offer is contingent on the failure of the closing of the sellers' first purchase contract.

Duty to the Seller

However, if you believe for whatever reason that the offer is not in the sellers' best interests, you should not recommend its acceptance. You must tell the sellers how you feel and what you think about the offer. This is even more critical when you are dealing with sellers who don't have much experience in the real estate market and are relying on you to be their expert advisor. Remember, you owe your sellers a fiduciary responsibility here. The sellers' best interests take precedence over your commission. There are not too many instances when you would recommend an absolute offer rejection; however, they do exist. If you feel that the offer is ridiculously low or the buyers are seeking to take advantage of the sellers in some way, you might recommend rejection. But do make it clear to the sellers that once an offer is rejected, it's "dead in the water." The sellers have lost their right to enter into a contract with those buyers. As we discussed on the previous screen, if an offer is reasonable and fair you should be working toward acceptance rather than a counteroffer. Unfortunately, many agents are quick to recommend that the sellers make a counteroffer, especially if the offer was less than the list price. This may be the "easy way out" to avoid a difficult discussion with your sellers, but it may not be the best route to take.

The Low Offer

If the offering price is less than the listing price, but you believe it is a fair and reasonable offer, you'll need to defend it to the sellers. Try to explain the buyers' reasoning in offering the price they did. If the sellers understand the motivation behind the offer, they may be more willing to accept it. And promoting mutual respect between the buyers and sellers will increase the likelihood that the sale will move through escrow and closing successfully. Making Recommendations Keep in mind that once you present an offer, the seller can take one of three actions: Accept the offer exactly as it is written Reject the offer totally Reject the offer and submit a counteroffer to the buyer for his or her consideration If you believe that the offer you are presenting is a reasonable and fair offer, your goal should be to seek the sellers' acceptance rather than a counteroffer.

The Listing Agent

If you are the listing agent, you will be receiving offers from other agents to present to your sellers. As soon as you receive an offer, you should arrange to meet with your sellers as soon as possible. By law, you must present all offers you receive as soon as possible. Sometimes when calling to set the appointment, the sellers get anxious and want to hear the offer price over the phone. This is not a good idea!! Price is only one aspect of the total picture. Often the other terms, along with the offering price, make the offer much more acceptable than price alone would indicate. Or alternatively, the offer viewed as a whole could be the jumping off point for a good counteroffer. If the sellers still insist on hearing the offer, tell them that they deserve to hear a thorough explanation of all the terms and ask them if they are available to meet with you immediately. Sellers cannot accept an offer over the phone, but they can certainly reject one. Do whatever it takes to avoid a telephone presentation.

Presenting the Offer: The Selling Agent

If you are the selling agent, take time to go over the entire offer with the listing agent to be sure he or she understands exactly what the buyers are offering. If the buyers have some special circumstances that you think would be important for the sellers to know, you might want to ask to go along to the presentation meeting with the listing agent. If you are present at the meeting, you can answer any questions the sellers may have about the buyers or the offer. Note: If you do go to the presentation meeting, you must disclose your agency status to the sellers.

Multiple Offers for Buyers

If you find your buyers facing a multiple offer situation, it's important for you to work with them to make the offer as attractive as they can to the sellers, without giving up a lot of what the buyers want in the deal. Some suggestions for changes include: Increasing the amount of earnest money (if your buyers can afford that) Offering to close in a shorter period of time Having the buyers write a special letter to the sellers (to make the transaction more personal) Making sure the buyers have a pre-approval letter from their lender (sellers will not usually consider an unapproved buyer over an approved buyer with a similar offer) Adding any special terms or concessions that you may be aware the sellers want

Who Handles the Deposit

In most cases, it is the selling broker who will be responsible for the handling of the earnest money deposit. Since most buyers give the earnest money check to their selling agent, the agent must give it to his or her broker for deposit or holding. For this reason, brokers must set up procedures that their licensees must follow when dealing with earnest money. It would be important for the licensees to know what to do if they receive money when the office is closed or when the broker is away. Just like in other situations, checks written for earnest money can bounce. So it's not a bad idea to have a provision in the purchase and sale agreement that says the buyers must wait until their check clears before they would be entitled to a refund of their earnest money deposit.

When to Deposit

In some cases, the purchase offer stipulates that the broker hold the check for a certain time period or until something specific occurs - like the acceptance or rejection of the offer. In a case like this, the broker will hold the check until the seller accepts the offer, at which point the broker will then deposit the check into his or her trust account within some specific number of days after the sellers' acceptance. If the sellers reject the offer, the buyers will get their check back immediately. If the sellers counteroffer, the broker will continue to hold the check until the buyers decide what they want to do. If the buyers accept the offer, the broker will deposit the check. If the buyers reject the counteroffer, they will get their check back. Taking it a step further, if the buyers counteroffer the sellers' counteroffer, the broker will continue to hold the check. In this scenario, the broker will continue to hold the check until there is either an acceptance - whereby the check will be deposited into the trust account - or a final rejection - whereby the check will be returned to the buyers. In other cases, the purchase and sale agreement will stipulate that the earnest money check go to a third party, such as the escrow company. When this happens, the broker must send the check to the particular party to arrive within the specified time period.

Counteroffer

It's important for you to make it clear to the sellers that a counteroffer is in effect a rejection of the original offer and submitting a counteroffer gives the buyers a way out. Most people are very familiar with the concept of having "second thoughts" about a purchase. If the buyers are having second thoughts, submitting a counteroffer might just give them the "push" they need to get out altogether. Even when buyers are considering a counteroffer, they rarely stop looking at other properties. Conceivably, they could find something else they like better and reject the counteroffer. If you have a good relationship with your sellers and they trust your judgment and advice, chances are increased that they will follow your recommendation to accept the offer. However, bear in mind that selling as well as purchasing is an emotional decision. So the job of persuading your sellers may not be an easy one. Most sellers object to offers based on the offering price. This is understandable, since they were probably counting on a specific amount for the sale and may feel "cheated" at having to accept something less. A good approach is to show them the difference as a percentage rather than as a dollar amount. For example if the list price was $400,000 and the offer is $388,000, show the sellers that this offer represents 97% of their asking price instead of a $12,000 "loss."

Effect of Counteroffer

It's important for your sellers to understand that when they make a counteroffer, they are effectively terminating the original offer. The counteroffer becomes a new offer and the buyers have no obligations under the original offer.

Here are some practices that you could adopt that will help keep you in compliance

Make sure you ask all of your buyers the same questions when trying to prequalify them. Use a standard form or a checklist of questions for every client so that you will have documentation that you have treated everyone in the same manner. Never give any member of a protected class the impression that he or she will have a harder time getting financing and never make that implication to the sellers. Make sure you offer to show all of the properties in your area that meet the clients' stated needs. Never assume that you know what the clients need or want, especially when choosing neighborhoods. Treat everyone equally with regard to setting up and conducting showings, making appointments to write offers, and negotiating offers. If you observe any discriminatory behavior, either in word or action, by a seller, tell your broker about it right away. Keep an eye out for any seller whose rejection of an offer appears to have discriminatory overtones and ask your broker or your firm's attorney how you should handle the situation if it occurs.

In a multiple offer situation, your sellers may take any of the following actions:

Reject all offers Accept one offer and reject all others Counteroffer one of the offers and reject all others Accept one offer and do a contingent counteroffer on another offer (This is called a back-up offer)

Communicating Acceptance: Example

Sally Jones has her home for sale. Tim Meyer makes an offer on it. While Sally is considering the offer, Tim finds another he prefers. He notifies Sally that he is withdrawing the offer. Sally is upset, complaining to her listing agent that she had already signed the agreement before Tim withdrew it. Unfortunately for Sally, she had not given a copy of the signed agreement to Tim, so her acceptance was not considered "communicated." So Tim retains the right to withdraw his offer.

Manner of Acceptance

Since an offer to make a purchase must be in writing to be enforceable, the acceptance of the offer must also be in writing. It cannot be done orally or the contract will not be enforceable. Consider this situation. Jenny and her agent write up and submit an offer on Brad's home. When Brad receives the offer, he gets excited and calls Jenny to accept the offer. The next morning, Brad receives a better offer from another buyer. Since Brad's acceptance of Jenny's offer is not yet in writing, he can withdraw the offer in favor of the better one. Sometimes a party may stipulate how the offer must be accepted for it to be a binding contract.

Preparing a Counteroffer

So when buyers make an offer on a property they almost expect that the sellers will reject the offer and make a counteroffer. Most sellers object to the first offer buyers make on one or more of the following terms: Offering price Earnest money amount Closing date Possession date Items included in the sale Terms of financing

The Basics of Closing the Deal: Use third party verification

Sometimes an objective third party can be called upon to convince the buyer to make an offer. This one is a little more difficult but third party verification can come from many sources.

Multiple Offers

Sometimes sellers receive more than one offer at the same time. Other times sellers will receive an offer while they are considering one they have already received. As you know, the listing agent is obligated to present to the sellers every offer that is submitted on their property by any buyers.

The Basics of Closing the Deal: Ask the right question.

Sometimes the best approach is to just ask. Say, "Will you sit down with me and prepare the offer?" The worst that can happen is the buyer says "no," in which event, you can find out what concerns are remaining. It might entail another look at the house with your pointing out all the benefits. You just do not know if you do not ask.

Dealing with Low Offers: Explaining the benefits to the seller

Strong earnest money deposit Evidence of great credit rating Solid and stable employment Flexibility on closing dates Preapproval for the necessary loan No contingencies Secondly, you will need to have the data to back up the lower offer. Maybe you need to update the comparables, maybe the market has changed a little. You need to support the buyer's offer some way so that you can explain the offer is a reflection of the market and not a personal affront to the home itself. Break down the cost of the price differential into a daily amount to minimize the difference. For example, if the price being offered is $10,000 less than the listing amount, break it down into what it costs to borrow $10,000 on a 30 year loan. That equates to $750 per year or around $2.00 per day. Finally, tell the seller that the buyer has a second choice in line but the buyer wants to try to arrive at a number with the first choice seller before moving on to the next choice.

Contingent Counteroffer: Example

The Browns have submitted an offer on the Jones' home, which already has an existing signed purchase and sale agreement. The Jones like the Browns' offer better than the one they have already accepted, but it does not include a back-up addendum. So what can the Jones do? You can advise the sellers to do a contingent counteroffer. They will repeat the same terms the buyers offered, but they will attach the back-up addendum so that the second purchase and sale agreement becomes contingent on the failure of the first offer. If the buyers accept and the first sale fails to close, the sellers will automatically have a binding contract with the second buyers.

Effect of Counteroffer: Example

The Halls make an offer on the Bryants' home for $250,000 with a $1,000 earnest money deposit. The Bryants like the price but not the deposit amount, so they make a counteroffer to the Halls for a $5,000 deposit. The Halls do not want to pay that much earnest money, so they reject the counteroffer. This terminates the offer. The Bryants cannot now accept the Halls' original offer. They terminated the original offer when they made the counteroffer. If the Halls decide they still want to purchase the home, they can choose to renew their offer, but they have no obligation to do so. If they have changed their minds, they can simply walk away. Once the buyers have had a chance to review the counteroffer, if they choose to accept it, they can just sign the bottom of the counteroffer form where indicated and return it to their agent who will notify the listing agent that the counteroffer has been accepted.

Copies, Facsimiles and Duplicate Signatures

The broker must deliver copies of a fully executed contract to all parties to the transaction and must retain a copy in the broker file along with a copy of the earnest money check. Rule E-4 addresses document preparation and retention

Earnest Money

There is no set standard for how much earnest money buyers should give. It rarely goes beyond 10% of the purchase price and is typically much lower. The amount of the deposit is usually dependent on the financial status of the buyers. Buyers who plan to make a large down payment on the property can generally afford to make a large earnest money deposit, since the earnest money will go toward the down payment at closing. On the other hand, if the buyers are looking for a no-down payment government loan, they may not have the resources to make a large earnest money deposit. You should encourage your buyers to make a large enough deposit that the sellers will think they are serious, while at the same time, the buyers will have a good financial incentive to follow through. It should also be enough money to compensate the sellers for their time and expense associated with having the property off the market if the deal falls through.

Promissory Note

This is not a very common form of deposit because of the risks involved. If your buyers want to give their deposit in the form of a promissory note, make sure your sellers understand that if the buyers refuse to pay the note when it comes due, the sellers will have no recourse other than to sue for the money. There is a Colorado approved form EMP80-5-04 that you can provide to your buyers when doing an earnest money deposit as a promissory note. This is a one-page form. When using this form the buyer is agreeing to pay the broker a specified amount of earnest money, on some specified date. The form goes on to stipulate that if the buyers fail to pay the earnest money as agreed, and the sellers are forced to sue for collection, the buyers will be responsible for all attorneys' fees and court and collection costs.

Personal Check

This is the most often used form of earnest money deposit. Whenever your buyers are writing an earnest money check, they should make the check out to the name of the firm of the broker who will be depositing the check if the sellers accept the offer. So if you work for ABC Realty Company, the buyers should make the check payable to ABC Realty Company. Before you accept personal checks from any buyers, confirm with your broker that it is company policy to accept personal checks. Some brokers prefer cashier's checks or money orders. Also check your broker's policy on accepting postdated checks. If a check is postdated, it cannot be deposited until the date that is written on the check. Be sure you disclose this information to the sellers when the offer is submitted. If your buyers want to use a postdated check because of some financial issues, you might suggest to them that they offer a smaller deposit up front with the offer along with a statement in writing that they will make another deposit by a certain date.

The Basics of Closing the Deal:Employ the "last shirt on the rack" technique.

We are familiar with this technique as well. It's the "better get it before it's gone" technique. You are appealing to the buyer's fear of losing something the buyer wants. It is human nature to want what we cannot have; this is the emotion to which this technique appeals. This technique is particularly effective if it is true. Maybe the home is in a high demand area. Maybe there are other buyers in the wings of which you are aware.

Multiple Offers: Example:

You are the listing agent for Matt and Shelly Cane. You presented an offer to Matt and Shelly yesterday and they were very excited about it. They told you last night that they are seriously considering accepting it, but they have not signed the agreement as yet. This morning you receive another offer on the Cane property. This offer is $10,000 less than the offer they are currently considering. In a situation such as this, you are obligated to contact the sellers as soon as possible and present the second offer. You cannot wait to see if they accept or reject the first offer you presented. When there are fewer homes on the market, multiple offers on desirable homes can be common. This is good for sellers, because when buyers know they are competing with other buyers for the same home, they tend to limit their contingencies and offer higher purchase prices. In some cases, the offering price may actually go higher than the listing price. For these same reasons, multiple offer situations are not attractive to buyers. So many buyers may choose to avoid them.

Back-Up Offers: Example

You show the Jones' home to your clients, Mary and Bob Brown. They love the property and tell you they want to write up an offer. You call the listing agent to let him know you'll have an offer ready for him in a couple of hours, and the agent tells you that the Jones just signed a purchase and sale agreement with another set of buyers. The Browns are very upset, saying that this home is exactly what they have wanted for a long time. What can you do? In a case such as this, you can suggest to your buyers that they write a back-up offer on the property. You explain that if the sellers accept their back-up offer, their purchase and sale agreement will move forward immediately if the first contract falls through.

Example: Earnest money

Your buyers write an offer for a property on a Friday evening. They give you a cash deposit of $1.000. You cannot give the money to your broker until Monday and you can't deposit it. Nevertheless, you are responsible for the money until you can give it to the broker. Again, check with your broker as to your company's policy for accepting and handling large amounts of cash. Your broker may have a policy against taking cash, so your buyers may have to get a cashier's check or money order instead. Note that if you do accept cash, then you must turn that cash over to the broker. You cannot convert it into another form. In other words, you cannot get a cashier's check or money order or deposit it into an account and write a personal check for the same amount.

Example of Earnest money situations

Your buyers, Tim and Nancy Green, make an offer on the Williams' property. They tell you they will give the sellers $3,000 in earnest money, but they don't have their checkbook with them. They tell you they will give it to you the next day and they ask you to submit the offer to the Williams. When you submit the offer, you must tell the Williams that the Greens are making a $3,000 earnest money deposit, but that they have not given you the check as yet. If you do not tell the Williams about the lack of receipt, you could be subject to disciplinary action. In addition, if you do not tell the sellers that you don't have the money and they accept the offer thinking you do, the Williams could sue you and your broker for that amount of money if the Greens never give the deposit and then back out of the contract.

It's best to consult an attorney for these circumstances:

Your employing broker is unavailable and you have a pressing question. The buyers are requesting special terms that are not addressed in the pre-printed purchase and sale agreement or one of the associated addenda. It is not legal for you to draft your own clauses. The buyers want to include a legal document, such as an agreement for a road easement.

Contingent Counteroffer

a listing agent is bound to present any and all offers made on his sellers' property up until the time the sale actually closes. So what happens if a selling agent submits an offer without a back-up addendum on one of your listings that already has a signed purchase agreement? You can advise your sellers to make what's called a "contingent counteroffer." In essence it will be the sellers who are attempting to turn the second purchase and sale agreement into a back-up offer. The sellers will duplicate the offer the second set of buyers gave them, but will add the contingency clause to the agreement, turning it into a back-up offer if the second set of buyers agrees.