Chapter 22: Presenting Offers and Counteroffers
Be Presentable
Dress professionally from head to toe. Even though the viewer is seeing only your face and shoulders in the frame, you just might need to stand up for some reason. Wear flattering, solid colors, just like television news anchors do. Check that your hair is combed and you're well groomed. Don't sit in a swivel chair; there is a tendency to swing around and fidget.
Overnight/Express Mail Charges
Fees for sending documents related to the transaction closing are charged to the seller as appropriate.
Single Agent
Represents only one party in the sale. Only represents his/her client. The client may be either the seller or the buyer. A single agent must be completely loyal and faithful to the client. As a single agent, you are expected to guide, counsel, and assist in the preparation of offers and counteroffers.
Purchase Price
Sale price of the property is inserted in this space.
Increase the Earnest Money Amount
Sellers respond very favorably to a large down payment. When other offers come in with just $5,000 down, an offer with $15,000 or $20,000 places your client on top of the stack. Remember, earnest money goes towards the purchase of the house anyway, so make your offer stand out.
Settlement Fee
Settlement will be conducted by either a closing attorney or a title insurance agent. The attorney or title insurance agent may charge a settlement fee. Settlement fees vary, but average about $120.
Municipal Certification(s)
Some municipal governments have fees when a house sells, such as municipal dye water tests and occupancy permit fees.
Backup Offers
1. By law, a backup offer must be presented to the seller unless they have told you otherwise in writing. 2. Sellers are legally obligated to the primary contract, even when a second offer is a better deal. 3. A backup offer usually has a higher sale price and/or better terms than the primary contract because the buyers need to entice the seller to give them the property rather than placing it back in the open market. 4. Traditionally, a backup offer is written the same way as a primary offer and includes contingencies and earnest money. The brokerage will treat a backup contract the same way as a primary contract in regards to holding and depositing escrow funds. 5. Make sure your client is willing to complete the transaction when making a backup offer. When the primary offer falls through, your client's contract becomes an active purchase agreement, and they will not be able to walk away without losing their deposit. 6. The primary advantage of a (first-in line) backup contract is that your clients have eliminated any other competition for the property. Once a backup offer is accepted, your clients are next in line to buy the house. However, your clients don't get a second chance to renegotiate purchase terms, so any contingencies on the contract must be made at the time the seller accepts the backup. 7. If your clients make an offer on a property that already has multiple offers, the seller is obligated to tell them their position, like 4th or 5th, before signing the contract. 8. Make sure you include a time limit addendum, which will allow your clients to walk away from the deal on their terms. 9. Explain to your clients that most people back out of a home contract because they discover something they don't like, such as electrical problems, foundation damage, pest infestations, etc. that come up during an inspection. Ask your clients if they want to make an offer on a property that someone else has already decided wasn't worth the investment. 10. A backup offer is not an active contract until the primary contract falls through. Your clients still have the freedom to keep looking for other homes while they wait. 11. When faced with a better backup offer, sellers and agents must make sure that they follow the letter of the law exactly and treat the primary party fairly to avoid any law suits. If the primary sales contract goes south, get a signed release from both parties involved. This legal document will state that the parties release each other from any and all obligations that may have arisen as a result of the primary contract. Get this document signed before acting on your client's backup offer.
Even if you are working with a customer, there are a few things you can do to assist them:
1. Provide information about properties 2. Shows properties 3. Assist in making a written offer 4. Provide information on financing
Based on the type of agency relationship you have, your involvement with presenting offers will be different. Remember, license law imposes the following obligations on all real estate licensees to all parties, no matter their relationship:
1. Provide services honestly and in good faith. 2. Exercise reasonable care and skill. 3. Keep confidential any information gained in confidence, unless disclosure is required by law or duty to a client, the information becomes public knowledge, or disclosure is authorized in writing. 4. Present all written offers promptly to the seller. 5. Answer questions completely and accurately.
Dual agency has the following limitations:
1. The agent must deal with the buyer and the seller impartially. 2. The agent will have the duty of disclosure to both the buyer and the seller. 3. The agent will not disclose personal information about the buyer or the seller unless authorized to do so in writing by the parties. 4. The agent will not disclose what the buyers are willing to pay or the terms that they will agree to and will not disclose what the sellers are willing to accept or the terms that they will agree to. 5. The agent will not disclose the motivation of the buyer or the seller unless authorized to do so in writing.
3 Notices to the Seller
1. The estimated proceeds do not take into account any other undisclosed mortgage obligations, liens, assessments, judgments or other obligations levied against the Property or Seller. 2. Seller understands that the estimated costs stated above are based on the best information available at signing and may be higher or lower at settlement. 3. Seller understands and has received a copy of these estimated closing costs before signing the Agreement of Sale.
Organize your presentation to cover:
1. a brief review of what has happened over the life of the listing 2. information about the buyers 3. the offer itself
When there are multiple offers, the seller typically takes one of three actions:
1. accept the most favorable offer 2. counter the best offer 3. counter all offers
Review the Listing
1. advertising efforts 2. open houses 3. showings 4. responses to showings 5. 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.
Certificate of Resale
A Resale Certificate is a set of documents and disclosures that are assembled by a condo homeowners association. The resale certificate is provided by the seller to prospective buyers. A fee is charged for this service.
Eliminate Distractions
A barking dog or people walking in on you can ruin a conversation. Be professional. Again, if you wouldn't want it in a live meeting, you shouldn't have it on a video call.
Camera Angle
A web cam clipped to the top of your monitor does not provide the ideal perspective. If it's angled down too much, you'll put your viewer in the position of towering over you. However, too low an angle, gives the viewer a distorted image of your face.
Miscellaneous Fees
A courier fee (aka Document Download Fee) is a holdover from overnight mailing companies. The settlement company will overnight the paperwork to the lender. Fees might include courier charges, flood letter certification, tax services, pest inspection, septic inspection, etc.
Video Calling
A feature developed by the telecommunication industry. General means two people are able to communicate visually.
Notary Fee
A fee is charged for validating document signatures. If a survey was conducted, what was charged to the seller is entered in the space provided.
Mechanics Lien Insurance
A mechanic's lien is a claim filed by a contractor or sub-contractor for labor and material performed on the subject property which, by operation of law, constitutes a lien against title. This type of insurance protects the buyer from lien claims.
Uniform Electronic Transactions Act (UETA)
A precursor to the ESIGN Act, was introduced in 1999 and provides that when a law requires either a writing or a signature, an electronic record or an electronic signature can satisfy that requirement when the parties to the transaction have agreed to proceed electronically. Both of these laws are discussed in detail in another part of this course.
Short Sale
A sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property. If all lien holders agree to accept less than the amount owed on the debt, a sale of the property can be accomplished.
REO (Real Estate Owned)
A term used to describe a class of property owned by a lender—typically a bank, government agency, or government loan insurer—after an unsuccessful sale at a foreclosure auction. Once a property becomes an REO, the lender will prepare the house for sale, including removing the occupants, clearing liens on the property, and determining a price. Generally, lenders do not do any upgrades or repair work on REO listings, which are sold "as is." When the home is ready for sale, the lender will work with a broker to put the real-estate-owned property on the market.
Get Organized
A video call is not much different from a face-to-face meeting. Know your main points and make eye contact. Avoid handling notes, flipping through papers, and excessive writing.
Accepting the Most Favorable Offer
Accepting the most favorable offer is likely the quickest, cleanest and easiest transaction to deal with for all parties involved. The seller just deals with one buyer and the other offers are rejected. Normally, an offer has an expiration time and date on it, so your seller does not even have to respond to an offer that is rejected; it becomes null & void. Remember to show and discuss all offers with your client. Be sure to point out the pros and cons of each offer. Never forget that you represent the interests of your client, but always allow him or her to make the final selection decision. Typically, the fewer contingencies in a real estate contract, the better. Buyers usually include a number of stipulations in their offer than can make the deal harder to complete. They may require that a house appraise for a certain amount, or that they must get approved for a loan, or that the home has to pass an inspection. Price is not the only important aspect of an offer; terms matter also.
Estimated Costs
Add in all the costs from the left column in this space.
Recording Fees (Mortgage/Deed)
After all the closing papers are signed, the settlement company will record the documents at the county recorder's office. The recording fees vary from county to county in PA. A good estimate is about $350.
Give Buyer Information
After reviewing the listing activity, it's time to talk to the buyers. This is the time to raise the sellers' comfort level that they will be selling their home to people who have the financial means to purchase the home and that the buyers are excited about a possible purchase. This is particularly important since selling property is so emotional.
Subagent
Also represent only one party in a sale and share that responsibility with a primary agent. As a subagent, you help the agent that represents the same client. The client may be either the seller or the buyer. A subagent must be completely loyal and faithful to the client. As a subagent, you're also expected to guide, counsel, and assist in the preparation of offers and counteroffers.
Mortgage Insurance Lender Escrow
An escrow is a separate account where the lender will take the buyer's payments for homeowners insurance, which is built into the mortgage, and make the payments for the buyer.
Don't Ask for Closing Costs
Don't ask the seller to pay part of your closing costs unless necessary. Offers quickly get reduced to the bottom line and closing costs are monies out of the seller's pocket.
Avoid Contingencies
Don't include contingencies unless absolutely necessary.
Closing Protection Letter
The closing protection letter is required by the lender from the settlement company. The closing protection letter says that the settlement company will reimburse the lender if the settlement company made a mistake.
Transaction Agent
Assists one or more parties, who are customers, in a real estate transaction, without being the agent, fiduciary, or advocate of either party. The basic function of the agent is to bring buyers and sellers together so that a real estate sale can be completed. Transactional agents are usually best suited for consumers who are primarily interested in the marketing services and expertise that can be provided by real estate professionals, but who do not need an agent to represent them in the negotiations for the sale or purchase of real estate.
Multiple Offers/Seller's Side
At first glance having multiple offers sounds like a good situation for the seller, but there is an increased potential for an agent to make a mistake due to the following dynamics 1. the sellers want to get the highest price and best terms for their property 2. the buyers want the lowest price and on the most favorable terms 3. the listing broker must act on behalf of sellers and represent the sellers' interests 4. the buyer's agent must represent the interests of the buyer clients
Signature Block
At the bottom of the BEC form, the buyers will sign and date the form and the licensee will write in the broker's company name and sign and date the form.
Making Contact
Before making contact with a FSBO, be sure you do not violate any Do Not Call regulations. If you decide to call, be sure that the FSBO is not on a Do Not Call list, or that you have their ad that says something like "agents welcome." If they're offering buyer agent commissions, they will expect calls and are willing to show the property. If you don't have "permission" you may still be okay if you call and say that you have an interested party. However, you'd better be able to produce one at a showing.
Notice to Buyer
Buyer is encouraged to obtain an owner's title insurance policy to protect Buyer. An owner's title insurance policy is different from a lender's title insurance policy, which will not protect Buyer from claims and attacks on the title. Owner's title insurance policies come in standard and enhanced versions; Buyer should consult with a title insurance agent about Buyer's options.
Buyer's Agreement
For the sake of discussion, let's assume that you already have a single agent buyer's representation agreement with your client that formalizes your working relationship and details what services you are providing and any associated fees. Typically, as a buyer representative, you will earn a flat fee or percentage compensation based on the sell price when you successfully negotiate a transaction for your client. So, you will receive compensation from your buyer if a FSBO transaction is successful.
Go in with a Strong Offer
From the beginning, go in with a strong offer. You may not get a second chance.
FSBO Agreement
If a FSBO seller allows a showing, be sure to get some form of agreement signed which allows you and your client to view the property and make an offer, if so desired. One common document that is used is called a One-Time Showing Agreement. A One-Time Showing Agreement (also called a Commission Agreement for Sale or Fee for Service Agreement) is a written agreement between a FSBO seller and the real estate brokerage company in which the seller agrees to pay a commission to the agent connected to the buyer, if that buyer purchases the seller's home. The FSBO seller signs the Commission Agreement for Sale, which usually identifies the potential buyer and guarantees the agent a commission should that buyer purchase the property. The actual amount of the commission is negotiated between the seller and the brokerage. It is typically less than an Exclusive Right of Sale Listing Agreement. A Transaction Brokerage Agreement might also be used with a FSBO seller that specifies what services the agent will provide. Check with your broker to be sure you're using the proper form(s) to maintain legal compliance and to guarantee that you get proper compensation.
On-lot Sewage System Pumping
If a sewage system required cleaning, the fee charged to the seller is entered in the space provided.
Property Repairs
If any repairs were conducted on the property prior to the possession, the fee charged to the seller is entered in the space provided.
Mortgage Insurance Premium (PMI)
If the home is purchased with a low down payment, a lender usually requires that the buyer pay a fee for mortgage insurance. This fee protects the lender against loss due to foreclosure. Once an owner has 20 percent equity in the home, he or she can apply to eliminate this insurance. This fee may be financed in the mortgage amount.
Do Another Competitive Market Analysis
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 you took the listing. This is especially helpful if one of the comparables you used in the original CMA has since sold.
Second Mortgage
If there is a second mortgage, space is provided for loan amount, length, interest rate and principal and interest payments.
Counter the Best Offer
In this situation, the seller makes a counteroffer to the buyer that has offered the best terms. The negotiation is between just the seller and one buyer, until the offer is accepted or rejected. The other offers remain in play until they expire or if time allows, the seller might backtrack and pick one up and start a new series of negotiations.
Seller Financed
Instead of the buyer getting a loan from the bank, the person selling the house lends the buyer the money for the purchase. The buyer and seller execute a promissory note providing an interest rate, repayment schedule, and consequences of default. The buyer sends his monthly mortgage payments to the seller, who gets to earn interest on the loan, perhaps at a higher rate than he or she could get elsewhere.
ESIGN Act 2000
It grants legal recognition to electronic signatures and records if all parties to a contract choose to use electronically.
Check your Background
Junk and clutter in the background is distracting. If you wouldn't want it in a live meeting, you shouldn't have it on a video conference call.
Pay Attention to Small Details
Make it easy for the seller to do business with your buyers. Stay on top of due dates and update the other side on progress.
Fees Charged as Percentage of Loan
Mortgage points are fees paid with the closing costs to lower the buyer's mortgage loan interest rate. Typically, one mortgage point is equivalent to 1% of the loan amount. On a $200,000 loan, one point equals $2,000. Payment may be required before settlement.
Settlement/Notary Fees
Most settlement companies charge notary fees. On average, a buyer should expect to pay $35 - $50 for notary fees.
Other
Other fees not covered in column one can be entered here.
Right Lighting
Overhead lighting is the worst kind of lighting for a video call, because it makes shadows under your eyes. The experts recommend using three natural, soft-light sources, two behind your web cam (one on the left, one on the right) and one right behind you.
Transfer Tax for Seller's Estimated Costs
Pennsylvania requires a deed transfer tax for property transfers. The State of Pennsylvania charges 1% of the sales price and the municipality and school district usually charge 1% between them for a total of 2%. By custom, the buyer and seller split the cost, usually 1% from buyer and 1% from seller. However, the sales contract dictates the actual payment amounts from buyer or seller.
Interest from Settlement Date until End of Month
Per Diem interest is per day interest. The lender charges the borrower interest on the loan amount from the closing day until the end of the month, including the day of closing. If the buyer closes on the last day of the month, he or she will pay one day's interest. Close on the first day of a 30-day month and the buyer will pay 30 days interest.
Complete a Seller's Net Sheet
Preparing this form is a legal requirement and shows the sellers what they will net from this particular offer. It also gives you some backup for the recommendations you are planning to make.
Buyer's Estimated Costs
The BEC is a one-page form. At the top is space to insert the property address, buyer's name, settlement date, and purchase price. The form is separated into two columns. On the left side are spaces to write in estimated buyer costs. On the right side are spaces to enter mortgage calculations. The bottom sub-section of the right column shows a summary of the amount of monies the buyer needs to bring to the closing.
Transfer Tax
The State of Pennsylvania and most municipalities and school districts charge a deed transfer tax. Transfer tax is like sales tax on real estate transfers. By custom, the cost of the transfer tax is split 50/50 between the buyer and seller, although, the payment is dictated by the sales contract.
VA Funding Fee
The VA Funding Fee is a governmental fee applied to every VA purchase and refinance loan. This fee goes directly to the Department of Veterans Affairs to help cover losses and keep the loan guaranty program running for future generations of military homebuyers. This fee may be financed in the mortgage amount.
Balance Due at Settlement
The amount found out after subtracting the above items from the Total Cash Required subtotal.
Designated Agent
The broker can be the sole agent of one parties in the transaction and appoint a second designated agent to be the sole agent for the other party. Acting as a single agent for his or her client and, as we mentioned earlier, must be completely loyal and faithful to the client.
Broker's Fee for Seller's Estimated Costs
The broker's compensation goes in this space
Home Warranty
The buyer made opt for a home warranty. For basic home warranty coverage, plans average from $350 to $600 per year.
Tax Certifications
The closing attorney or settlement company will contact the municipality and request a tax certification The tax cert, as it is called, itemizes the real estate taxes on the home and whether any taxes are due or are paid in full. Cost varies, but are usually $100 or less. The local tax collector can provide exact costs.
Property Insurance
The cost of homeowner's insurance is not based on the sales price of the home but on the replacement cost. The lender will require a paid in full homeowner's insurance policy at settlement, but the lender will ask the buyer to pay an additional two or three months in escrow. A Flood Certification letter is about $10 and informs all parties if the property is located in a flood prone area. The payment for the first year's premium may be required before settlement.
For Sale by Owner (FSBO)
The easiest part of working with FSBO sellers is they have already done much of the listing efforts. They are out there advertising their home for sale with yard signs, classified ads, and social media listings. However, following are some key things to remember when negotiating with a FSBO. 1. A FSBO seller wants to save money by not paying compensation to an agent. 2. Most FSBO sellers feel that they are better able to sell their own home than an agent. 3. Many FSBO sellers feel they are just as smart about real estate transactions as an agent. 4. Many FSBO sellers feel that an agent doesn't work hard enough to warrant such high compensation. 5. Some FSBO sellers have listed their home before with an agent and it did not sell due to being extremely overpriced. 6. Some FSBO sellers have homes with serious defects and they do not want to "expose" the condition by having the property go through a real estate broker.
Estimated Costs
The expenses involved in a transaction play a major role in a buyer's determining how much to offer for a property and a seller's determining how much he or she can accept for the property. Before the parties execute an agreement of sale, the brokers involved in the transaction must provide each party with a written estimate of the reasonably foreseeable expenses that the party may be expected to pay. These expenses include, but are not limited to: 1. The broker's commission 2. The mortgage payments and financing costs 3. Taxes and assessments 4. Settlement expenses These cost estimates must be as accurate as anyone could reasonably expect from a person who has knowledge of and experience in real estate sales.
Adjustments
The following adjustment charges are based on what the buyer will actually owe upon taking possession. A plus or minus is based on if the seller has prepaid any fees and will receive credit. 1. school tax 2. county tax 3. municipal tax 4. lender escrows 5. association fees (prorations) 6. association fees (capital contributions, etc.) 7. alienable utilities
Inspection Fees
The following fees are owed by the buyer for ordered inspections. 1. Property Inspection 2. Wood Infestation 3. Radon 4. Water 5. Sewer 6. Other (e.g., lead paint) Payment for inspection fees may be required before settlement.
Seller's Assist/Credit to Buyer
The home seller may be asked to pay a percentage of the sales price or flat dollar amount toward the buyer's closing costs. This cost is a reduction from the profit from the sale of the home.
Appraisal & Credit Report(s)
The house is the collateral for the loan. Lenders will only lend a percentage of the value of the home. The appraiser will calculate the home value and overall condition of the home. The average cost for a single-family appraisal is around $600. The lender needs the buyer's credit report to determine credit worthiness. The credit report fee varies from lender to lender. The average fee is around $50. Payment may be required before settlement.
Survey
The lender or title insurance company may require a survey of the property. The survey cost is dependent on any number of variables such as lot size and degree of difficulty.
Broker's Fee
The licensee should insert the broker fees in this space.
Home Warranty for Seller's Estimated Costs
The seller may pay part or all of the home warranty expense.
Preparation of Deed
The seller will be expected to prepare a deed for the buyer. The cost will vary between closing attorneys and title insurance agents. The estimated cost is typically around $125.
Mortgage Type
There are boxes to check if the mortgage is a fixed or adjustable rate. Then the licensee will write in the estimates for the following items: 1. Loan amount, length, and interest rate (there are two columns of blank spaces to compare dollar amounts based on different interest rates) 2. Principal and interest amounts 3. Taxes 4. Property insurance 5. Mortgage insurance premium (if any) 6. Condo/Homeowner's Assoc. Fees
FSBO Benefits
There are number of benefits for a FSBO when deciding to cooperate with an agent, such as: 1. The FSBO is released from nuisance phone calls and unproductive property showings. 2. The seller gets a qualified buyer that can afford the property. 3. The agent takes on the burden of doing most of the paperwork. 4. Broker sold homes most often sell for a higher price than the FSBO price.
Other- Seller's Estimated Costs
These spaces are provided to add additional charges as needed.
"Patriot Act" Search
This fee is charged to search the U.S. Treasury Department database to make sure all parties involved in the real estate transaction are not engaging in prohibited transactions.
Patriot Act Search
This fee is charged to search the U.S. Treasury Department database to make sure all parties involved in the real estate transaction are not engaging in prohibited transactions.
Preparation of Mortgage Documents
This fee is common with lenders. The fee is charged by the lender to offset the cost to process the mortgage application.
Domestic Lien Search
This is the fee charged to search public records to determine if there is lien on the property.
Domestic Lien Search for Seller's Estimated Costs
This is the fee charged to search public records to determine if there is lien on the property.
Counter All Offers
This situation is a bit more complex, because you and your client have now entered into a bidding war. In a hot market, homes are often sold above the listed price. So, to give everyone a chance to come back with a better offer, your client can counter each buyer's offer. Most of the time the best course of action is to respond to each party that made an offer and ask them for their "best and final" offer. Issuing a counteroffer to all bidders avoids any charges of unfairness or discrimination. The following sample verbiage might be included in your seller's response: "This counteroffer is being made to more than one set of potential buyers. This counteroffer is not binding on the seller and buyer until it is signed by the buyers and then countersigned by the sellers." Have an attorney review or actually write any counteroffer terms that deviate from the standard fill-in-the-blank forms. If not, you may run the risk of selling the same house twice to different buyers.
Title Endorsement
Title endorsements are title insurance extras. The endorsement fees provide extra coverage beyond the basic title insurance policy.
Title Search/Insurance- Standard or Enhanced
Title insurance is mandated by the lender. The costs are set by the Pennsylvania Insurance Commission. The cost includes searching the ownership of the home to determine if the seller completely owns the property. Title insurance costs also include insurance in the event the title examination overlooked a problem with the title. Standard vs. Enhanced Homeowner's Title Insurance Policy. There are two options for owner's title insurance. The enhanced policy offers all of the same coverages against title defects that occurred prior to the buyer owning the property, along with limited coverage for defects that occur after the buyer purchases the property.
Total Cash Required
Total of purchase price and estimated costs. This is a subtotal of cash required for the purchase. From this subtotal, the licensee will subtract: 1. mortgage amount 2. seller assist and credits 3. deposits
Counteroffers to a Buyer
When a seller accepts an offer with all the conditions listed by the prospective buyer, then the offer becomes a valid real estate contract. However, many times the first offer is met with a counteroffer. A counteroffer is any change the seller makes to the terms proposed by the buyer in the original offer. If, at this point, the buyer agrees to the seller's counteroffer, the offer is accepted and it becomes a valid sales contract. Many times, counteroffers go back and forth between the buyer and seller numerous times. It's important to remember that a counteroffer is a new offer and voids any previous offers. A counteroffer will change net sheet figures and require the calculation of a new closing cost estimate. Thankfully, with automated calculation applications, the process only takes a few minutes to complete.
Verify the Funds
When making an offer, send in verification of your buyer's funds either as a "cash on-deposit" bank account letter or a very strong pre-approval letter. A lender's approval carries more weight than a simple mortgage pre-qualification letter.
Consensual Dual Agent
You represent both the buyer and the seller. This may be done only with the written, informed consent of all parties. This type of agent must also be loyal and faithful to the client, except where the duties owed to the clients conflict with one another. Since the agent has promised a duty of confidentially, loyalty, full disclosure and dedication to both parties at the same time, it is necessary to limit these duties in this situation.
Comply with Contract Terms
Your ability to get a deal done might come down to how quickly you respond to counteroffers or how well you meet all the terms of the offer.
