The selling process. You’ve listed your home, put it on the market, and exactly what you were hoping would happen has happened: your agent just told you you’ve received an offer on your home! What happens now?
This page explains the entire process of selling your house or condo in Ann Arbor, Birmingham, Canton, Livonia, Farmington Hills, Northville, Novi or Plymouth, including:
- Understanding purchase offer documents
- The offer process itself
- Negotiating strategies & suggestions
- Contract to closing
1. Understanding Purchase Offer Documents
It is CRUCIAL that you:
- Understand that NOT ALL PURCHASE OFFER DOCUMENTS ARE CREATED THE SAME.
- Because of the prior point, you need to slow down and fully assess the type of offer you receive.
Without writing a massive and overly technical dissertation on this important point, here are the things you need to know:
- Terminology – There are many terms used to describe “an offer,” including “purchase agreement” (or “PA” for short), “purchase offer,” “offer,” “purchase contract,” “contract” and more. Understand that almost every company has its own pet term for this, and there is no generally accepted, universally used name for this document.
- No Uniform Offer Document – Almost every real estate company in Michigan has its own favored contract, or multiple favored contracts (at Professional One Real Estate, we have two, and the one we use depends on the circumstances of the particular situation). It’s potentially important to note that many states actually DO have a uniform contract that all agents are required to use. Michigan is a little bit unique in that this is not the case here.
- Types of Offer Document – Irrespective of its title, every Purchase Offer document falls into one of two basic category types:
- Those that inherently favor you, the purchaser.
- Those that are inherently neutral and or favor the seller.
- What to Expect – Real estate is always evolving, and–over the course of the last 15 years or so–it has become fairly standard practice for 90%+ of all offers to be written on what are generally referred to as “buyer’s contracts.” So, you can and should expect this to be the case in your offer situation. That said, and in particular because of point 2. above in this list (no uniform offer document in Michigan), it is imperative that you and your agent review your offer IN DETAIL to ensure there are no odd or unusual provisions. Which is why it’s also always a good idea to…
- Get Legal Advice – As we mention later on this page, we believe it’s always a good idea to have your attorney review your offer before you sign anything. As a sidebar, we also suggest you use a real estate attorney specifically, as we’ve seen people get odd and sometimes bad advice from attorneys who simply lacked sufficient experience in this very specific area of the law.
2. The Offer Process Itself
Back on point, you were just informed that an offer is coming in on your home. What happens from this point forward? Here is a quick overview:
- Review the Buyer’s Pre-approval Letter – Every offer should be accompanied by a pre-approval letter from the buyer’s lender (unless it’s a cash offer, in which can skip this point). Note that there is a large difference between a “pre-qualification letter” and a “pre-approval letter” (pre-approvals are more detailed and provide much more confidence for you as the seller). Your agent should follow up with the lender to gain a full and complete understanding of the buyer’s approval status, and they should communicate that to you.
- The Offer and Related Information are Sent to Your Agent – The agent representing the buyer (the “Buyer’s Agent”) typically contacts your agent and lets them know an offer will be sent over shortly. Increasingly, all of this is done using an electronic signature process like DocuSign, AuthentiSign or some other similar solution. For purposes of this illustration, we’ll assume that is how your offer will be handled as well.
- Your Agent Receives the Offer – Once the buyer signs the offer electronically, the listing agent typically downloads and forwards the offer to your agent, who then forwards it on to you.
- You and Your Agent Critically Review the Offer – This is typically done via phone or video conference. Note there is a lot more to consider than just the offer price. Key things to specifically look for in the offer:
- Price – This is self-explanatory.
- Method of Financing – Most people get a mortgage, of course. If your offer is a cash offer, that is a big plus for you, because it removes all of the risk associated with the buyer’s mortgage approval process. Buyers often make cash offers specifically because they know they tend to be viewed much more favorably by most sellers.
- Amount Being Financed – The greater the mortgage amount as a percentage of the offer, the weaker the offer. This is true because the lender will be relatively more concerned the larger that percentage, and therefore more scrutiny will be placed on the appraisal. This is the conceptual opposite of what we noted in item 2. above, where we noted that cash offers make an offer inherently stronger.
- Deadline for Mortgage Approval – Make sure the buyer is committed to getting their mortgage approval in a timely fashion, as the last thing you want is to find out two months down the road they cannot get their loan approved, and you’ve wasted all that time when you could have been looking for another buyer. The norm these days to 30 to 40 days.
- Deposit Amount – Generally speaking, the larger the deposit, the better. That said, experience over the last 10 to 15 years, as buyer’s contracts have become the norm, has served to make this not as important as it once was (because it’s difficult for a buyer to lose a deposit these days).
- Seller’s Response Deadline – Most every contract includes a deadline by which you must provide a response to the offer. This is typically 24 to 48 hours after the offer is sent to your agent. Irrespective of whatever it may be, we believe that maintaining a positive negotiating posture is important, and our suggestion is to respond as quickly as you are comfortable doing so.
- Occupancy – In Michigan, the concept of “occupancy” exists. This refers to the fact that you, the seller, can negotiate a period AFTER the closing in which you will continue to live in the home, while paying the buyer some agreed-upon daily rental rate. Note that this is NOT a universal thing, in that, in many other states, there is no such concept, and–in those states–the buyer always takes physical possession at time of closing. Your agent very likely already discussed this with you when you listed the house (as this was one of the bits of information you had to complete on your listing documents), but just be sure to double check the offer to ensure you and the buyer are on the same page on this sometimes very important point (when it comes to real estate contracts, we’ve seen more confusion over this concept than probably any other).
- Inspection Provision – Most buyer’s contracts includes language that basically allows the buyer to terminate the offer if they discover anything during their inspections they don’t like (we’re paraphrasing, but that is the gist of it). While this may feel a bit unreasonable, understand that this is the norm for the market, and most buyers will not proceed without this kind of language to protect them.
- Prorations – This deals with how taxes are handled. Long story short, in Michigan, as the seller, you pay taxes “in advance.” That means that, at the time of your sale, you have by definition paid some amount of taxes past the date of closing that will benefit the buyer. Make sure the offer includes appropriate language that ensures you will be reimbursed for the taxes from the date of closing until the end of the tax period (most contracts automatically include this language, but not all of them do, so be sure to double check this, as the dollars involved are typically significant).
- Commission Amount – Self explanatory, and should mirror whatever you offered on the MLS. But sometimes agents make mistakes, or even try to request more than offered, so double check this.
- Risk of Loss – This deals with what happens if there is damage or destruction to your home between contract and closing. Review this language to ensure it is reasonable.
- Closing Deadline – Typically, you as the seller want to close as soon as possible, barring some outside factor. That said, be sure the closing deadline is reasonable and precisely spelled out. As an example, something like “On or before December 31, 2016” is preferable to “Within 10 days after mortgage approval,” simply because the former is more precise.
- Home Sale Contingency – If your offer includes this contingency, that is a major red flag. This provision basically says, “I (the buyer) have to sell my house first, THEN will be buy yours.” There are major risks associated with this approach, and we suggest you avoid offers that include such contingencies, unless you have had a very difficult time selling and or you are somewhat desperate,
- Other Things – Be sure the offer doesn’t include language requesting you pay for things sellers don’t normally pay for.
- REMEMBER, there is no uniform real estate contract in Michigan, so offers can include just about anything!
- You Respond with Your Response to Offer – Your agent will communicate your response to your offer, which can be one of three things:
- Acceptance of offer with no modifications
- Counteroffer that includes modifications to the terms of the original offer
- Rejection of the offer
- Buyer Responds to Your Response to Offer – Continuing the prior point, here is how that typically works:
- Assuming you accepted their original offer without modification, your signature on the original offer normally indicates a legally binding sale, and you move on to the next phase of the process: contract-to-close/buying
- Assuming you provided a counteroffer, then the ball is back in their court, and they have the same options you had in terms of the original offer. They will do one of the following:
- Accept your counteroffer by initialing your changes and “bottom lining” the offer (signing the document in the place where their acceptance of your counteroffer is indicated);
- Provide a counteroffer to your counteroffer, or
- Reject your counteroffer, and the offer will be terminated
- The Process Concludes – This continues until you reach terms with the buyer and agree to sell the property, or you or the buyer terminates the offer. If you reach terms, you then move on toward completing the transaction.
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3. Negotiating Strategies & Suggestions
Hundreds, if not thousands, of books have been written about negotiating. We certainly cannot summarize everything that is involved in this dynamic, often-complex strategy in a few pages. However, there are some things that are worth mentioning, as follows:
- The Golden Rule – We all know this one, right? “Do unto others as you would have them do unto you.” Sadly, in today’s contentious, litigious society, we see many people enter into negotiations with the often misguided belief that negotiations have to be a negative, confrontational experience. Our experience shows that people seem to get more of what they want when they use the exact opposite approach. When you show yourselves to be reasonable and objective, people are often so pleasantly surprised that they bend over backwards to “meet you halfway” and often end up meeting you MORE than halfway! Also, you never know when you’re going to need information or assistance of some sort from the other side of the transaction – particular if you are a buyer – so it’s always a good idea to try to make a friend when buying or selling a home.
- The Other Guy Does Not Have to be Your Enemy – This is similar to the prior item, but a little different. We know that it may sound cliche or trite, but our objective in every transaction that we do is for it be a “win-win” situation for all parties involved. How can you take pleasure in an activity when you know the other side is miserable? Toward that goal, there is absolutely no reason that everyone cannot be on positive terms during the course of a real estate transaction. We are occasionally disappointed when we encounter people – buyers, sellers, other realtors, sometimes even our own clients – that have a mentality that “the other guy is trying to screw me.” Often times, this mentality is a self-fulfilling prophecy. Show the other guy you are reasonable, and the odds are very good that he will show you the same.
- Ethics are Everything – No explanation needed here. If people don’t trust you, you’re done. Once trust leaves any relationship, whether it’s in real estate deal or anywhere else, for that matter, you are left with nothing.
- Never Reopen a Closed Issue/Raise an Issue at an Inappropriate Time – Very often, there are multiple issues to be negotiated in a real estate transaction (e.g., price, closing date, possession and occupancy, items to be included, various deadlines, etc.). In most typical transactions, the parties methodically work through the issues and eventually end up with an overall agreement. One thing that almost always upsets people is reopening an issue that was previously agreed to, or raising an issue that was thought to have not been an issue. The classic example: all contracts have deadlines for raising objections that result from inspections. The proper time for a purchaser to inform a seller of issues stemming from an inspection is very quickly after the completion of the inspection(s). A purchaser has an inspection, and a number of typical issues are noted. The purchaser says nothing to the seller for several days after the inspection is completed. And then, at the very last minute before the inspection deadline lapses, the purchaser presents the seller with a laundry list of requests relating to the inspection. 90% of the time, this approach will upset a seller. In real estate, as in most things in life, timing is everything!
- Receiving a “Lowball Offer” – We once received an offer on a condo that we owned that was about 33% lower than it was really worth. Did we take it personally? No. Did we tell that guy to take his offer and …? No. Why? Because, as the old adage goes, we would have been “throwing the baby out with the bath water.” Sometimes, buyers just need to prove to themselves that they got the best deal they possibly could. We all know people like this – they want to scratch and claw for every penny they can in every situation. Once they see that you aren’t going to give your home away, sometimes they accept reality and step up to the table and increase their offer to something more realistic. You’ll never know if you react angrily and refuse to play the game to find out. So, hold your tongue and play along – it just might work out after all.
- Get it in Writing – Never rely on a verbal agreement in a real estate transaction. The “Parol Evidence Rule” of law states that real estate agreements must be in writing. If an issue is important enough to matter to you, then make sure you document it in an addendum to your contract and get everyone’s signature.
- Hire an Attorney – Yes, we read Shakespeare, who famously said, “Let’s kill all the attorneys,” but we still think it’s a good idea to have legal representation.
4. Contract to Closing
You reached terms with the buyer, and you just took a major step toward successfully selling your home! You are on the right track, but you are not out of the woods yet. Here is what happens from this point until the closing:
- Buyer Conducts Their Inspections – The purchaser will have a certain number of days to complete their inspections, which often includes a general home inspection along with a radon test. While most buyer’s contracts give the buyer legal latitude to terminate the contract based on the inspection results, what typically happens (unless the inspection is a complete disaster) is that the buyer will request that you fix a few things and or reduce the price. There is not much more we can say beyond play play the cards you are dealt, and be sure the buyer doesn’t request anything you already properly disclosed on your Seller’s Disclosure Statement.
- Buyer Completes Any Other Due Diligence Items – If your offer is like most, it will include provisions for other “due diligence” items, like allowing the buyer to review and approve easements and restrictions, and condo or homeowners association documents. Exactly as with the buyer’s inspections, the offer will allow the buyer a certain amount of time in which to complete those tasks. Frequently, offers also require you to provide those items within a certain period of time. Be sure to provide any required information or documents as quickly as possible to keep the transaction moving forward.
- Buyer’s Loan Is Approved – Your agent should be periodically following up with the buyer’s lender to ensure everything is on track and that the mortgage is approved before the agreed-upon deadline in the offer.
- Schedule Your Closing – Once the buyer’s loan has been formally approved, the conversation about when the closing will take place will occur. Note that most title companies will not schedule a closing until the loan has been approved.
- Plan Your Move – Self explanatory. Make sure your move date is consistent with whatever you agreed to in the contract in terms of occupancy.
- Obtain and Review Your Closing Documents – After you’ve picked the date for your closing, and typically a couple of days before your closing, the title company should complete the first draft of your closing documents. If you are being represented by a quality agent, they will be diligently following up with the title company and obtaining those documents ASAP. Once obtained, your agent and or your attorney should review the closing documents to ensure everything is in order.
- Attend the Closing – Congratulations! You made it! If you’ve done everything on this list, then this should be a fun, pleasant, smooth and easy event. If you haven’t (or if the buyer’s agent has not done a good job preparing the buyer), then closings can be an adventure. Hopefully, this will be a moot point and your closing will be a wonderful experience for all involved!