Your real estate listing has received an offer, and it’s now time to negotiate the sale. Navigating through this process can be daunting, but how you handle and respond to the offer is crucial to reaching your goal and securing the best sales outcome.
The first question to you need to ask is whether the buyer is qualified. You should always get confirmation of the buyer’s mortgage pre-approval, as knowing the offer has backing allows you to proceed into negotiations with more confidence.
You now have one of three choices: you can accept the offer exactly as it is, you can reject it, or you can reject it and counter with an offer of your own.
(You cannot both accept the offer, and make changes to it. As soon as you make any changes to the first offer presented by the buyers, it becomes a counter-offer and the buyers have every right to simply walk away.)
If you happen to have more than one offer on the table, you can counter with both offers before you decide whether to accept either of them. The highest price might seem to be the best offer, but if it doesn’t include a mortgage pre-approval letter, has an unrealistic closing date, or contains other terms you don’t want to accept, you might choose a lower offer that allows for personal and financial goals to be met.
To help you decide, create a list showing the key factors of the offer. This list should include:
- The deposit: How much is it and who has it? Knowing if the offer comes with a security deposit held in trust is crucial in determining how serious the buyer is about the purchase.
- The price: What exactly are the buyers offering? Is the amount of money offered reasonable, and is it close enough to the list price to make negotiating worth your while?
- The down payment: Is the down payment a cash offer, and if not, why not? A purchaser must prove that they have the money at hand, in RRSPs or in cash holdings to secure the offer’s obligations.
- The terms: Is the offer from a first-time buyer? With today’s new mortgage stress testing, it is increasingly difficult for first-time buyers to qualify for a loan. Knowing this at the start of the negotiation will aid in how you respond.
- The occupancy: What is the buyer’s occupancy timeline for taking possession? A reasonable timeline makes sure that both the buyer and seller have adequate time to prepare for the transition.
- The contingencies: Are there clauses that could weaken the deal?
Contingency clauses are ways for the buyers, and sometimes the sellers, to get out of the deal. Your goal is to let as few of the buyer’s contingency clauses as possible into the agreement, and to limit them by time and performance. Be very careful when considering and consenting to contingency clauses.
The buyer’s offer to purchase may be contingent on selling their present home. This is a very weak offer, because it means the sale of your house depends on the sale of another house with another set of sellers and buyers.
An offer with a clause contingent of financing means the buyer will purchase if they secure new financing, which can fail in application. Purchase offers contingent on the buyer being able to move into the house within a set period of time must be weighed carefully with your own goals.
Contingencies directed at disclosure and inspections are the norm in any real estate negotiation. The buyer will purchase only if they approve your disclosures and the professional inspection meets their standards. Usually, buyers will ask for a set period of time to have this completed.
If you receive a contingency offer, thoroughly evaluate it by asking: is it reasonable? Does it negate the value of the offer and in the end, can I live with the contingency?
After examining the contingencies, it’s time to make a deal.
More often than not, a buyer’s initial offer will be lower than your list price, but also lower than what they are willing to pay. At this point, most sellers will counter-offer with a price below their list price because they’re afraid of losing the potential sale. They want to seem flexible and willing to negotiate to close the deal. This is not always the best way to get the negotiations to end with a top dollar offer.
Get closer to the buyer’s offer by countering just slightly below your list price. Some buyers may be off-put by this strategy, seeing it as an unwillingness to negotiate, and walk away. Someone who really wants to buy will remain engaged and come back to you with a higher offer.
If you have priced your property correctly to begin with, countering just below your list price says that you know what your property is worth and sets the stage for incremental counter-offers closer to your asking price.
It’s important to understand that the deal isn’t made exactly when you sign. It’s made when the agent (or you) communicates the fact that you’ve signed to the buyers. The agent calls the buyers immediately to tell them you’ve accepted and then takes them a signed (by you) copy of the sales agreement. The agent must give you a copy of everything you sign.
Technically speaking, the buyer can withdraw the offer anytime before they learn of your acceptance, just as you can withdraw a counter-offer anytime before you learn of the buyers’ acceptance of it. (However, if the offer is for the price and terms you listed the property for, you could still be liable for a commission to the agent.)
The negotiation of any offer to purchase should be handled with extensive due diligence on your part. Asking the right questions and examining the offer with full knowledge of the process is always the best way to proceed. Having an honest and experienced realtor working with you to navigate these negotiations is always recommended in your best interest.
Freddy Marks, together with his daughter Linda Marks, runs Agassiz’s 3A Group Sutton Showcase Realty. He has been a Realtor in Canada and Germany for more than 30 years, and currently lives in Harrison Hot Springs.