SMART MOVES - How to assess a buyer's offer

SMART MOVES - How to assess a buyer's offer

Once his classic 1920s-era Tudor hit the market, its owner knew it wouldn't take long for his phone to ring. The house, located in a coveted suburb, featured soaring ceilings and a swank new kitchen suitable for a Better Homes & Gardens spread.

But the seller's first contract offer proved disappointing. It came from a couple in their 20s who offered $50,000 under his asking price and requested extensive help with closing costs. What's more, the would-be buyers hadn't bothered to attach a "pre-approval letter" from a mortgage lender showing they could finance the place.

"The gap between what the sellers wanted and what the buyers bid was absolutely huge," says Ashley Richardson, the real estate agent representing the home's sellers.

In a different market, the seller might have taken personal offense at the low bid and dismissed it without response. But acting on the advice of Richardson, he counter-offered $5,000 below their asking price. He also asked for proof the couple could afford the house.

The seller was wise to stand his ground. It took a couple of weeks for the buyers -- who were searching for a one-of-a-kind house with character -- to circle back with a better bid. But when they did, they submitted a bid $40,000 higher than their original offer. They also reduced their demand for closing cost help and provided a pre-approval letter.

This example illustrates how sellers can often shape an offer to their liking without alienating prospective purchasers, says Richardson, a veteran agent affiliated with the Council of Residential Specialists.

The current mismatch between buyer and seller expectations is leading to an increasing number of counteroffers and counter-counteroffers, according to Kevin Borland, the broker-owner of a real estate franchise.

"Sellers definitely have more clout now. But they're not overconfident. If an offer comes in - even a low offer - they see it as a bird in the hand. They try to work with the buyers to make a deal happen," says Borland, who's sold homes since 1992.

He cautions sellers against summarily rebuffing any offer "that's within the right ballpark" - especially one that comes in soon after their property hits the market.

"The first offer you get is often your best one. The longer your home sits unsold, the less you'll ultimately get. People who are too cocky about initial offers usually live to regret it," Borland says.

Here are a few pointers for home sellers:

* Take special note of changes made by buyers to a standard contract.

Many sellers are tempted to ask neighbors to look at a contract offer before deciding how to respond.

But Borland cautions that neighbors typically have a foggy notion of local property values. As a result, they might urge you to reject a perfectly good bid on the mistaken belief that property values are much higher than what's being offered.

"Remember that your neighbors are hardly objective. They're biased because they want to believe their own home is worth more," he says.

A trusted listing agent should be the first source of advice for cautious home sellers who want to ensure that a contract offer is sufficient and that all the clauses in the document are acceptable.

Each year, the so-called "standard" sales contracts used by the real estate industry become more lengthy and complex. Yet often the most troublesome provisions involve non-standard language.

"It's especially important to notice any clauses that are handwritten into a contract offer or included in special addendums that are attached," Borland says.

Eric Tyson, a personal finance expert and co-author of "House Selling for Dummies," advises anyone seeking a second opinion on an offer's fine points to have it reviewed by an attorney who specializes in real estate.

"Just as you don't want a heart surgeon operating on your brain, you don't want a generalist lawyer advising you on a house contract. Real estate law is a specialized field," Tyson says.

Also, he says you're probably not going to want your lawyer directly involved in nitty-gritty negotiations with prospective purchasers.

"If you get an attorney into negotiations, your buyers might think they also need a lawyer. That will run up your legal bill and could also lead to an adversarial relationship that might kill the deal," Tyson says.

* Beware of troublesome conditions attached to an offer.

In popular neighborhoods where demand for homes exceeds supply, Borland says it's uncommon for would-be buyers to make the purchase of a property conditional on the sale of a home for which they've yet to find a buyer.

But he says any seller who encounters such a contingency should shy away.

As a practical matter, such a bid will discourage other potential buyers from stepping in with an unconditional offer.

"Essentially you're taking your home off the market without knowing that the deal will finally go through. That's not in your interest. If your buyers can't sell their house, you have to go back to square one," Borland says.

* Make doubly sure the buyers' financing plans are solid.

Attached to any good contract offer is a mortgage pre-approval letter. This shows that the would-be buyers' credit has been verified and they have sufficient assets -- including cash in the bank -- to go through with the deal.

* These days, the terms "pre-approved" and "pre-qualified" are often used interchangeably. But as Borland says, a pre-qualification letter "doesn't prove anything." That's because the borrowers have yet to provide to the lender the bank statements, W-2s and pay stubs needed to confirm they can afford your place.

Even a pre-approval letter is not a watertight guarantee the lender will fund a mortgage for a particular set of buyers, allowing the deal to clear without snags, Borland says.

To protect the sellers he represents, Borland routinely calls the lender who's signed a pre-approval letter to ask about the buyers' financial status and to ensure they've had their credit run and their assets verified.

"Lending standards are extremely stringent nowadays. So you can't be too sure your buyers' mortgage application will really go through," he says.

To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.