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Offers and Backup Offers

June 1, 2010

Someone the other day told me he wanted to play the backup offer game on a property that was already under contract with another buyer. 

“You know.  Make the seller an offer and let them kick the existing buyer out.”

Yeah.  That’s not exactly how it works.  Let’s review.

Most of the time, when a property is under contract, the status changes to Active Contingent.  In an Active Contingent status, the seller can not kick out that buyer.  The buyer can walk away from the deal due to inspections or because a different contingency wasn’t met, but there’s no method for a seller to unilaterally kick that buyer out of the deal.

As a home buyer, at least in Tucson, you can make a backup offer on that property, and the seller may chose to accept your offer as backup, or they may not, at their discretion.  If your offer is accepted as a backup, you have to wait and see if the first buyer walks away from the deal.  The seller may be less flexible in their repair negotiations with the buyer if they’ve got your offer waiting in the wings, but the seller can’t get rid of that buyer directly.

Even if your offer is for more money or has better terms than the existing buyer – in an Active Contingent status, the seller can’t just decide to take yours and ditch the existing buyer.

Active CAPA properties are a whole other deal.  With a CAPA property, the existing buyer usually has to sell their home first, so there’s a home sale contingency on the deal.  (Either that, or it is a bank owned property or short sale where the bank will look at multiple offers.)  In this instance, the seller can accept your offer and then go back to the first buyer and make a demand – they tell the first buyer to either remove the home sale contingency or walk away.

If that first buyer walks, then your offer becomes primary and you’re now under contract to purchase it.

Quite honestly, it’s a “game” that rarely works.  Either the first buyer doesn’t walk away from the home or you get tired of waiting and find another home.  It’s possible, but infrequent.

Offers, Counter Offers, and Multiple Counter Offers

April 9, 2010

Things are definitely picking up.  I compiled the raw data for my Tucson market reports last night and there’s a huge increase in sales in March.  More activity means a higher probability that we’ll run into more counter offers… and multiple counter offers.

So let’s review how each works.

Usually, negotiations start when a buyer writes an offer.  The Seller has 3 options – accept it, reject it, or counter it.  If they write a counter offer, it goes back to the buyer.  And the buyer has the same 3 options – accept it, reject it, or counter it.  And that goes back and forth until someone either accepts the counter offer, or until someone rejects it.

With regular counter offers, there’s only one buyer and one seller negotiating for the house.

Multiple counter offers are different.  By definition, multiple counter offers involve multiple potential buyers at the same time.

Let’s say you like a house and submit an offer.  Two hours later, the listing agent calls and says they’ve received a second offer on the house from another buyer.  So the seller now has 2 offers in front of them.  And THAT gives the Seller a lot of options.

The seller can accept one and reject the other.  The seller can counter only one of the offers – which brings up some interesting dynamics regarding timelines for the buyer that didn’t receive a counter offer.  If the seller response time is long enough, potentially the seller can counter one buyer, try to get them higher, while keeping the second offer in reserve.

But sometimes the Seller wants to give counter offers to both buyers.  And they make a multiple counter offer to each buyer. 

The multiple counter offer is unique in that the seller produces this counter offer AND they have the final word on which they’ll accept.  A multiple counter offer goes out to more than one buyer, each buyer gets to consider the terms and accept or change them again.  All the buyer responses all go back to the seller and the seller gets to pick which one he wants to take.

The multiple counter offer made to each buyer doesn’t have to be the same.  The seller could propose different terms and price to each buyer.  And each buyer can accept, counter, or reject that multiple counter offer.

Things get more complex, and fast, when there’s more than one offer involved.  Be sure you know your timelines and clearly discuss your negotiating strategy with your agent!

Negotiating Repairs

February 16, 2009

Having a couple of buyers in the throes of repair requests reminds me the topic deserves a review. 

When you buy a home in Tucson and use the customary purchase contract, you’re allowed an inspection period.  By default, you get 10 days, but I usually like to write in 15 days.  Regardless of duration, at the end of your inspection period, or earlier if you’re ready, we’ll write up a document that formally ends your inspections.

Within that document, we’ve got several options.  You can:

• Take the house as-is without any repairs.
• Tell the Seller you’re not buying the house and walk away from the deal.
• Ask for repairs.

There are two kinds of repairs – and by the way, this is a one-shot deal, we get to ask for stuff ONCE.

The first kind of things you put on that document are any non-working warranted items that you’ve discovered.  The contract outlines that the heating, cooling, electrical, mechanical, and plumbing, among other things, will be in working order at close.  So if you find any of those things that don’t work, you give notice to the Seller and he has to fix it.

The second kind of things you put on that document are the repairs that you want that don’t fall in that warranted items category.  This could be a wide variety of things.  You’ve probably got some kind of list in your head after doing inspections, so we’ll put that together and submit our request.

The seller has 3 options once they get our repair request.  They can:

• Agree to do everything in the way we requested
• Decide not to do any repairs on our list
• Propose an alternative to our repair request

If they agree to do everything in the way we requested, then we’re done, and you’re one hurdle closer to buying a home. 

If they don’t agree to everything or give us an alternate solution, then we have options again.  Basically, we can take it or leave it, and there are timelines associated with that decision that are negotiated in the initial purchase contract.

As a Buyer, the final decision is yours.  And that’s how we negotiate repairs.

The Not-So-Fun Section of the Purchase Contract

February 27, 2008

I recently had the, ah, opportunity to enact some of the clauses in Section 7 of the local Tucson purchase agreement.  You know, the section we head into to find out what happens when things go terribly, terribly wrong?

Let me say that our foray into section 7 was, to the best of my knowledge, an honest mistake on behalf of the other party, if there is such a thing.  I believe the error made was without malice, but we end up in section 7 all the same. 

First recourse if either the buyer or seller is in potential breech of contract is to give that party a chance to fix it with a 3 day cure notice.  This is the somewhat friendly heads-up to the other guy to say, “hey, buddy, we’ve got a potential problem here, please fix it” with an implied OR ELSE.

The threat behind the OR ELSE?  Arbitration.  Mediation.  Court Action.  Small Claims Court, if you’re dealing with a matter $2500 or less.

Our matter fell into the small claims court bucket, and my client – being a thorough kind of guy – did some research into how small claims court works, and has allowed me to post his findings. 

How Small Claims Court Works

As always, we’re not lawyers, you should seek your own legal advice, your mileage may vary. 

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