Receiving an Offer
A written proposal is the foundation of a real estate transaction. Oral promises are not legally enforceable when it comes to the sale of real estate. Therefore, you need to enter into a written contract, which starts with your written proposal. This proposal not only specifies price, but also all the terms and conditions of the purchase.
REALTORS have standard purchase agreements and will help the buyer put together a written, legally binding offer that reflects the price as well as terms and conditions. I will guide you through the offer, counteroffer, negotiating and closing processes. In North Carolina certain disclosure laws must be complied with by you as the seller.
What is in an Offer?
The purchase offer, once accepted, will become a binding sales contract. So it's important that the purchase offer contains all the items that will serve as a "blueprint for the final sale." The purchase offer includes items such as:
- address and the legal description of the property
- personal property that conveys with the sale, or, afixed property that does not convey
- sale price
- terms: for example, all cash or subject to you obtaining a mortgage for a given amount
- seller's promise to provide clear title (ownership)
- target date for closing (the actual sale)
- length of due diligence period and amount of due diligence fee
- amount of earnest money deposit, typically presented to listing firm at close of due diligence period.
- method by which real estate taxes, rents, fuel, water bills and utilities payments are to be adjusted (prorated) between buyer and seller
- provisions about who will pay for title insurance, survey, termite inspections, etc.
- type of deed to be given a time limit (preferably short) after which the offer will expire
- contingencies, which are an extremely important matter and that are discussed in detail below
Under the NC Offer to Purchase and Contract, a buyer has a negotiated period of time to conduct their due diligence. During this time period, a buyer must do their due diligence on the property and decide whether to move forward. This includes inspections and agreement on repairs, loan application and approval, appraisal, title search, surveys, and any questions or research necessary regarding insurability, HOA issues and zoning issues.
Due Diligence Fee & Earnest Money
The due diligence fee is a negotiated amount that is given to the seller at the time of offer. If the buyer moves forward with the purchase at the end of the due diligence period, this fee gets credited toward the purchase price. If the buyer does not move forward, the seller keeps the due diligence fee as compensation for the due diligence period. Earnest money is a deposit most often made at the close of the due diligence period, to show the buyers’ earnestness and financial capability to complete the transaction.The listing firm or an attorney usually holds the deposit, the amount of which varies from community to community, but is most often 1% to 3% of the contract price. This will become part of the down payment and is credited to the buyer at closing.
Calculating Your Net Proceeds
When an offer comes in, you can accept it exactly as it stands, refuse it (seldom a useful response) or make a counteroffer to the buyers with the changes you want. In evaluating a purchase offer, you should estimate the amount of cash you'll walk away with when the transaction is complete. For example, when you're presented with two offers at the same time, you may discover you're better off accepting the one with the lower sale price if the other asks you to pay points to the buyer's lending institution.
Once you have a specific proposal before you, calculating net proceeds becomes simple. From the proposed purchase price you can subtract the following costs:
- payoff amount on present mortgage
- any other liens (equity loan, judgments)
- broker's commission
- legal costs of selling (attorney)
- transfer taxes
- unpaid property taxes and water and other utility bills
- if required by the contract: cost of survey, termite inspection, buyer's closing costs, repairs, etc.
Your present mortgage lender may maintain an escrow account into which you deposit money to be used for property tax bills and homeowner's insurance. In that case, remember that you will receive a refund of money left in that account, which will add to your proceeds.
When you receive a purchase offer from a would-be buyer, remember that unless you accept it exactly as it stands, unconditionally, the buyer is free to walk away. Any change you make in a counteroffer puts you at risk of losing that chance to sell.
Who pays for what items is negotiable. You can negotiate with the buyer any agreement you want about who pays for the following costs:
- termite inspection
- buyer's closing costs
- points paid to the buyer's lender
- repairs required by the lender
- home warranty policy
You may feel some of these costs are outside the scope of your responsibility, but many buyers - particularly first-timer buyers - are short of cash. Helping them may be the best way to get your home sold quickly.