Contrary to popular belief, the bottom line in contract negotiations is not always the bottom line. Obviously, how much you’re going to pay for or gain from the sale of a house is on the top of the spreadsheet; however, there are a certain percentage of contracts that fall apart because of the terms or non-sales price parts of the contract, rather than the financial bottom line.
Let’s take a $350,000 offer on a house listed at $350,000. You would think that’s it. Full price contract, what more is there to talk about? Well — seller subsidies, sale of home contingency, settlement date, financing, earnest money deposit, inspections (and who’s going to pay for them), appraisal, third-party approval, just to mention a few.
Any time the buyer starts asking for things, the seller has to sit back and weigh the costs — both financial and other. Seller subsidies, definitely affect the bottom line. In fact, most agents will say that a contract of $350,000 with 3 percent seller subsidy is really a contract of $339,500. The $10,500 difference is the cost of the 3 percent in dollars. Thus, it affects the bottom line.
While many of the above items come with some sort of financial link, not all do, and that’s where some buyers and sellers can’t come together.
Settlement date is a big one. A “quick” settlement can sometimes be more of a curse than a blessing — especially if the buyer expects the seller to move out at that time. A contract written on the 1st of the month, for instance, requesting a settlement in three weeks (by the 22nd), can cause a lot of havoc in a household. If all we had to deal with were the financial ramifications — no problem.
Quick settlement, though, really means — find a home of choice, in the location you really want, for the price you want, with the amenities you want, convincing the home seller to your own negotiations, get it financed, get packed up, and moved in less than three weeks. Can that happen? Sure … but with quite a bit of panic and stress.
At times, the terms are a matter of “principle,” and sometimes “pride.” While other times a seller may believe that, while the buyer surely can purchase his home, the buyer is just being plain old unreasonable.
Sometimes, it’s the principle of the matter (in the seller’s mind) about whether he should pay for the leaky faucet or leave it as is. “It’s a leaking faucet, for cryin’ out loud,” he might say. “I just gave them $5,000 in closing costs. Let them pay for their own leaky faucet.” To which you may get the buyer to reply: “It’s a leaking faucet, for cryin’ out loud. I just paid him $350,000 for a house … .” I think you get the picture.
Other non-money items could be something like rent-back to the seller, where the home seller becomes home renter for a month while they are trying to find a home of choice. Some buyers are okay with this type arrangement. Another buyer may want a clean break and want possession right after the settlement day.
Sometimes a contract can fall through or the offer not even gets out of the starting blocks, depending on a buyer’s choice of financing and earnest money deposit. Consider two contracts: one is full price ($350,000), with a $2,000 deposit and 100 percent financing. The second one is $345,000 with a $15,000 deposit and financing of $245,000 with a $100,000 deposit.
Which buyer do you think has more to lose?
Obviously, it’s the second one, even though the sales price is $5,000 less. While the seller may walk away with less money, he at least has a stronger sense of security that the transaction will go to settlement since the buyer knows if he messes up he could lose his $15,000.
As you can see, it’s not always about dollars and cents. Many times, it’s about dollars and common sense.
Give me a call to discuss. 239-898-2120
Disclosure: I am not a lawyer or tax professional and this should not be considered legal advice. You should seek appropriate counsel for your own situation.