Step 7: Offers and Negotiations
Although selling a home as a “For Sale By Owner” (FSBO) property has the potential of helping sellers to save tens of thousands of dollars in avoided fees, these savings will not be realized by FSBO sellers who are unprepared to handle incoming offers or negotiate properly with prospective buyers and real estate agents.
A buyer who is interested in making a purchase offer on a home is required to deliver a properly executed written sales contract to the FSBO seller. Many FSBO sellers are intimidated by this stage of the sales process, as sales contracts typically are formal documents that consist of multiple pages of terms and conditions. As mentioned in the About section, FSBO sellers should remind themselves that the FSBO sales process is not as complex as it may seem at first blush, with thousands of people completing the process every year.
In most states, there are standard sales contract forms that buyers use to submit an offer. These state-specific contract documents are pre-printed forms that are available online at USLegalforms.com and also can be found at most office supply stores. Sales contracts typically contain the following terms and conditions, almost all of which may be subject to negotiation between the FSBO seller and prospective buyer:
- The names of the parties to the sales contract.
- A description of the real estate and property condition.
- The terms of payment, including the total sales price, the down payment, the earnest money deposit, and the amount to be financed.
- The existence of any restrictions or easements on the home.
- A description of utilities, appliance, fixtures, and other property that is part of the sale.
- A description of all contingencies (e.g., obtaining financing, home inspections, home appraisal).
- All required disclosures.
- All closing/settlement/escrow information (e.g., date, location, expenses).
- Any commission to be paid to the buyer’s real estate agent.
Negotiations, Counteroffers, and Acceptance
After becoming familiar with all terms and conditions set forth in the sales contract that constitutes a prospective buyer’s purchase offer, FSBO sellers should take time to consider the offer and weigh any competing offers. FSBO sellers should not take too long, however, as sales contracts typically establish a deadline under which the offer is terminated if there is a failure to respond. The next step is for the FSBO seller to accept the offer, make a counteroffer, or reject the offer in its entirety.
An unacceptable offer does not automatically mean that a sale has failed. Rather, FSBO sellers should recognize that most buyers are willing to negotiate the terms and conditions of the sales contract. These negotiations take place by means of written counteroffers. (Note: although making a counteroffer constitutes a rejection of the underlying offer, the offer-counteroffer process is common to most contract negotiations.) Sellers and buyers typically make counteroffers by striking out and amending terms and conditions on the underlying offer (and initialing next to all changes made); accordingly, FSBO sellers do not need to complete new forms each time a counteroffer is prepared.
As noted above, many of the terms and conditions set forth in the sales contract can be negotiated. Aside from the sales price of the home, the most common points of negotiation are contingencies (conditions that allow the buyer to terminate the contract if not satisfied). The most common contract contingencies are the buyer’s ability to obtain financing, inspection of the home, appraisal of the home, and the buyer’s ability to sell his or her current home. Simply because a buyer includes these contingencies in a sales contract, however, does not mean that the FSBO seller has to accept them.
- Before giving serious consideration to a buyer’s offer, FSBO sellers should ascertain a prospective buyer’s financial situation. There may be no reason to begin negotiations if the buyer has not been pre-approved to obtain necessary financing.
- FSBO sellers who are anticipating receiving several offers should consider including in their counteroffers a clause that releases the FSBO seller from being bound to the first signed counteroffer and allows the seller to review all counteroffers before making a decision (most pre-printed sales contracts contain this clause as an option).
- FSBO sellers should try to negotiate to continue to market their home and accept backup contracts. By protecting themselves in this manner, FSBO sellers will not be losing valuable marketing time. FSBO sellers that receive a backup contract can then present it to the first buyer, who can then either waive the home sale contingency and proceed to settlement or can release the seller from the contract in order to proceed to settlement with the backup buyer.
- If a buyer includes a contingency that ties the purchase of the home to the buyer’s home sale, FSBO sellers should consider including a contingency of their own that allows them to entertain additional offers if the buyer’s home is not sold in a specified period of time.
- FSBO sellers that agree to financing, inspection, or appraisal contingencies should insist on a relatively short time frame for satisfying these contingencies.
The counteroffer process continues until the sales contract is accepted or until negotiations reach an impasse. A sales contract is accepted when both parties have agreed on its terms and conditions and have signed the document. If the FSBO seller and buyer cannot agree to a sales contract that is acceptable to both parties, there are several options by which a contract can be rejected, including initialing the rejection box that may have been included in the contract, writing “REJECTED” across the face of each page of the contract (and initialing and dating each notation), and failing to respond to a counteroffer by a deadline specified in the contract.
Step 7 Premium Content
• State-Specific Sales Contract Forms and the Meaning of Standard Clauses
• Standard Clauses in Sales Contracts that are Important to FSBO Sellers
• Successful Negotiation Strategies