In the current Dufferin County real estate market it is normal for homes to sell for higher than they are listed. You may wonder why and we’re here to help make this simple to understand. Currently, in many markets there is a greater demand for homes than there is supply (basic economics). When demand is high and supply is low, people will pay more in order to have it, it’s as simple as that. Why then should you not just accept the highest offer when your home is for sale? Here’s why…
There are four main components within an offer;
- The purchase price
- The deposit
- The closing date
- The conditions within the offer (tasks that need to be completed by the involved parties)
The purchase price is pretty straight forward. It’s the amount that the buyer is willing to pay you for your home. I’m saying don’t get caught up on it right away, it’s important but so are the other components, don’t fixate on the price. A buyer may offer you thousands of dollars over list price, even tens of thousands; but, if the offer isn’t structured properly, the whole thing could unravel and you may find yourself in a xxxxxx situation.
The deposit is submitted by the buyer either with an offer (herewith) or, after an offer is accepted by a seller (upon acceptance). The stronger the deposit, the more attractive it will be to the seller. The deposit can be referred to as ‘skin in the game’ for the buyer. It is held by the listing real estate brokerage in their real estate trust account and is applied to the purchase price on completion of the transaction.
There are a few misconceptions with regard to a deposit which is why it is so important to understand each component in relation to the transaction in its entirety. If the buyer is unable to fulfill the conditions that they have placed within their offer (ie. financing or insurance), then they will receive their deposit back in full without interest or deduction once a mutual release has been signed by both the buyer and the seller.
If the buyer fulfills or waives their conditions within the offer and the offer has been accepted in its entirety (confirmation of acceptance has been signed) and the deal is deemed to be complete and awaiting the closing date and the buyer decides they will not or cannot complete the transaction (due in no part to the seller) then things become more complicated, this is when ‘skin in the game’ comes into play.
A buyer’s deposit is an act of good faith that states they have every intent of completing the transaction. If they don’t, their deposit COULD be forfeited, COULD being the key word here. It’s not where anyone wants to end up and it’s more complicated than I have time here in this little blog to explain. However, trust me, it’s messy and no one wants to end up here which is why it is SO important to work with a Realtor® who can explain this in its entirety. It may not be ideal to lose $1,000 but it would sure hurt a lot to lose $10,000 or $20,000. What I’m saying here is that for a seller, the deposit can be as important, or perhaps even more important than the purchase price.
The closing date is the date on which title to the property changes from the seller to the buyer. Each party will have a lawyer that will complete this process on their behalf. The buyer’s lawyer submits the funds required to complete the sale on the date set out within The Agreement of Purchase and Sale, referred to as the closing date. In some instances the closing date becomes a non-negotiable item for one or even both parties again alluding to the fact that even more money may not solve it. There are definitely solutions that can be worked out but sometimes the time to do so may not exist under the constraints of time limits in a multiple offer situation. Again, I could go on and perhaps I will in another article but, making sure you understand that this can have an effect on the process is the point.
Conditions are tasks that need to be completed in order for the involved parties to move forward in the transaction. Examples would be a financing condition or a building inspection by the buyer or perhaps something needing to be addressed by the seller (ie. replacing a broken fixture). Conditions are negotiated just the same as the purchase price. They must be agreed to and met by the parties involved within the time periods stated. If the conditions are unreasonable or untimely, they can be difficult to agree to. If an offer is thousands of dollars more than the asking price but the conditions are unrealistic, a seller may not be in a position to accept it regardless of how much money is being offered.
Our goal is to ensure you are armed with all of this information in advance of receiving or submitting an offer so that when we do get to that step, you are able to make an informed decision, with a clear mind. We want to ensure you are able to make a decision that works best for you and your family’s particular situation. We aim to be your source for all things real estate. Whether you are a first time home buyer, a savvy investor or you have bought and sold multiple times, things change constantly and it’s our job to protect you. The Mullin Group is here for you, every step of the way!