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Home
FSBO
Kit
Free FSBO
Guide
Preparation
Marketing
The
Offer
Closing
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FAQs |
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Frequently Asked
Questions
Common issues and
possible solutions:
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Issue |
Possible Solutions |
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Buyer
is offering low price
REMEMBER:
PRICE ISN’T EVERYTHING! It is better to accept a lower offer
from a buyer who will actually go to closing than a high price
from a buyer who will not be able to close
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If
the offer is in the high area of your acceptable net proceeds
range, offer to "split the difference" or "meet in the
middle". This tactic seems inherently fair to both parties and
can sometimes shorten the negotiation process.
If
the offer is at the low end of your range or not within the
range at all, move in small increments; give a counter-offer
at just below your asking price. Be prepared to go through
several counter-offers with this buyer.
Sometimes
asking the buyer how they arrived at their offer price leads
to a fruitful dialogue. For instance, the buyer may have done
more research on the comparables than you have and have good
evidence that your price is high. If so, you eventually have
to drop your price - no matter who buys the property. Or the
buyer might say this is all they can afford to offer. This
could indicate that they are not really qualified to buy your
home and you should not spend time negotiating, or that they
are short of cash and you should step in and pick up some
costs to make the deal work at a higher price.
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Buyer
doesn’t want to provide a pre-approval letter from a lender or
wants a long financing contingency |
You
must get to the bottom of this type of situation before you
take your house off the market for an extended period of time.
Explain that you must know whether the buyer can perform and
ask point-blank if there is an issue with financing. Wanting a
long financing contingency or a delayed closing can also mean
that the buyers have a house to sell and are not disclosing
this. Ask the question "do you have a house to sell?"
outright. |
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Buyer
has offered a low Good Faith (also called earnest money)
deposit or none at all |
It
is natural for a buyer not to want to give an individual a
deposit, even though they wouldn’t hesitate if there were a
real estate agent or attorney involved. Remember that the
buyer is probably just learning this process too. In this
instance, you might recommend that the buyer obtain a contract
attorney to negotiate the contract for them, since they are
nervous about it. In any event, do not take your house off the
market without a deposit.
Insist
on a deposit in your counter-offer and put a contingency in
the counter that the deposit will not be deposited into the
closing agent’s escrow account until the home inspection and
other inspections have cleared. Another tactic is to accept a
smaller deposit with the contract and require an additional
deposit when the inspection contingencies have cleared.
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The
mortgage terms the buyer has outlined in the contract do not
seem reasonable to you |
Generally,
you should not enter into a contract that is contingent on the
buyer receiving a certain interest rate and points. Tell the
buyer that it is fine for them to shop around to get the best
terms on their mortgage, but that the contract has to indicate
that they will take "market" terms. This means that the buyer
can’t get out of your contract just because interest rates go
up - unless they no longer qualify for the loan.
If
the purchase agreement indicates that the buyer is making a
down payment of less than 5% of the purchase price, this could
be a red flag. Inquire as to the loan program they are looking
at and be sure you get a pre-approval letter (complete with
credit and source of funds review) for that specific loan
program from a lender within 5 days of signing the contract.
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Buyer
wants you to pay some or all of their closing costs or points
on their loan |
First,
realize that any costs you agree to pay come out of your net
proceeds, so don't forget to put the figures into the
seller net calculation. It is not unusual for the
seller to pay buyer's closing costs in real estate
transactions. Generally it means that the buyers want to save
their money for other expenses or that they are short of cash
to close. This is fine as long as your net proceeds are
acceptable and the buyer qualifies for the loan with your
closing cost contribution.
When
a buyer asks you to pay closing costs, and it reduces your net
proceeds to an unacceptable level, counter back to them at a
higher price but leaving in the seller contribution to closing
costs. Again, make sure you get a pre-approval letter from a
lender ASAP. |
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Buyer
has a house to sell before they can buy yours |
This
is a sticky situation. You have to decide whether to accept
this contingency or not. You have no control over whether the
buyer’s house actually sells, so you are really taking your
house off the market and gambling that your buyer's home will
sell.
If
you are in a good market and you’ve had many people look at
your home, you would be less likely to take the house off the
market contingent on the sale of another house. Suggest to the
buyers that they get a bridge loan or swing loan and
that they will need to qualify to carry both houses at the
same time. If they can qualify to carry both houses, you can
stretch the closing date on your house into the future to try
to give them the time to sell their house. That way, they have
the time they need and you have a guarantee that they will
close on your house even if they don’t sell their current
home.
If
the buyer doesn’t qualify to carry both and you want to try to
make the deal work, find out more about the market their house
is in. What timeframe do they think it will sell in and how
are they are pricing it? You may even want to visit the house
to see if it is in good condition, and in a desirable
neighborhood.
If
it seems reasonable to you that their house will sell and
these buyers seem like otherwise good prospects, you could
consider taking the offer, but adding a "kick-out clause".
This means that you leave your house on the market, and if you
get another offer, the first buyers will have 24-48 hours to
prove that they can perform on their contract without selling
their current home, or they get "kicked out" and get their
deposit back. You are then free to negotiate with the new
purchasers.
When
you accept a contract contingent on the sale of the buyers
current house, always put a timeframe around it, even if you
have a kick-out clause in the contract. For instance, you
might give the buyers 30-60 days to get a firm contract on
their house and 30 more days to close the transaction. Don’t
leave the timeframe open ended.
If
you exercise the kick-out clause, remember that when
negotiating with the newest purchasers, you must make any
agreement with them contingent on the first buyers being
released from your contract.
We
highly recommend that you hire a contract attorney when you
are dealing with complicated situations such as this.
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Buyer
wants an extended closing date |
This
is only a problem if you can’t or don’t want to wait to close.
Find out why the buyer wants an extended timeframe. Is it
because they need to save money for closing? Or because they
want their kids to finish school in their current location?
If
the extended date has something to do with qualifying to
purchase your house, then it is a potential concern. Get the
details and see if there is another way to work it out. Often,
presenting the issue to a qualified loan officer will uncover
some viable options for the buyer.
If
it is a logistical issue, such as kids finishing school, just
decide whether you can wait or not. If you can, accept the
offer, but be sure you keep the financing and inspection
contingencies short, so you know the contract is solid.
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Buyer
wants a quicker closing date |
Frequently,
buyers believe that a quick settlement will cause a seller to
accept a lower price or take their offer over others. And
sometimes, it does benefit the seller to close quickly, so the
strategy works. However, if you can’t close and move that
quickly, counter back with your desired timeframe. If the
buyer can postpone closing, they probably will. If not, they
will reject that portion of the counter-offer and go back to
their original timeframe.
Best
advice - try to work it out - only very serious buyers want to
move quickly. If you already have a contract on another house
you are purchasing, see if you can speed up your closing to
meet the buyer’s timeframe. If you are purchasing another
house, but haven’t found it yet or you aren’t ready to move,
determine whether you are willing to move twice to accommodate
this buyer’s timeframe. |
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Buyer
wants you to hold financing for them (Seller held financing)
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This
means that the buyer wants you to hold seller-held
financing for all or part of the purchase price. There are
both risks and rewards in holding a mortgage for the buyer. If
you decide to pursue this, we strongly suggest you hire a real
estate contract attorney to prepare the forms and manage the
closing. |
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Buyer
wants to do a lease/purchase also called a
"lease-option" |
This
means the buyer wants to lease (or rent) the property for a
period of time and then purchase it during or at the end of
the lease period. You don’t get your money immediately, so
this option only works if you don’t need the equity in your
home to make your next move. A lease option is a popular means
to sell less desirable properties or to sell properties in a
slow market. If you choose to pursue this option, we
strongly suggest you hire a real estate contract attorney to
prepare the forms and manage the closing. |
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Troubleshooting
It is inevitable that
issues will arise during the transaction. The key to resolving them is to
be pro-active (don’t let your contract timeframes slip) and to clearly
understand the problem and your options for solving it. The loan officer,
lender and title officer are valuable resources in the transaction. They
can frequently help resolve issues.
Common issues and
possible solutions:
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Issue |
Possible Solutions |
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Home
inspection reveals deficiencies and buyer asks for repair or
replacement |
Don’t
overreact. Go through the entire list of repairs and separate
out what is easy and inexpensive and what is hard and
expensive.
Understand
what you are required to do (if anything) by the contract.
Get
estimates for the repair/replacement so you understand the
costs involved.
Decide
how to respond to the buyer’s request. This is really a matter
of determining what cost is acceptable to you and whether the
buyer will actually walk away from the house if you do not
agree to everything.
Some
options:
- You can either
agree to do the actual work or you can agree to an amount of
money that you will credit the buyer in lieu of making the
repairs. The latter is usually acceptable to the buyer.
- You can agree
to do one big thing and not the small things. This might be
acceptable to the buyer since it is easy for them to do the
small things as well.
- If some of the
repair items are not really non-functioning, but rather just
on their last legs (for instance, your dishwasher is 10
years old and the inspector indicated that 10 years is the
expected lifetime) don’t agree to replace or repair. Offer
instead to split the cost of a home warranty with the buyer and it
will cover those appliances, etc. if and when they go bad.
That way, everything is covered. NOTE: All appliances,
plumbing, etc. must be in working order at the time the
warranty is placed.
- If something
serious is uncovered, such as joist rot, foundation cracks,
leaks in the roof, faulty wiring or plumbing problems, get a
second professional opinion. If the problem is real, you
have to decide how to handle it. Now that you know of the
problem, you will likely have to disclose it to other
potential buyers. It will probably come up in another
buyer’s inspection as well, so you might as well deal with
it now.
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House
Appraises Low
If
your home is priced correctly, this is a very infrequent
occurrence
The
appraisal is usually ordered by the buyer’s lender and is used
by the lender to insure that they are not over-lending.
Indirectly, it also protects the buyer from overpaying
The
result of a low lender’s appraisal means the lender will base
the buyer’s loan amount LTV off a lower value, resulting in a
lower loan amount. This generally means the buyer can’t get
the loan amount they have requested, or they may have to pay
PMI insurance, or they may have to
make a larger down payment
If
the buyer cannot get the loan outlined in the contract,
generally, their deposit is refunded and the contract is dead
If
the buyer can get the same loan amount regardless of the low
appraisal, then the contract may require them to go forward
with the purchase. Check the contract and/or speak with a real
estate attorney to determine
Very
likely, if the house doesn’t appraise for the sales price, the
buyer will want you to lower the price
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Don’t
overreact. The buyer will have just heard from their lender
that the house didn’t appraise for the sales price - the buyer
didn’t order the appraisal and isn’t responsible for the
result. Also, the buyer will be just as nervous as you are –
they will be afraid that they have agreed to pay too much and
that they might not be able to buy the house.
Enlist
the buyer’s help. Presumably, they still want to buy the house
and might be willing to make a slightly larger down payment or
have another appraisal ordered by the lender (you can split
the cost or the seller can pay for the second appraisal). With
the buyer’s help, the lender should be willing to offer some
options to resolve the issue.
Ask
for a complete copy of the appraisal from the buyer.
Check
all the details about your property on the appraisal. Make
sure the square footage, number of bedrooms and baths, etc. is
correct. Look at the comparables the appraiser used. Do you
have knowledge of more recent comparables (remember, they
should be of the same size and style as your home) that
support your sales price? If any of the information is on the
appraisal is incorrect or you have more recent comparables to
show to the appraiser, call the buyer and ask if you can speak
directly with their loan officer to correct the information.
If
the buyer says yes, talk with the loan officer, explaining the
inaccuracies and/or new information. The loan officer will
pass it on to the appraiser. It may or may not make a
difference.
If
the buyer says no, give the buyer the information and ask them
to pass it on to the loan officer. It may or may not make a
difference.
Failing
any results with the above options, and if the buyer has the
right to get out of the contract, you will have to make a
decision. Let this buyer go and hope for another buyer (you
may encounter the same issue with the appraisal) or drop your
price and go to closing with this buyer.
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Buyer
is rejected for their mortgage
If
you have required the buyer to provide you with a pre-approval
letter (with credit, ratio and source of funds review) early
in the process, a surprise rejection should be a rare
occurrence |
Don’t
overreact. The buyer is probably just as disappointed as you
are.
Ask
for a copy of the lender’s declination letter. The lender is
required to notify the buyer in writing that their loan has
been declined. You are entitled to a copy before you have to
refund the buyer’s deposit.
If
the buyer received a pre-approval letter, ask the buyer what
changed between the pre-approval letter and the final loan
rejection. NOTE: If it appears that the buyer misled you or
lied to the lender to get the pre-approval letter, you may
have reason to keep the buyer’s deposit. Consult an attorney
to find out. If the buyer doesn’t seem to understand exactly
what the problem is, ask them if they mind if you speak
directly with the lender.
If
the buyer says yes, have the buyer call the lender and
authorize the lender to talk to you. If you call on your own,
very likely the lender will not talk with you, which is
appropriate since loan information is confidential. Call the
lender and ask if there is anything that you, the seller, can
do to help the buyer get the loan. For instance, will it help
if you lower the price slightly? Hold a second trust so the
lender has a lower loan-to-value? Postpone settlement so the
buyer can save money?
If
there is nothing you can do to help this lender approve the
loan, ask the lender to give suggestions as to another company
who could possibly make the loan.
If
you have to refund this buyer’s deposit and start over, ask
the buyer for a copy of the appraisal. You can use this to
justify your price to new buyers. Next time, require the buyer
to get a pre-approval letter (complete with credit and source
of funds review) from an established lender prior to moving
forward with the contract. |
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Termite
inspection shows active infestation |
Generally,
the contract calls for the seller to pay for treatment. Just
pay for it and supply the lender and escrow officer with
evidence that you have had the treatment done. |
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Termite
inspection shows prior insect damage |
This
is damage to wood areas caused by prior wood boring insect
infestation. Usually the lender will require that it is
repaired and some contracts call for the seller to repair it.
If your contract doesn’t specify who pays, you and the buyer
will have to negotiate who pays for the repair.
Get
specific instructions from the lender as to what needs to be
repaired. The termite report will have a list of the areas
that require repair, have the lender or buyer fax it to you.
It is easiest to have the same company make the repairs if
they do that type of work, otherwise ask them for the name of
a company they recommend. If the work is extensive, (such as
joist damage, etc.), get two or three quotes before you have
the work done. |
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Survey
shows encroachments |
Your title/closing attorney/agent will direct
you in a solution. |
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Title
search reveals problems |
Your title/closing attorney/agent will direct
you in a solution. |
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