In our previous step on how to buy a home, we discussed Making an Offer. In this post we will discuss what happens after you make an offer – Negotiations, Multiple Offers, escalation clauses and waivers
Once the offer is presented to the listing agent the seller has several choices, they can sign your offer as it is written and it will be accepted, they can reject your offer completely, or they can make a counter offer to you. If any of the terms in the offer you have written are being adjusted this is considered a counter offer. Even if the price remains the same but the closing date does not work for the sellers this is still considered a negotiation and a counter offer. As the buyer you can now do the same: accept it, reject it or make another counter offer. There are many factors that take place in an offer so be certain to review all terms and conditions of every offer. Negotiate on those items that do not work but try to make the negotiation a win-win. Beating a seller to the ground on price, dates, deposits and contingencies can end up leading to a nightmare transaction that blows up in the end due to lack of cooperation – SO be careful not to get greedy.
If you find yourself in multiple offers, the seller has several choices. They can call “Highest and best offers” which is most common but not required. If this is the case you will discuss your abilities and desires with your agent and come up with the absolute highest offer you would be willing to make or lose the house to another buyer. Your agent will not know what the other offers are at. It is best to assume their agent is crunching numbers and suggesting a highest value based on the comparable property in the area. But a highest offer can also include better terms- a quick closing or extra time, higher deposits, higher down payment, better financing or even cash offers. The seller can always choose to just accept or counter another offer without calling “highest and best” if this is their prerogative and there are no specific rules about how they go about this.
In some cases we are seeing people waive home inspections and forfeit deposits to strengthen an offer. Your real estate agent should always recommend what is in your best interest. Even if that means you lose the house. If you are a contractor or investor and familiar with homes in general you may choose to take your chances on home inspection or deposit waivers, but it is not typically recommended.
Escalation clauses are another way of securing a home in a multiple offer situation without going too high. Determine what the absolute highest amount you would spend on the house will be. This will be your ceiling. This number will be the highest your offer will escalate to. Very similar to Ebay’s Automatic Bidding System. Your agent will help you determine what the market value is and what they feel would be the highest market price. Decide how much over the highest bid you would be willing to pay. And finally determine what your starting offer will be. So for example: If you are pre-approved to $300,000 but the home is offered at $250,000 you may wish to make an offer for $250,000 and stating “$1000 over the highest bid up to $300,000” – if the highest bid is $260,000 you would be purchasing the home for $261,000. This is a more complicated way to make an offer so ask your agent for details on how to do this if you are interested. You may want to be sure it is based on the appraisal in case the home does not appraise for your offer price.
Once you have an accepted offer, we will now need to Complete Inspections and Remove Contingencies