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For Sale by Owner Guide

Guide for Buyers

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Negotiating the Offer

Interpreting the Seller's Response

If the seller declines your offer, they may have received a competing higher offer, your offer may not meet their net proceeds expectations, or there may have been a contingency in your purchase agreement that the sellers found unacceptable (such as having a house to sell before you can purchase this one).

If the response is an acceptance, you are on your way! Move on to Closing Details.

If the response is a counter-offer, you can reject the counter-offer outright (usually not the best response) or accept the counter-offer as-is and move on to Closing Details or prepare a counter-offer to the seller's counter-offer.

Common issues and possible solutions

Seller has rejected initial offer

The solutions depend on why the seller rejected your offer and how much you want the house.

An out-and-out rejection of an offer is fairly rare. Once the seller rejects the offer, you will have to present another purchase agreement if you still want to pursue purchasing the house. In a normal situation, the sellers decline an offer by presenting their own counter-offer to the buyer. The sellers often do this by simply amending the original purchase agreement with terms that are important to them.

Find out what the problem was with the offer. Generally, a rejection is the result of a very low offer or unacceptable terms.

If it is a price issue, you will have to decide whether you want the house enough to go higher and prepare another purchase agreement to that effect.

If the problem is a terms issue, such as being contingent on the sale of your current house, check out all viable options (extended settlement, bridge financing) to see if you can remove the contingency. If you can, prepare another purchase agreement to reflect new terms.

Seller counters back with a higher price

If you are close in price, offer to split the difference. This sometimes shortens negotiations.

If you are still pretty far apart, some strategies include:

  • Matching the seller move for move. For example, the seller counters back at $2000 below their list price. You counter back at $2000 above your offer price.
  • Giving up something else to get your price. For instance, you want to settle in 90 days, but the seller wants 60. Agree to 60, but only at the lower price.

Seller wants you to provide a pre-approval letter from a lender or wants a shorter financing contingency

It is fair for the seller to make sure you can get the necessary financing to purchase the house before they take their house off the market. If there is any issue with your financing, it will need to be resolved before you can buy any house. Get a lender on your side and get the issues solved quickly.

Seller wants a larger Good Faith (also called earnest money) deposit

It is unreasonable to ask a seller to take a house off the market without a reasonable deposit.

Put a contingency in the counter that the Good Faith deposit will not be deposited into the closing agent's escrow account until all inspections have cleared. Another tactic is to offer a smaller deposit with the contract and pay an additional deposit when the inspection contingencies have cleared.

Seller refuses to pay the closing costs you want them to pay

If you need help with closing costs to purchase the house, counter back with a higher price and leave the closing cost contribution in.

If you have enough cash to buy the house without closing cost help, leave your price alone and drop out all or part of the closing cost contribution.

You have a house to sell before you can buy another

Since the sellers have no control over whether your house actually sells, they are really taking their house off the market with the expectation that you are able to sell your house quickly.

If you are in a good market and there are many buyers, sellers will be less likely to take their house off the market contingent on the sale of your house. In other words, there is a high likelihood that the sellers will get an offer that is not contingent on another sale. Of course, if you live in that same market, that could mean your house will sell quickly as well. If you think it will, you can always take the risk that it will sell it in a reasonable time, but be prepared to carry both payments in the event that your house does not sell right away.

Qualifying to carry both houses

You may need to qualify to carry both houses, but if your old payment isn't too high and you don't have much debt, it's very possible. If you can qualify to carry both houses, you can try to stretch the closing date on the new house into the future to allow you more time to sell your house. That way, you hopefully have the time you need and the sellers have a guarantee that they will close on their house even if you don't sell your current home.

The total costs associated with carrying both houses have to be considered. You are basically agreeing to pay that much more for your new house, so make sure you can afford it. If you are truly convinced that this is the home for you, do the math and see if taking the risk is worth it. Your options depend on whether you need the equity in your old house for the down payment and closing costs on your new home.

If you have other assets to use for the down payment on the new house

If you have sufficient cash available for the purchase without the equity in your home, the worst case cost would be the monthly carrying costs on your current home and the return on anything you liquidated to make the down payment. Say your current PITI is $1,200 monthly. You think the worst case is that it would take 6 months to sell and close your current house (plus whatever time you have between the contract and closing of your new house). The total cost would be $7,200 ($1,200/month for 6 months), some lost returns and maybe a few anxious nights.

If you need the equity in your home for down payment on the new house

If you need the equity in your home to purchase a new home, some options:

Think about borrowing a minimum down payment for the new house from your 401k or retirement plan. Repay it when you sell the house.

Borrow against a stock account rather than cashing it in for the down payment on the new house, to avoid capital gains. Repay the loan when you sell the house.

Obtain a "bridge loan or swing loan." This is a loan against the equity in your old house to be applied to the purchase of a new house. In this case, you will need to qualify for costs to carry both houses as well as some bridge loan payments.

If you don't qualify to carry both houses

If you don't qualify to carry both loans and you want to try to make the deal work, offer the seller more information about your house. Provide your research on the comparables and the market. Let the seller know that you are pricing it to sell and your plans to aggressively market it. The seller may even want to visit the house to see if it is in good condition and in a desirable neighborhood.

Ask the seller to accept your contingent offer, but add a "kick-out clause." This means that they will leave their house on the market, and if they get another offer, you will have 24-48 hours to prove that you can perform on your contract without selling your current home, or you get "kicked out" and get your deposit back. The sellers are then free to negotiate with the new purchasers.

When a seller accepts a contract contingent on the sale of the buyer's current house, they usually put a timeframe around it, even if you have a kick-out clause in the contract. For instance, the seller might give you 30-60 days to get a firm contract on your house and 30 more days to close the transaction.

If you are not using a real estate agent, we highly recommend that you hire a contract attorney when you are dealing with complicated situations such as this.

Seller wants an extended closing date

This usually means the seller doesn't want to move out of the house quickly. Maybe they have a house being built that won't be finished in time or they want to let the kids finish school before moving.

One option: settle on your timeframe, but rent the house back to the seller for the timeframe they need. Usually, the seller would pay a daily rental rate that is equal to your new PITI payment.

Another option: if you can wait to settle, agree to delay settlement. You may be able to negotiate more favorable price or terms if you accommodate the seller.

Seller wants a quicker closing date

The seller may have reason to want to move more quickly. If you do not have a house to sell and could move more quickly, it is fine to agree to the seller's timeframe. However, if it will cost you money to move more quickly (an extra month's rent because your lease is still in force, for instance), negotiate this cost into the deal so the seller is paying it. You may also be able to negotiate a lower price for accommodating the seller's timeline.

Counter Offer

Tip

Make sure that you include a timeframe around the seller's response time. 24-48 hours is usually enough to consider a counter offer.

Usually the counter is done on the same offer form - the changes are made and initialed by all parties. If you are adding significant language to the purchase agreement, make an addendum to the purchase agreement. Indicate the date of the original purchase agreement, the date of the counter-offer, and the names of the parties and the address of the property. Then list the changes that you want to make to the original purchase agreement and have everyone sign it.

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