As it is a waste of time to negotiate with an interested buyer who could not afford your house, many people hire Realtors to pre-qualify buyers. Realtors are trained to politely ask buyers the right questions about their finances - a far easier task for a Realtor than a homeowner. Factors that determine a buyers qualifying situation include:
The sum of this information makes it possible for you to negotiate effectively, should the buyer make an offer.
Once an interested buyer is found, you will receive a written offer to purchase your home. Typically, this written offer is entitled: "Contract of Purchase and Sale." Do not be alarmed if the offer differs from your asking price; you are under no obligation to accept any one offer over another. Remember that you are involved in the process of negotiation, and your Realtor is required to bring to you ALL written offers. Although your listing Realtor will explain in full the process of receiving and reviewing these offers, here is some general information along with your options.The Offer should Include:
If you change anything at all in the original offer, you are considered to have rejected that offer and to be making a new offer from you to the buyer. This is refereed to as a "counter-offer". The risk in making a counter-offer is that if the buyer has changed his or her mind and rejects the counter-offer, you do not have the option to return to the original offer and accept it. But, the buyer may decide to make another counter-offer back to you and the process of counter-offers could continue until an agreement is reached.
Remember that you are under no obligation to accept any offer or to make a counter-offer. If, however, you reject an offer which exactly meets all the terms you agreed to in the Listing Contract which you signed with your listing Realtor, you could be/are legally obligated to pay the commission. If you have ever tried to sell a house on your own you realize how costly (in both time and money) marketing real estate really is (especially if you want to be successful). This law is in place to protect Realtors from incurring those costs unnecessarily.
In addition, your offer may include a "subject clause." The purpose of a subject clause contained in an offer to purchase is to set out a specific condition that must be fulfilled before the sale can be completed. One subject clause you might encounter is one in which the purchasers make the sale conditional upon their finding the exact amount and type of financing which will enable them to purchase your home. Remember that, if you accept an offer which contains a subject clause, you may be taking your property off the market for the period in which the purchasers are attempting to meet the condition they have set out. Therefore, you should ensure that an agreed upon time for the condition to be met is specified in the offer to purchase. If one of the conditions in a subject clause cannot be met after every reasonable effort has been made to do so, the contract may end and there could be no legal obligations to complete the purchase or sale.
As a seller, you may wish to accept an offer containing a subject clause (e.g., subject to the purchaser selling their own home) yet still leave yourself free to consider other offers, just in case the purchasers are unable to remove the condition. You can do this by having the buyer agree to inserting a time clause in the contract. A time clause will permit you to require the buyer to remove all subject conditions within a short, specified time period if you receive another offer that you would like to accept. If the buyer does not remove the conditions within that time, the conditional contract comes to an end and you are free to accept that second offer.As stated, an offer to purchase will contain information about how the buyer intends to finance his or her purchase. If you currently have a mortgage loan on your home, you may be faced with one of two situations:
1) The buyer wants to pay cash and have no mortgage. This situation will require you to pay out your existing mortgage and there will probably be an interest penalty for doing this. Remember that having to pay an interest penalty effectively reduces the price you will be receiving for your home.
2) The buyer offers to assume, or take over, your remaining mortgage loan. In this situation, before agreeing to allow the buyer to assume your loan, you should ensure that your mortgage lender will release you from any future obligation to repay the moneys owing (if the buyer defaults).
Contact the financial institution which holds your mortgage to obtain information about your position in each of the above situations. It is a good idea to do this well in advance of signing a Listing Agreement so you will be able to give your Realtor accurate information. If you have no existing mortgage, an offer to pay all cash is ideal and, of course, would be your best preference. But the buyers offer might state that part of the purchase is to be paid in cash and part is to be paid in payments over a specified period of time at a specified interest rate. In effect, the buyer would be asking you to become the lender. When you are considering an offer containing a request for "seller financing" (sometimes referred to as a seller take-back mortgage), think about whether of not you want the responsibility of collecting payments over an extended period of time. If you do feel comfortable with such an arrangement, be sure that you verify the buyers source of income and credit history before making a decision. Ask your listing agent or a financial counselor to fully explain the financial and the possible consequences of the terms offered.
Remember that there is nothing wrong with most innovative or creative financing if all the parties are fully aware of the potential risks and fully understand the possible consequences of such risks. However, the fact remains that many owners (vendors) are not aware of the potential disasters which may occur.
Again, we strongly recommend that you secure competent advice from your Realtor or a Lawyer before finalizing any real estate contract. This recommendation is much more urgent when the offer you are considering includes terms which could jeopardize you financially.
Re/Max Kelowna 100-1553 Harvey Ave
Kelowna BC V1Y6G3