Selling your home is a big deal; it’s exhilarating when offers roll in. However, you can’t just look at the highest offer and start celebrating. Accepting a high offer before carefully reviewing the contract means you might face complications down the road, such as drawn-out negotiations and sneaky clauses. In this 4th installment of my Sellers Guide for Getting the Most for Your Home in a Hot Market, I’ll share some of the most essential terms to pay attention to in order to make sure you’re getting the most for your home. The key takeaway is: know the contract!
Net Price
The price listed on the purchase line likely isn’t the actual net price. Commissions, other closing costs, transfer taxes, closing credits to the buyer, title charges, and other fees play into the net price. I have created an estimated net price cheat sheet that will give you an idea of what to expect. Contact me for details!
Escalation Clauses
Escalation clauses are prevalent right now. This clause is mainly put in place to protect buyers from outrageous bidding wars but also benefits the seller! In this seller’s market, this clause can help buyers win bidding wars and protect the buyer when someone wants to outbid them.
When an offer includes this clause, the buyer can specify how much they are willing to go above their original bid if somebody places a competing offer. The final price depends on what ALL the buyers offer and each individual’s escalation clause details. I’m happy to explain this in more detail so you can get to know the contract. Don’t hesitate to contact me with questions.
Home Inspection
This contingency can make or break a deal after going under contract. The inspector’s findings could change the price you receive at settlement. We want to minimize the buyer’s time to conduct the inspection and provide a list of repairs. You can also always have your home pre-inspected and make any necessary repairs before putting it on the market to avoid surprise costs during the negotiations.
Appraisal Contingency
Most buyers include an appraisal contingency in their offer. Even if they don’t, their lender will send out an appraiser no matter what. Lately, homes are selling for more than the comps will support, so many contracts have issues with appraisals.
I pay extra to measure the square footage. Accurate square footage can often circumvent an appraisal issue. Review last week’s article for more information on why accurate appraisals are essential.
Additionally, I like to meet the appraiser in person to discuss the home’s assets and determine a final price. Having a solid and accurate appraisal makes final price negotiations much more manageable. It also helps to provide a thorough list of updates and renovations you’ve made to your home.
Earnest Money Deposit (EMD)
The earnest money deposit is the money the buyer needs to send to the title company to ensure they show up for settlement. It’s money they will get back if they void for any reason we allow in the contract. The EMD is determined based on the sale price. Typically, the amount should be about 3-5% or more.
Financing Contingency
Financing contingencies give buyers time to obtain financing to purchase your home. If you agree to this contingency, it stays in place until the final settlement. Suppose the buyer loses their job the day before the settlement. In that case, the contract will be voided, and the buyer gets their earnest money deposit back in full. Think twice about agreeing to this contingency. Even if your buyer wants to pay a higher price, the risk is something to consider.
Lender Choice
Buyers can use any lender they want to finance their purchase. It’s important to know which lender they are using because this determines a lot. I require a pre-approval letter and reach out to the lender personally to confirm the buyer is fully approved. Don’t go any further with the sale until you have confirmed from a reputable lender that the buyer has everything in place to go forward with the settlement.
Title Company Choice
Technically, the buyer has the right to choose the title company. However, we can suggest a company we prefer. The title company is a critical choice because they are responsible for ensuring the settlement happens in a timely and efficient manner. I have lots of experience in this area and can provide suggestions for the best title companies in Northern Colorado.
Closing Date
Choose the ideal move-out timeline for you, and I’ll help you choose a closing date that works. I can’t guarantee that every buyer will agree to the exact date you want, so this point should be more of a suggestion instead of a requirement. However, suppose you have an important reason for your move-out date. An offer that agrees to your timeline may be more important to you than getting the highest price.
Rent-Back Agreement
This is an excellent clause to include if you want to close on your current home but don’t want to move right away. Typically, buyers only have a short window after closing to move out of their home completely. However, you may be able to negotiate a rent-back agreement with your buyer that would allow you to stay much longer. Basically, you could rent to remain in your sold home, often for a reasonable price (sometimes even free!)This is perfect for sellers that haven’t closed on a new house yet, or have another reason to stay in their old home for a little longer.
Why a Cash Offer Isn’t Always the Best Choice
Now that you know some of the main contingencies to look for in a contract, I’ll explain why cash offers aren’t always the best choice. Cash offers are great ONLY if they are the highest offer and aren’t mitigated by deal-breaking contingencies.
If you are looking to sell your home fast and don’t want to deal with contingencies, accepting a cash offer is a great choice for you. Of course, due diligence is essential here. Make sure the buyer has the funds in place. Ask for proof of funds and additional documents to ensure there isn’t any funny business happening.
Whether to accept a cash offer is a personal choice each buyer has to make. Getting the best price is important, but getting to the closing table and move-out day on your terms is equally important. I want to help you to get to know the contract so that whether the offer is cash or financed, the seller gets their payment at the time of settlement, which is why a cash offer isn’t necessarily better.
I have years of experience negotiating the nuances of contracts and contingencies and continue to help sellers get the most for their homes in this crazy market. If you choose me as your listing agent, I’ll be with you to ensure you understand and know the contract. I will help you get the best price and favorable terms that fit your particular situation, goals, needs, and timeline.
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