Ch 29 Preparing Buyers offer

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Backup 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 real estate sales contract with an attached addendum stipulating that the offer is contingent on the failure of the closing of the sellers' first purchase contract.

"mutual mistake"

If an offer is ambiguous, incomplete, or unintended, a court could nullify a resulting contract. This can also happen when both (all) parties to a contract have mistaken impressions as to the nature of the subject matter or regarding some essential requirement of the contract.

void contract

If the parties cannot resolve a mutual mistake. If the "mistake" is from fraud or misrepresentation, it results in a voidable contract -- voidable by the blameless party.

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.

4. It's the last shirt on the rack.

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 you are aware that there are other buyers in the wings.

1. Proceed 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 the buyer 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 (also known as an "assumptive close"). For example, "What closing date would be best for you?" or "How much do you think you will put down?"

Under what circumstances would a licensee need to seek the advice of counsel

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 real estate sales contract 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.

It is 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 real estate sales contract 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.

It is important to remember

that the one who accepts an offer cannot modify it, sign it, and conclude that the parties have a deal. The modification causes the offer to become a counteroffer, and it will require the approval of the one who made the original offer for it to turn into a contract.

2. 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 the buyer off the hook, you get him or her to focus on filling out the offer.

It's Only An Offer

Another technique for getting a buyer to sign an offer is to tell the buyer that there will likely be a counteroffer from the seller and until both parties agree completely on all the terms, the contract is not binding. If you take the pressure off the buyer by pointing out that the offer is just a step toward a binding contract, the buyer will be more likely to sign.

3. 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 so that you only offer something you have the reasonable assurance you can deliver.

Overcoming the Reluctant Buyer

Buyers sometimes have the philosophy that there is no rush to make an offer -- the property will wait. This may be true in a down market, but if the home is a nice home in a good area, it can turn over in a matter of days after being listed. You need to create the urgency to get these buyers to act. You can do it with facts about how long homes in the area stay on the market, how many showings the property has had, and other facts that will point out to the buyer that the home may not be around tomorrow.

In situations where multiple offers are anticipated and/or presented on a property, the Agent should know how to be able to:

Explain to Buyers and Sellers how to prepare and evaluate offers based on a Buyer's ability to close on terms acceptable to Seller, and how not to prepare or evaluate offers based on discriminatory information or protected classes. Describe how to use Escalation Clauses/Addendums, Evidence of Funds documents and other firm approved forms when preparing or presenting multiple offers. Explain how the Seller can counter any offer and accept offers in "first and backup" positions, but that care must be taken so Sellers do not accept multiple offers in "first position" by mistake. Describe to Buyers and Sellers prior to writing an offer or activating a listing the best practices in multiple offer situations. Provide copies of all offers, counteroffers, disclosures, addendums, and any other forms to their clients as quickly as possible.

Some of the best practices for writing offers or activating listings in multiple offer scenarios:

First off, Agents should do their homework and thoroughly review the latest sales comps in the neighborhood so that their listing properties aren't too high, and their purchase offers aren't too low. Listed homes need access to as many people as possible in order to create the highest demand, so Agents should consider advising their listing prospects to make their homes as available as possible to prospects for multiple showings and open houses. Listed homes need to be in clean and pristine condition in order to encourage multiple offers as well. On the Buyer's side, both they and his or her Agent should be ready to respond quickly to any inquiry from the Seller or his or her Agent, make the highest and best offer to start if the Buyer really wants the property, be pre-approved by a qualified and respected lender in the region, make the offer with few contingencies, and have third party inspectors and significant earnest money deposits ready if and when the Seller is ready to accept the Buyer's primary or backup offer.

Buyers in first or back-up position may have these standard finance contingencies in place such as the following factors:

Loan types (Conventional, FHA, VA, etc.) for a pre-qualification mortgage letter Down payment amount range (5% to 10%+) An appraisal at or above the purchase price A range of a number of days for loan underwriting approval from the Lender

Explain the Purchase Offer Document

Make sure the buyer is involved in filling in all the blanks. Make sure the buyer understands that the offer, if accepted, will become abinding contract. It is also important that the buyer understand that the seller probably will only negotiate a few points. Once the offer is put in front of the seller, if the seller only counters on two or three points, the remainder of the offer will not be renegotiated. Consequently, the buyer should make sure that the offer reflects what the buyer wants in every way. There is the outside chance that the seller will sign the purchase agreement the first time the offer is made. The buyer MUST think that this will happen in order to focus on the contract's provisions. The buyer needs to understand the time constraints and the consequences of default.

Objections About Price

Most buyers are going to object to the price and will want to offer a lower price while sellers usually want the highest price, first and foremost. It is almost a given in a real estate sale that buyers believe the listing price is set at a level for built-in negotiation. When buyers object to a price, ask the buyers what they believe a fair price would be and how they arrived at that price. Most often, they will respond that they just think they should go in at a low price and negotiate up from there. There are a couple of ways to handle this approach. You might point out to them that going in too low can put off a seller and make a seller not want to negotiate at all. Use your judgment as to whether you think the buyers' proposed offer is insulting. Perhaps you know that the seller is motivated and might entertain a low offer. If you think the buyers' price is so low as to be insulting, encourage them to start higher by suggesting that the comparables for recent sales indicate that the seller's price is not out of line. Be prepared to show the buyer that by quibbling over price, they stand to lose the home they want and, in the end, the amount they "save" is not worth the risk of losing it.

What is the most common objection buyers have?

Most buyers object to the listing price.

Escalation Clause Example

Mr. Smith (Seller) lists his home for $500,000 near Bowling Green. Mr. Smith's Agent thoroughly did her homework, and determined that $500,000 for the beautiful home on a large acreage site with 20 acres was a fair price which might create a "bidding war" on the property due to a lack of available home inventory in the immediate region. At the first open house on a Sunday, 50 + prospects and real estate agents walk through the property. By the next day on Monday, 30 offers are made near, at, or slightly above the $500,000 list price. The highest bid offering price was for $539,990. Mr. and Mrs. Jones's offer stood at over and above the other 29 offers due to their Escalation Clause added to their purchase offer. In their original offer, Mr. and Mrs. Jones only offered $475,000. However, they added an Escalation Clause which noted that they would offer $1,000 above any offering price made on that same day up to $550,000. Most importantly, the Jones couple provided "Proof of Funds" for their all-cash offer to purchase by way of a copy from their latest investment account statement, and a 14-day escrow period. In this example above, Buyers and their real estate agents should request some type of proof from the Seller that there were, in fact, offers priced that high. Additionally, Buyers should request appraisal, home inspection, and financing contingencies (if applicable), and other potential out clauses, in order to best protect them partly since they may be paying too much for the property at the time of purchase.

First and Backup Position Offers:

One of the primary ways for a Buyer to back out of an accepted offer is if their financing contingency terms are not meant. The vast majority of home buyers need some type of 3rd party financing by way of a local bank, mortgage broker, private money or hard money lender, or other sources. Sellers in multiple bid offers can consider countering the 2nd, 3rd, 4th, 5th, and 6th + best offers with "back-up" counters should the winning bidder back out of the deal within the prescribed period of time designated within the purchase contract.

List three areas that are important to cover when counseling a buyer about writing an offer. (See screens 10 and 11 for other correct answers.)

Pricing Personal and real property issues Closing date

Escalation Clauses / Addendums and Evidence of Funds:

There are multiple ways that Buyers and Agents can increase the odds of their offers being accepted in multiple bid scenarios. Sellers usually have the main options to accept, counter, or reject one or more offers on their property. When there are several offers on a property listed for sale, clients and their real estate agents need to sometimes get more creative and assertive with their offers.

You can play a key role in giving advice to your buyer client in the following areas:

Pricing-You can do a CMA Amount of earnest money and down payment - You can advise the buyers regarding what may be the customary earnest money deposit for a home in their price range and let them know that the earnest money will be credited toward the down payment at closing. Personal and real property issues - When writing the offer, the buyers can indicate what personal property they want to stay and what real property they want removed. Warranties - You can advise the buyers to ask for any warranties they want the sellers to provide - such as a home warranty. that the legal description of the property is accurate. Closing date - When advising the clients about a closing date, you need to be sure your buyers understand how important it is to take into consideration the sellers' needs as well as their own. Contingencies - You need to advise your buyers that the more contingencies that are attached to the contract, the less attractive it may be to the sellers. Addenda/riders - You need to advise your buyers regarding the proper addenda and riders to attach to the offer and be sure they understand clearly what each means. Inspections - You may need to provide access for the home inspector Final walk-through - You should strongly advise your buyers about the importance of the final walk-through inspection of the property before closing. Important Note: NEVER advise a client on how to take title to a property. This is legal issue that they should discuss with their attorney.

List two sales techniques a licensee could use to "close the deal" with a buyer. (See screens 5 and 6 for other correct answers.)

Proceed as if the buyer has decided to make an offer. Give the buyer a choice between two possibilities, both of which assume a purchase. It's the last shirt on the rack.

Required disclosures include:

Seller disclosure of property condition Lead paint disclosures for properties built prior to 1978 Radon disclosure Mold disclosure (if the sale is a HUD sale) Known latent defects Material facts concerning the transaction

5. 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.

6. Ask the right question.

Sometimes the best approach is just to 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.

"Termination Notice"

which may void the deal. In this scenario, the earnest money deposit may be returned to either the Seller or the Buyer depending upon where each party was in this agreement.


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