As the seller, you want the contract to be for the most amount of money, with the least amount of work, and in the shortest timeframe possible. Your dream buyer is paying all cash, taking the house as-is and wants to close in 10 days. Oh to be so lucky! In 25 years of business, I have met one of these types of buyers. Too bad for me and you! Let’s put our dreams aside and figure out the best way to negotiate the contract on your home.
The important parts of the contract to you are: the price, the type of loan the buyer wants to get, the inspections required of you, the closing date, the commission, any bonuses, any fees paid for the buyer, the closing date, date of possession and most important to you, the walk-away amount. It sounds like a lot, but all you really need is a piece of paper and a pencil and you’ll know what the offer means in a few minutes. We’ll go through each of these and then you’re ready to negotiate.
- Price: The actual price is not nearly as relevant as the rest of the terms of the contract. Price is important but until you have looked at the rest of the terms, such as seller concessions, fees paid etc., what the price is does not reflect what you’re looking to end up with. The end price will reflect the rest of the terms you accept.
- Type of loan the buyer chooses: The relevance here is what kind of responsibilities the seller has to accept. If the buyer is using an FHA or VA loan, the appraiser may require some work to be done to the house before the loan is granted. This used to be a sticking point, but with the advent of required municipal inspections in almost all municipalities, any real work that has to be done will be caught on those inspections. In almost all cases, the seller is required to order the inspection and fix any predications that come up on the inspection. If the buyer is using a conventional loan (non-government), a municipal inspection can be negotiated between the parties.
- Inspections: Normally, the seller is only required to order the municipal and gas inspections, then fix whatever is wrong. Some sellers order these inspections as soon as they put the house up for sale so they have few surprises later on after they have agreed to terms with the buyer. They also may have to negotiate any repairs the buyer asks for from a whole house inspection the buyer may have. If termites show up from the buyer’s inspection, the seller is normally required to provide the treatment for about $650.
- Commission: Cost is whatever percentage of the sale price you agreed to with the listing agent. Remember that amount covers all agents involved in the transaction, not each individual side.
- Bonuses: Any bonus you may have agreed to give for a quick closing or to the agent who brings in the buyer.
- Fees of the buyer the seller agrees to pay: It is very common for the buyer to ask the seller to pay for the buyer’s closing costs, pre-paid items, and inspections. This number is usually equal to 3% of the sales price if the sale price is under $125,000 and 2.5% of the sale price for houses more expensive than $125,000.
- Closing Date: If you have an existing FHA and VA loan, make sure that the closing takes place a few days before the end of the month. If the loan is not paid off by the 1st of the month, you may be charged extra interest (about a month’s worth).
- Your cost to close your side of the loan is about $500: This covers your closing fee, recording the deed and the other required documents to make the closing legal. For more information (click on cost of selling your home)
Let’s summarize what you do with all this information:
Start with the sale price
Calculate the commission and subtract it from the sale price
Subtract the bonuses (if any)
Subtract any fees the seller agreed to pay for the buyer
Subtract $1000 for repairs (just to be safe)
Subtract your cost to close your side of the transaction
Subtract the loan balance you owe (if any)
The final number is your walk-away amount.
If you’re going to counter-offer, my recommendation is not to counter the fees the buyer wants; they probably need them. Instead, counter the price even if it’s above the list price. You don’t care why the buyer may need something, you just care about the bottom line and if it doesn’t close you’re not required to pay any of them.
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