Basics of Negotiation and Contract

Negotiation

Once a buyer has made the decision to buy a particular home, the both buyer and seller begin the process of entering into a contract. Ideally, the expectations of the buyer and seller of an FSBOMetroDenver.com listing should be close in price because both will have done their research ahead of time.

Both parties know the tax evaluation of the home, and what other homes in the neighborhood have sold for. This information can be found in the public records website for the particular county where the home is located. For a list of these, see our Public Records Databases by County page. Other sources of information available might be the results of an inspection that the seller had done prior to listing, or even the results of a professional appraisal that may have been conducted.

A seller should have determined their willingness to negotiate beforehand, taking into account the many factors that are outlined in our Pricing Guide. However, if a buyer feels a lower price is warranted, there must be a reason for that feeling. Perhaps the home will need to be repainted, the carpet replaced or maybe the kitchen is too out-of-date. Some sellers may choose to be flexible with their asking price to avoid the extra cost of bringing such things up to date, or into better condition.

Negotiation can take several forms. It can be verbal, written or even facilitated by a lawyer. Often, verbal negotiation is adequate, as once a price is reached, the buyer and seller will enter into a contract, making the results of the verbal negotiations official and putting them in writing. If negotiation occurs, it begins with the buyer making an offer less than the asking price. The seller can choose to accept this offer or make a counter offer. This process can repeat itself until both parties reach an acceptable price. Offers and counter offers don’t need to be made on the spot, often buyers and sellers need time to think things over or discuss it with a spouse or family member, so be patient.

In our personal experience, when we received offers on homes (in the last 10 years or so), they have typically been about $5,000 lower than what we felt the home should sell for. Sometimes we have made a counter offer, generally meeting the buyer halfway.

Buyers should keep in mind that a property listed with FSBOMetroDenver.com will likely have a lower asking price than if it were listed with a realtor. Ssellers know how much money they are saving and are generally willing to share some of that automatic savings with the buyer. Remember, both parties are already getting a better deal.

If the seller has had a home inspection or appraisal done, this should be taken into account. Ideally, the results of these will be considered fairly by both parties and should make the process of reaching a mutually agreeable price easier. For information on this, see our Pricing Guide.

Other things that may need to be negotiated are: move-out and move-in dates, appliances that stay or go, the amount of earnest money the buyer puts down, the closing date as well as any contingencies that the buyer and seller wish to include (see below). Who pays for which closing costs may also be negotiated. Keep in mind that a contract may be signed and other things may be negotiated later by amending or extending the contract (see below). An attorney can explain these options in detail.

Entering Into a Contract

Once the buyer and seller have reached a price that both can agree to, either after negotiating or without negotiating at all, they will enter into an intent-to-purchase contract. A buyer will usually write an “earnest money” check to the seller (typically ranging from $2-4,000, depending on the value of the home and the agreement between the buyer and seller) which serves as insurance for the seller. It allows them to take the home off the market knowing that the buyer fully intends to follow through with the purchase. This is the point where it may be advisable to have professional legal assistance, as both parties are bound by the contract. An attorney can then write up an official sales agreement according to the agreed-upon terms and ensure that it is done correctly.

Two major points the contract should specify are 1) the closing date and, if the buyer is not pre-approved for financing, 2) a time window within which the buyer must apply for financing.

Contingencies

Buyers and sellers have the option of negotiating various contingencies into the contract. A contingency is any condition that must be met for the contract to continue to be valid. If one is not met, then the contract becomes void and the buyer will receive any earnest money back. The most common contingency is based on the results on an inspection that the buyer has a right to have conducted. Other common contingencies deal with financing, appraisals or even property surveys. A good explanation can be found in an About.com article: Home Buying Contract Contingencies. An attorney can explain the various options available in detail and make recommendations.

Amending or Extending a Contract

At any point, the buyer and seller can amend or extend their original contract using the State of Colorado’s form AE41-5-04: Agreement to Amend/Extend Contract. If an original contingency is not met, this can be useful to renegotiate the terms in order to avoid having the deal fall through. Again, an attorney can be of service in the event this document is used.

However, if the results of the home inspection are acceptable by the terms set forth in the contract, and all other contingencies are met, the process of initiating the closing begins. For more information on this, read our Intro to Closing page.