The Offer - What to Expect
What follows is a discussion of the most important points to consider when you are negotiating the terms of the Purchase and Sale Agreement. Study it all, or skim what interests you most:
Your Realtor |
Sales Price |
Title |
Financing |
“Zero Down”
Closing Costs |
Inspection |
Paint Hazards |
Settlement Costs
Your Realtor
Be sure to choose a Realtor who is experienced with these negotiating techniques and who understands how to write a contract that will both protect you and be acceptable to the buyer's lender.
Sales Price
For most home purchasers, the sales price is the most important term. Make sure you recognize that other non-monetary terms of the agreement are also very important.
Title
“Title” refers to the legal ownership of the home you are selling. You should provide title, free and clear of all claims by others against the home (known as “liens” or “encumbrances”). The seller usually pays for the Owner's Title Policy, though this is also negotiable.
Financing Contingency
The Purchase and Sale Agreement normally provides that the Earnest Money Deposit will be refunded if the sale has to be cancelled because the buyer is unable to get a mortgage loan. For example, your agreement of sale could allow the purchase to be cancelled if your buyer cannot obtain a mortagage at or below an interest rate you specify in the agreement and with a certain percentage down (i.e. 3% down).
The Agreement will also specify within how many days the buyer has to apply for the mortgage and at what point you may demand that the buyer waive the Finance Contingency. Your Realtor should provide you with a timetable of when these critical deadlines will occur.
Negotiating “No Money Down” Programs
In general, zero-down loans are usually structured such that the seller “donates” the down payment plus a fee to a non-profit agency which is established for the loan program. The agency then “grants” the down payment funds back to the buyer. Like seller-paid closing costs, you should view this as a reduction in the sales price and - for purposes of your buyer's financing - the home will need to appraise for the higher price.
Generally, the buyer will need to add between $10,000 - $12,000 to the purchase price to cover a zero-down program (to cover the down payment and the closing costs). For a full-priced offer, the buyer may simply add these costs on to the purchase price. Closing costs will also need to be added for the buyer to pay truly nothing down. But bear in mind that when these costs are added to produce a genuine zero-down situation, you will have to pay Realtor fees and taxes based on the higher sales price.
Seller-paid Closing Costs
Closing costs can be estimated roughly to be about 3% of the home's purchase price. Your buyer may want to “finance these costs into” the home by negotiating for you to pay all closing costs and allowable points on the loan. From your point of view, this is the equivalent of reducing the purchase price by the given amount.
The buyer may also opt to offer “full price” for the home by increasing the price to cover the closing costs. However - as mentioned above - you will still have to pay items such as the Realtor fees and taxes based on the higher purchase price. The only risk is that the home will not appraise at the higher price. (Fortunately, most homes have been appraising to cover these extra expenses.)
In some cases, the listing agent may need to change the record in the Multiple Listing Service to the higher list price. Timing is critical in some of these cases - changes must be made in a certain order, and documents submitted such that the records are acceptable to the buyer's lender.
Inspection Contingency
Most buyers will choose to have a home inspection. An inspection should determine the condition of the plumbing, heating, cooling and electrical systems. The structure should also be examined to ensure it is sound and to determine the condition of the roof, siding, windows and doors. The lot should be graded away from the house so that water does not drain toward the house and into the basement.
Most buyers prefer to pay for these inspections so that the inspector is working for them, not you. When a buyer chooses an inspection contingency, you have the right to see copies of the original documents that the inspector prepared regarding your home. You may wish to negotiate either an inspection contingency that allows you the right to make repairs or to automatically end the contract and put your home back on the market. Your Realtor will be able to explain the pros and cons of the different inspection contingency options.
Lead-Based Paint Hazards
If your home was built before 1978, buyers have certain rights concerning lead-based paint and lead poisoning hazards. You or your sales agent must give buyers the EPA pamphlet Protect Your Family From Lead in Your Home or other EPA-approved lead hazard information. (To receive a copy of this publication, please contact us, and be sure to provide your name and address. You or your sales agent also must disclose what you know about the home's lead-based paint or lead-based paint hazards and give the buyer any relevant records or reports.
The buyer has at least ten days to do an inspection or risk assessment for lead-based paint or lead-based paint hazards. However, for the buyer to have the right to cancel the sale based on the results of an inspection or risk assessment, you must agree in the course of negotiations.
Finally, you must attach a disclosure form to the agreement of sale which will include a Lead Warning Statement. You, the buyer, and the Realtors will sign an acknowledgement that these notification requirements have been satisfied.
Lender-Required Settlement Costs
The buyer’s lender may require that certain settlement fees be paid by the seller. The most common loans that have these requirements are FHA loans and VA loans. Your Realtor can tell you how much these fees might cost.
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