Many buyers believe making an offer on a home involves naming a price, specifying terms of the purchase, and then going back and forth a bit until an agreement is met. While this is true in the simplest of terms, you might be surprised how complicated things can get during a negotiation process. Realtors® are supposed to follow rules and regulations set by various governing entities for real estate. When it comes to writing offers and negotiating, make sure you have an experienced and reputable Realtor® who knows and follows proper procedure. Here are some facts about engaging in an offer that you should review with your Realtor® before he or she writes up a contract so you’re prepared for the scenarios that could follow.
What You Need to Know About Offers and Counter Offers
You already know that an offer is your expressed interest in purchasing a particular property at a specific price. A counter offer is a rejection of the previous offer with new or revised terms that allows the negotiation to continue. Both sellers and buyers can counter offer as long as both parties want the negotiations to continue and reach an agreement. Here are some facts about the offer and counter offer process you should know in the Greater Cincinnati Area (practice could be different in other areas):
▪ The listing agent (the agent who represents the seller) must present all offers and counter offers to the seller. In other words, if you’re trying to buy a home and your agent relays your offer to the listing agent, that agent is not able to reject that offer without presenting it to the seller. Sure, she’s able to give her opinion of the offer to the seller, but she must present it, even if she knows the seller is likely to reject the offer. The only exception to this is if the seller has given written instruction to the listing agent to make such decisions.
▪ Your agent is called the buyer’s agent. After you’ve made your initial offer, he is required to present to you all counter offers in the negotiation process. He represents you and doesn’t have the right to reject a counter offer on his own. The exception here is if you, the buyer, have given written instruction to your agent to handle such decisions. In most cases, buyers want to be in charge of this important decision!
▪ A seller never has to respond to your offer or counter offer. Often you do get a response, but you should know that the seller isn’t required to give you one. Your offer will have an expiration date and time on it. If that time passes and you’ve not heard from the seller’s agent, you can rightly assume the offer was rejected. While there are several unpleasant ways you might interpret such a “non-response,” you can make a new offer if you’re still interested in the house.
▪ As a buyer, you never have to respond to a seller’s counter offer. Again, usually people do give responses, but you aren’t required to do so, particularly if you lost interest in the home. If you let the expiration date and time pass, the counter offer is considered rejected. Your agent will probably ask that you allow him to give the listing agent a response out of courtesy or in the interest of keeping the negotiation going if you’re still interested in the house. But your agent must follow your instruction in this case.
▪ A purchase contract is considered accepted only if both parties have signed it and initialed all modifications from any previous version. The seller or the buyer is able to change their mind and rescind the offer or put it back into negotiation prior to final signatures. The timing here could get tricky. Let’s say you’ve changed your mind and you’ve already signed the contract, the seller has verbally agreed to the terms, and you’re just waiting for his final signature. To get out of what you signed, you’d need to rescind the contract prior to his agent delivering the accepted copy (which is normally done online these days, but is sometimes done in person or through the mail). It’s a bit less stressful if you’re the one who has to provide the final signature. In this case, even if you’ve verbally agreed to the terms, you may decide not to sign the purchase contract and either void it or make a new offer.
▪ Even with a written and accepted contract, a seller may accept backup offers from other buyers provided there is appropriate language in the contract or an addendum that you signed. A backup offer is an offer from another buyer that could be accepted if, for example, your financing to buy the home fell through.
What You Need to Know About Multiple Offers
When you bid on a home that you suspect or know for certain is simultaneously being bid on by other buyers, the competition can feel pretty intense. You also want to feel like you’re on even ground with other buyers as far as how the negotiation process is handled. All of the rules mentioned for offers and counter offers apply in multiple offer situations, plus a few extras.
▪ The seller makes the rules whether to let buyers know whether they are the only bidder or if there are multiple offers. The listing agent must follow the seller’s instructions in this matter. Either decision can be used as a selling strategy to give the seller leverage. While it’s natural to think that telling buyers about multiple offers will create higher offers and more competition, the decision to do so could also backfire and scare away buyers who don’t want to drive up the price they pay. Some sellers rather leave buyers in the dark on that point. Other sellers might prefer to let buyers know multiple people are involved so that their first offer is their best.
▪ The seller also decides whether they reveal the competing terms of other offers to buyers. They do not have to reveal what other offers are on the table in terms of price or contingencies.
▪ The seller can counter more than one buyer’s offer at a time IF they use appropriate language when doing so with the separate parties to let them know the situation. This language would need to include that all offers are subject to final written approval of the seller.
▪ The seller does not have to accept the highest offer. They only have to accept the offer they want. While sellers obviously care about getting the most money possible for their home, they’re also interested in other terms such as the closing date, need for inspections or appraisals, cash versus government financing, or contingency versus no contingency. For this reason, most buyer’s agents will recommend that you keep terms as simple as possible in a known multiple-offer situation to increase your odds of getting the home.