Buyers - Limit the Deadline to Your Advantage
When it comes to real estate contracts, time is of the essence. In many cases, placing time constraints on your offer can often work to your advantage.
If you've ever seen a telethon fund-raiser, you would notice that over 90 percent of the donations are generated in the last half hour. Even if the telethon has been running for weeks, it doesn't matter. In the last few moments, just before the telethon goes off the air, the money starts rolling in.
In many sports, the game is often decided within the last few minutes. Take for example the two-minute drills in basketball or the two-minute warnings in football. How often does the game rest on the final basket or field goal?
The same rules apply in getting sellers to accept your offer. If you don't set a deadline for acceptance, the sellers may simply procrastinate to the point the deal falls through; even if it's an offer they might otherwise have taken!
Often, buyers underestimate the importance of limiting the seller’s time to accept. This is unfortunate since it is a critical element in formulating the deal. Remember that by allowing for a lengthy deadline, you (the buyer) are committing yourself while the seller takes their time to either accept or reject your offer.
By setting a strict deadline, you are forcing the sellers to accept, reject, or counter your offer. By placing the ball in their court, you are demanding they take action or risk losing a potential buyer. By countering or accepting your offer, they will be "locked in", thus preventing other buyers from offering competing bids.
How Much Time Should You Give the Sellers?
Now that you understand the importance of setting a deadline, the question remains: How much time should you give the sellers?
From my experience, give them the shortest time possible. So, if you know that it is possible to present your offer within an hour, then give them an hour. By doing this, you are forcing them to seriously consider your offer or risk losing a potential buyer.
Don't be worried about having your offer rejected. At least if it is rejected, you won't be wasting your time with indecisive sellers. If they counter your offer, you can always increase your price or revise the terms.
Since decisions typically require the coordination of several individuals -- one may be working, out shopping, or otherwise unavailable. Naturally, it may be difficult to have your offer considered within an hour. In most cases, allowing until midnight of the same day is reasonable.
Sometimes, it may be hard to get the sellers together all at once. They may be on vacation, have dinner plans, or be off on a business trip. Whatever the reason, I recommend offering no longer than 24 hours. If they need more than 24 hours, wait!! In today's age of cell phones, fax machines, and next day delivery, there is no excuse for taking longer than a day to decide. If the seller is serious, they will make themselves available to consider your offer.
Don't be Pressured by Agents Insisting on More Time
Some agents may hesitate to place pressure on sellers. Many are unsure of their negotiating skills. Others may be unwilling to present an offer that has a potential of being rejected.
Some agents may suggest that it's impolite to demand such a short deadline. Others may say, "Since your offer is weak, you should give the sellers more time to think about it." This is very bad advice. Whatever the reason, don't back down on forcing a strict deadline.
Buying a house is serious business. Sellers should not be offended by any offer you present. Instead, they should be thankful to get it!
Remember that the sellers' only motivation for letting your offer sit is that they are hoping for a better deal to come along. It is very possible this will happen. By setting a strict deadline, you minimize the possibility of opposing bids.
The deadline applies the pressure to get the deal you want.
For more information please contact:
Joe Crain
Century 21, Smith & Associates
(210) 710-3270
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What is the Real Offer
Often, sellers make the mistake of only considering the price when the buyer makes an offer. Many people's gut reaction is that the price is "too low" and immediately reject the offer.
That could be a mistake. If you listen carefully, hidden inside the offer may be pearls of information that would make you reconsider accepting less than full price. You don't want to reject any offer out-of-hand. Let us consider the deal carefully. It almost always consists of two parts. The first part is the price. The other part is the terms.
Price and Terms
First ask yourself what you want out of the deal. A less than full price offer would have to list terms that were appealing.
Good Terms a Buyer Might Offer
- Higher-than-market-interest second (or first) mortgage in your favor
- The buyer will pay for all or part of your closing costs.
- Taking a problem house "as is" (not asking you to fix the problem).
- Quick close (short escrow).
- All cash deal (when other are asking you to accept "paper").
- Letting you rent back the house for a time (if you're having trouble finding a place to move to).
Items to Check Carefully in the Offer
1. Is the buyer pre-approved? You want to know how qualified the buyer is to make the purchase. While you may not care about the buyer's actual name, you're looking for a strong pre-approval letter from a lender saying that this buyer will get a mortgage sufficiently enough to make the deal. If the buyer is putting down a substantial amount of cash, say 20 percent of the price, you also want to see a letter from a bank, certifying that the buyer has sufficient funds on hand to close the deal. Some smart buyers these days will even come in with a credit report to show you.
2. How quickly can the buyer close the deal? A buyer who's ready to close in 30 days or less indicates strength. The buyer presumably has all his or her ducks in a row in terms of financing. A buyer who needs 45 or 60 days to close may be stretching, hoping to snag financing. Or this buyer may simply be trying to tie up your property as a kind of fallback position, while looking for other, better deals. Always question why a buyer needs extra time.
3. Are there any sweeteners? A sweetener is a term or condition that makes the deal sweeter for you. Usually, these are the first things that agents point out. For example, you want to stay in the house an extra 2 months while your kids finish school and the buyer is willing to go along with this. That's a sweetener.
4. Are there any cash incentives? Is the buyer offering to pay you extra interest on a mortgage you're willing to carry back? Is the buyer willing to pay for any of your closing costs?
5. Is there another property involved? Some buyers are cash poor. Instead of offering a cash down payment, they may offer a mortgage on another property, or even that property itself. This complicates the deal, but could be a real boon. Be sure you have a realistic appraisal of the other property as well as a title report listing any liens so you can judge the value of the offer.
6. Are there any negative terms? A negative term can be anything that makes the deal less attractive to you. Contingencies that favor the buyer are negatives. Some you can expect, such as demands for a professional inspection and disclosures. Others, such as a demand that the sale be contingent on the buyer not losing his or her job or that interest rates not climb beyond a certain point, may weaken the offer. Yet others, such as a demand that the offer be contingent upon the buyer's great uncle in North Dakota coming through with a promised gift of money, may make the offer frivolous.
7. Is the price acceptable? Note that the price is last on this list. You won't really know if the price is acceptable until you've read the entire offer and understand it. Only then can you make a determination about whether you'll accept the price. Don't let the price deter you from considering the overall deal. Again it is only one part of offer.
Take Your Time
When an offer is presented, a time limit may be attached to it. For example, a "Cinderella" deal is good only until midnight of the same day. You might receive it at 9 p.m., which leaves a window of three hours to accept, reject or counter.
The idea behind this strategy is to force a seller to act swiftly. Most buyers will allow enough time for careful consideration. The important point here is to not be pressured by a deadline. You need to have enough time to feel comfortable with your decision. In other words, TAKE YOUR TIME! It is better to lose an offer than accept a bad one.
Always take enough time to fully consider the offer.
For more information please contact:
Joe Crain
Century 21, Smith & Associates
(210) 710-3270
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