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The 5 Most Important Factors in Negotiating an Offer

So you have an offer on your home, great! What’s important in the offer and how can you make the most of it?

The Negotiation Starts Before the Offer is Written
The truth is that even though two offers that may look exactly the same on paper, they can have very different amounts of negotiating room and very different chances of even closing. It’s important to understand the buyers who are making offers on your property more deeply than just financials and a loan approval. A couple good starting points are:

1. Why are they moving? Are they upgrading/downgrading? Why? Is it because they have a new baby on the way or because their youngest just got married and they’re downgrading from a larger home? Are they moving because of a job transfer?
2. Why did they choose your specific home? Is it the area? Are they moving for the schools or a single school in particular? Do they have relatives nearby? Maybe even on this street?
3. What do they do for work? Are they self-employed or do they work for someone? Where is their place of business?
4. Do they have a timeline? Maybe because of a job transfer or because of a new baby on the way
5. Have they made a lot of offers? On which particular properties? Why did they not get those properties? Your agent should know why that property sold, a rough idea of how much activity was on that property, and how their offer compared to the offer that was eventually accepted.

These questions can serve as a starting point for why they like your home, their motivation to purchase, and an idea of their financial ability to close the transaction. Once they do write an offer, there are a few important factors to consider when you consider an offer.

Price is Only One Factor
Most of today’s contracts are very sophisticated and usually include detailed terms that may have a substantial effect on the smoothness and ability to close the transaction. A good Realtor will address these 5 important factors when negotiating on your behalf:

1. Price, Down Payment, and Deposit – Price is always important, but the price won’t matter if the transaction doesn’t close. In today’s market, loans are much harder to qualify for, which means the amount of down payment is a huge factor in whether a buyer can even obtain a loan. Experienced agents will know down payment and income requirements for current mortgage loans and will be able to spot any red flags before you start negotiating, especially in multiple offer situations. The deposit amount also shows how committed a buyer is. If a buyer intends to complete the transaction and the deposit goes towards the down payment, why not request the largest deposit possible?
2. Contingencies – Buyer’s will have a period of time, 17 days by the standard C.A.R. contract, to inspect the property for any defects, request any repairs to be done, obtain an appraisal and to get their loan approved. During this period, the buyer can cancel the contract for the reasons above without risking his deposit. Usually, the shorter these time periods are, the better it is for the seller since once these periods are up, they can feel safe planning their next move. Sometimes buyers will make offers contingent on the sale of their home, which typically isn’t favorable for sellers.
3. Condition of the Property – The standard contract we use in my market states that all sales are AS-IS. However, in the majority of all transactions, a buyer will do an inspection and request repairs to be done on the property. Sometimes these can be minor repairs but there are many cases where these repairs will cost thousands. This is another instance where a little bit of foresight can save you money. If your real estate professional knows about the items in your home that aren’t in good, working condition, he can address those issues up front during the counter offer stages when the buyer is more willing to make concessions to save you repair costs later on. In some cases, you may even be able to have the buyer do an inspection and accept the complete condition of the house before you open escrow.
4. Closing Costs – Both buyer and seller pay closing costs to complete a real estate transaction. The common practice in my market is that the seller will pay their portion of escrow fees, owner’s title insurance policy, transfer taxes, a natural hazard report, mandatory termite work, and a 1 year home warranty for the buyer. In some cases, buyers will request the seller also credit some money for closing costs or in multiple offer situations, may even offer to pay for some of the costs that sellers typically pay, such as termite or home warranty.
5. Closing and Possession – The date you close escrow is when all the funds are distributed to sellers, buyers, the title company, and service people and may differ from the possession date, which is when you actually hand the property over to the buyer. Make sure these fit your timeline, taking into consideration the time you need to find your next home or rental, and the time you need to physically move.

So you’ve negotiated a great offer and now you want to open escrow. How does this whole escrow process work?

Next: Tips to Ensure a Smooth and Successful Closing
Previous: Maximize Your Price: It starts before you even get an offer
Table of Contents: Mark’s Selling Guide

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