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Breaking Down the Buyer’s Offer

After all the preparation and waiting, you finally get the call you’ve been waiting for: A buyer is writing an offer. First, you want to know the price — but don’t get excited or exasperated by the number until you see all the terms. Contingencies, seller concessions and real property requests can dent (or boost) the bottom line. It’s possible to get a full-price offer and yet net less money than you would get from an offer that’s $20,000 under asking price.

For that reason, agents usually don’t want to tell you the amount of the offer over the phone. Ask your agent to explain the terms in full. Although real estate sales contracts can vary by state, they generally need to include similar information. Here’s what could affect your bottom line:

Purchase price. This is the line everyone cares about the most. But before breaking out the champagne, read on and adjust the price based on what the buyer wants as part of the offer.

Earnest money deposit. This deposit shows that the buyer is serious. If an offer might be considered weak, a buyer may include a large earnest-money deposit to show that they are committed to purchasing the property. The buyer usually dictates where the deposit is held, and that’s rarely in the hands of the seller — most of the time, the check goes to a third party, such as escrow, an attorney or even a broker’s trust account. This depends on local real estate custom. The earnest-money deposit usually goes toward the buyer’s down payment. If either party is unable to meet the agreed-upon contingencies and the deal falls apart, the deposit is returned to the buyer. Most real estate contracts also have a section on any disputes going to arbitration, so the odds are doubtful that the seller can get all or a portion of the earnest money deposit if the buyer backs out.

Mortgage contingency. This is likely the first contingency you will see in the offer. Here, the buyer states that their offer is based on acquiring a mortgage for a certain term and rate. Make sure both are realistic. Occasionally, a buyer states unrealistic figures, such as a 30-year, 5 percent fixed-rate loan with no points, when that type of loan carries a 7 percent rate with 1.5 points in your area. If you don’t address that sort of discrepancy, a buyer could tie up your property and then back out because of cold feet or because they find something they like better. It doesn’t happen often, but be aware of the possibility. Also, make sure there is a realistic time limit stated in the contract; otherwise the buyer can take as long as they want looking for terms that they are not going to get. This contingency clause is also where a buyer can specify whether they want you to carry back a first or second mortgage.

Seller concessions. Such concessions can include anything from the seller paying some or all of the buyer’s closing costs to agreeing to set seller funds aside to pay for a new roof. If you are in a hot market, buyers usually ask for few concessions, because they know they aren’t likely to get them. The cooler the market, the more seller concessions the buyers want.

Inspection contingency. Here, the buyer states that their offer is contingent on them accepting a home inspection report that they pay for. The clause also can include contingencies for the pest, well or septic inspections.

Personal property. This is where the buyer can ask for everything and the kitchen sink. Basically, anything physically attached to the property is considered part of the transaction and would belong to the buyer — light fixtures, the dishwasher, custom bookcases. Furniture or a refrigerator are not attached and therefore belong to the seller. As the seller, though, make sure to state in your listing or any counter offers if there are “attached” items that will not be included, such as the Viking stove that matches your fridge or your antique light fixtures. Buyers may also include items they want removed before closing, such as the dilapidated shed or the cans of old paint in your garage.

Appraisal contingency. The buyer includes this to make sure the house appraises for the sales price. In rare cases, a bank won’t appraise the house for the agreed-upon price. This contingency is more common when there are more seller concessions. For example, if the agreed-upon price is $300,000 but includes up to $10,000 in buyer closing costs, the house may not appraise if it’s really worth $295,000.

Buyer selling property contingency. You may get an offer that is contingent on the buyer selling their property: The buyer can only fulfill the contract if they sell their current house. The key to this contingency is making sure there is a time limit; otherwise the buyer can tie up the property for months. Usually, a seller responds by including a 72-hour clause, also known as a kick-out clause. This clause allows the seller to keep the house on the market. If another offer is received, the seller gives the first buyer 72 hours to fulfill the contract, or else the deal is cancelled.

Legally, buyers can include a contingency for their mother-in-law approving the purchase, so make sure the contingencies are realistic and review all the terms before you accept. The purchase price is just the starting point of your net proceeds: You won’t know how much you’ll actually get until you factor in all the other clauses.

Rick Hazeltine wrote this article.

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