What are the steps involved in receiving and analyzing an offer?

By Shayne Bowen

When one is selling a property, the offer process begins when I receive a phone call from the buyer's agent, indicating that we have an offer on the property.

1. Once I have received a phone call from the buyer's agent indicating that they have an offer on the property, my first step is to ask the buyer's agent to fax me an advance copy of the offer.
2. I ask the buyer's agent several questions relating to the financial qualifications and needs of the buyer. Some of the questions I ask the other agent are:

• How did they meet the client?
• Has the client been pre-qualified?
• Has the client been pre-approved?
• Who is the buyer's lender?
• Is this lender someone that the buyer's agent knows and thoroughly trusts?
• Is the offer contingent upon the sale of another property?
• If the offer is contingent upon the sale of another property, has that other property been listed? If yes, is it already in escrow? How long has the property been in escrow? What is the address of the contingent sale property?
• If the contingent property is already in escrow, what specific contingencies have been removed (inspection and loan contingencies are the most important)? Also, is the contingent property contingent upon yet another sale?

• These "homework items" include (but are not limited to):
  
  • Shall we change the price that the buyer offered?
  • Shall we ask for an increase in the buyer's deposit at a certain point in the transaction (typically upon removal of inspection contingencies, or upon removal of loan contingencies)?
  • What title company and escrow officer shall we use?
    • The buyer virtually always pays for the services of the title company. However, it is important that we choose the title company carefully.
    • I have seen too many clients inconvenienced, and too many transactions imperiled by inadequate service on the part of some title companies.
    • It is important that we avoid these problems.
    • I will recommend a title company and escrow officer on the basis of competence and top notch service, to avoid these problems.

    What date shall we set for closing the transaction, and moving out of the property?

    • Think about your move out date in terms of:
      • Availability of moving trucks
      • Availability of friends to help with the move
      • Time off from jobs, for moving
      • Proximity in date to a weekend (for ease of moving).
      • Availability of funds for the possible purchase of a new home (such as funds from a 401K, or other sources that may take some time to be made available).

    Shall we have a "rent back" of the property, allowing the seller to stay a few days after the transaction closes, as a "renter?" There are important reasons for sellers to include a "rent back" clause!

    • A rent back allows the seller the time to close escrow on their current home one day, then close escrow on their new home the next business day, and then allows 3-4 days (or more, if set up that way) to move into the new home, without having to be out of one's current home!
    • The "overlap" which is created by the rent back is quite important. Without it, one would be forced to close escrow on one's current home in the morning of a given day, and would need to close escrow and move into the new home that same morning. This is not easily possible, and it causes the seller a large amount of unnecessary stress!
    • A rent back allows one time to close one's current home, close on the new home the next business day, and still have a few days to move into the new home and clean the old home, before delivering possession of the old home to the buyer.
  • What "fixtures," if any, will be excluded?
    • "Fixtures" are items that are permanently attached to the property, and they must stay with the property.
    • Examples of "fixtures" are attached light fixtures, carpeting, drapery, valences, screens, doors, awnings, antennas, burglar alarms, smoke alarms, pool and spa equipment, solar systems, attached fireplace screens, electric garage door openers with controls, plants and trees (other than in movable containers).
    • These items, and other items that are "permanently attached to the property" must stay with the property, unless the item is excluded in a counter offer.
  • Shall we leave in the normal "Condition of Property" clause, or take it out, and offer the property in "as-is condition?"
    • The normal "Condition of Property" clause contained in the purchase agreement warrants that several items shall be in "working order" at the time the property is delivered to the buyer.
    • These warranties cover several items. These items must be in normal working order, unless they are countered out in our response:
      • Built in appliances
      • Electrical, plumbing, heating and cooling systems
      • No leaks anywhere in the property.
      • Roof shall be free of leaks.
      • No broken windows or glass anywhere in the property.
      • No damaged screens.
    • If we wish to exclude some of warrantied items above, we must note this in our response to the buyer.
  • How much time shall we give the buyer for their physical inspections of the property?
    • A typical time is 10-14 days from date of acceptance.
    • The shorter the time frame, the sooner the seller knows whether the transaction is going to move forward or not (depending on the results of the physical inspections).
    • It's not realistic to specify less than 10 days. The inspectors are often booked for several days into the future.
  • What "personal property" shall we leave the buyer (if any)?
    • "Personal property" are items that are easily removed from the property -- items that are not permanently attached to the property.
    • Examples of "personal property" are paintings, furniture, stereo, refrigerator, washer, dryer, etc.
    • "Personal property" consists of items that will not deface or damage the property when they are removed.
  • Do we wish to offer the buyer a home warranty?
    • This is a very important decision.
    • Too often an item in the home becomes inoperable shortly after close of escrow. Even though a seller had no knowledge of any issues before close, there are all-too-frequent lawsuits by purchasers who claim that the sellers failed to disclose a flaw in the property.
    • A lawsuit is an incredibly costly, miserable, and time consuming thing to experience!
    • The home warranty is paid out of the seller's final proceeds from the home - no checks are written by the seller.
    • The cost of the home warranty ranges from $230 - $320, depending on which firm is chosen for this warranty.
    • The home warranty covers the buyer for one year following the close of escrow.
    • The warranty covers many of the most common repair issues that may occur after close of escrow:
      • Built in appliances (not free-standing appliances)
      • Most plumbing problems
      • Most electrical problems
      • Hot water heater
      • Furnace
      • Dishwasher (if built in)
      • Stove (if built in)
    • The best home warranties also provide limited coverage for roof leaks. I frequently recommend that my client use a home warranty plan that includes coverage for roof leaks.
      • Even though the seller's roof may not be leaking at the time of close of escrow, roof leaks can occur at odd times, via wind-driven leaks in severe storms, or other unanticipated causes in the future.
      • Having to cure a roof problem is potentially costly for the seller. Therefore I strongly advise that the seller consider the use of a home warranty that includes limited roof coverage!
    • Having this warranty coverage can be a very powerful deterrent to help avoid a buyer lawsuit for alleged defects after close of escrow.
    • Murphy's Law operates in this area! I remember a seller several years ago that had a BRAND NEW, highly expensive furnace installed in their home. Shortly thereafter, the buyer discovered that the furnace was not working, and PG&E "red-tagged" this almost new furnace!! It couldn't even be turned on!
      • Without a home warranty in this situation, the seller would have potentially faced the cost of replacing an expensive furnace!!

    • Agents do not provide or make any money from home warranties. They are provided by several different firms. Agents are required to inform sellers about the availability of home warranties.

  • If the purchase agreement is contingent upon the close of escrow of the buyer's current property, should we consider their offer?
    • If yes, there are many important clauses that I insert into the purchase agreement to protect my client in this area.
      

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Final Steps In The Offer Review Process

9. I then write up our response, which is called a "counter offer."

10. I then deliver or fax the counter offer to my client.

11. I go over the offer and counter offer in great detail with my client.

12. If everything is fine, I obtain written approvals from my client.

13. I create a cover letter, to present our counter offer to the buyer's agent.

14. I deliver the counter offer and cover letter to the buyer's agent.

15. I call the buyer's agent, and explain our counter offer in detail.

16. I monitor the negotiations very carefully, and work hard to create a new transaction that works well for my client.

Conclusion

The items above constitute just the highlights of the offer analysis process. A great number of other items often need to be considered!

In all cases I guide my client through the various detailed issues that must be considered in order to respond prudently and professionally to the purchase agreement.

Attention to detail now will pay significant dividends for the wise seller of property!