Mar 24 2010

The 5 Values of an Offer

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The 5 Key Value Terms of an Offer 

Recently several purchase contract offers came in on the same property within 2 days of each other.  The Seller had the chance to review each before deciding.  And two had very similar contract prices and conditions.  I spent considerable time with my client reviewing the strengths of any offer besides the price.   I have seen various real estate articles that covered the same subject and issues, as I had done.  I don’t presume to give legal advise but maybe providing my overview of  the financial impact within contracts will be a help to you too.

What are the value elements besides price, that make one contract preferable to another?  There are at least 5 major things you need to consider in evaluating an offer. You need to recognize these because the other party probably is.  Consider each of these 5 crucial issues.   

1.   Contract Purchase Price

The stated price amount is of course key and  primary to consideration.  It is either within the range for accetance or begins the process for negotiations.  It might not be based on your wants or needs, but based on the other parties wants and needs.  Therefore the art of negotiations comes into play.  Don’t focus just on the price, but also on the net sale proceeds available after any allowances, closing costs and expenses of sale.  And always consider your value of timing, liquidity and final closure.  As you will see below, the terms, contingencies and adjustments can materially impact the value of the stated contract Price as well.

2.   Earnest Money Deposit

The amount of earnest deposit is oftentimes a measure of the buyer’s capability and good-faith intent. In most instances, the deposit will be applied toward the down-payment at Closing. These funds reflect some degree of certainty that the buyer will close and also to hold the property for the buyer prior to Close.  This is like a Right to Purchase,  to sway the seller to take the property off the market and hold it for the Buyer, until Closing.  Under certain contingencies or defaults,  the earnest deposit might also be either refundable back to buyer or forfeited to the benefit of the seller.     

3.   Contingencies and Deadlines

Nearly every contract has some kind of conditions or contingencies.  They may be big hurdles like subject to sale of another property or more common issues  like subject to loan and appraisal.  The fewer contingencies the stronger the contract.   And in most states, these conditions have dates and deadlines for compliance or termination of the contract.  Carefully review the deadlines for objection or resolution as they can effect the disposition terms of the contract or the earnest deposit.

4.  Inclusions and Exclusions

What may be shown as inclusions or exclusions in the Listing, may not be similarly reflected in the purchase offer.   The buyer may ask for anything.  Seller may say yes or no.  Leaving firewood for the buyer is quite different than leaving the tractor or even the vintage mirror and antique light fixture.   Allowances may sometimes be made for replacement substitutions.

5.  Closing Date and Possession

Sellers will nearly always want a quick closing and payment, but perhaps not a quick buyer possession.  Seller may need time to pack, move, etc.  Buyers typically want possession at time of Close and funding.  Neither party wants a double move or interim arrangements if  it can be avoided. Sometimes a few days grace may be agreeable but more than that may require a negotiated daily rental or lease-back.  Closing and possession dates can easily become a value element of the contract. 

   Summation                                                                                                                                     

 So there you have it,  there are always unique values  in the contract other than just the stated contract price.  They can include timing, risk, cost and benefit.  These comments are only meant to represent some thought provoking financial issues and ideas but not legal advise for your own unique situation.  Real estate contract law varies from state to state.  Please always carefully discuss any contract with your own Realtor and your attorney or other professional advisor for proper guidance.

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