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Due Diligence -The Art of Negotiation, Closing the Deal!

Your real estate listing has received an offer to purchase, and it’s now time to negotiate the sale. Navigating through qualifying the offer and understanding the legalities and contingencies in this process can be daunting. How you handle and respond to the timely offer is crucial to reaching your goal and securing the best possible sales outcome.  

The first question to ask should be, is the buyer qualified? You should always get confirmation of the buyers’ mortgage pre-approval or other confirmation of legitimacy. Knowing the offer has backing allows you to proceed into the negotiations with more confidence. Once you confirm the offers pre-approval status you are ready to begin the negotiation process.

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 then 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 at all to the first offer presented by the buyers, it becomes a brand new counteroffer. When you reject the buyers’ offer, they have every right to simply walk away from the potential deal. 

Your objective as the seller is to improve the offer, whether that’s a higher price, fewer seller contingencies, or a different closing date. 

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. 

Create a list showing the key factors of the offer, so you can physically see where it may fall short of your target. Your list should include;

The Deposit:  Is it a serious offer with a sufficient deposit? How much is it and who has it? Knowing that the offer comes with a security deposit that is held in trust by an independent party 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, RRSP’s or cash holdings to secure the offers obligations.

The Terms: Is the offer from a first time buyer who will have to qualify for a first loan guarantee through CMHC? With today’s new mortgage stress testing it is increasingly difficult for first time buyers to qualify. Knowing this at the start of the negotiation will aid in how you respond.

The Occupancy:  What is the purchasers’ occupancy timeline for taking possession of the property. A sufficient and reasonable timeline assure 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 buyers’ 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 buyers offer to purchase may be contingent on first 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 buyers will purchase contingent on their securing new financing which can fail in application. Purchase offers contingent on the buyers’ being able to move into the house within a set period of time must be weighed carefully with your own timeline goals. Contingencies directed at disclosure and inspections are a norm in any real estate negotiation and are to be expected. The buyers will purchase only if they approve your disclosures and their 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 the contingency reasonable? Does the contingency negate the value of the offer and in the end, can I live with the contingency? You can limit the contingency by insisting it is performed within a specified time.

More often than not, a buyers’ 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 counteroffer 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. 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 at 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. 

Buyers may be off-put by this strategy, and some may see it as your unwillingness to negotiate and walk away. But you will avoid wasting time on buyers who only make lowball offers, and who aren’t seriously interested in buying your property. You haven’t accepted an offer until both parties sign the exact same sales agreement. Until you sign, you can refuse to accept the offer. 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. 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. Technically speaking, the buyers can withdraw the offer anytime before they learn of your acceptance, just as you can withdraw a counteroffer anytime before you learn of the buyers’ acceptance of it. The agent must give you a copy of everything you sign. Remember that the deal is not closed until the property title and money have been legally transferred. 

In conclusion, 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.

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