It’s Not Just About Price, It’s About What’s Hiding in the Contract

Want to get the very most money for your home in Louisville’s hot sellers’ market? 

Most people don’t realize there is much more to selling a home than taking a few photos and throwing it on the MLS, especially if you want the very most for it.

This is why I created my series, “Get the Most for Your House Even In a Hot Seller’s Market” – to help you and anyone you know maximize the profits from your biggest investment and not get “caught up in what other people are doing.”

Over the next few weeks, I’m sharing my four steps to getting the most money possible when selling your home, even when a home can almost sell itself right now.

This is a must-read series, even if you aren’t selling a home anytime soon. 

In this week’s article, we’ll talk terms and contingencies and the little known clauses in the contract that could keep you from getting to the closing table. I’ll also explain why a cash offer is not always the best offer to choose. 

Price Is Just The Beginning of The Conversation

When you get an offer, it’s exciting to look at the price and start celebrating, but there are so many other terms to consider than offer price.  

Price really is just the beginning of the conversation.  Depending on the other terms in the contract (see below), the offer you accept could be full of hassles: contingencies that open negotiations after taking your home off the market and even determine how quickly you need to be out of your home. 

But, on the pricing front, one thing to pay most attention to is your NET price. The price listed on the purchase price line might not be the actual purchase price.  We have to look at things like closing costs credits, rent back fees, and the escalation clause, for example. 

When to comes to an escalation clause, which is common right now, —the highest price someone offers in their escalation clause might not be the price you get. The final agreed upon price depends on what ALL the buyers offer and what their escalation clauses are too.  Don’t worry though, I have a detailed spreadsheet I use to present each offer so you know what the final price will be. 

One thing I do for my clients at this stage is provide an estimated seller’s net sheet, so you know exactly what to expect as far as proceeds based on the contract in hand, inclusive of things like commissions, other closing costs, transfer taxes, closing credits to the buyer, and title charges all based on the agreed upon settlement date. 

Everyone wants to sell their home for a great price, but it’s about more than just purchase price. It’s also about you and your specific circumstances, needs, timelines, and goals; these “terms” determine what offer is the best offer for you, even if it’s not the highest offer you receive.  

Equally Important Are the TERMS of the Contract

Not only do you want the best price, but you also want the best terms that work for your situation and timeline.  You also want to be sure to accept the offer that is most likely to make it to closing with the least number of hassles or surprises. 

All that is possible but understanding the “hidden” terms in the contract is important.  Here’s a rundown of some important terms to pay attention to and why they are as important as the price your buyer will pay:

• Financing contingency – If you agree to a financing contingency (lines 46-52 Greater Louisville Association of Realtors, Inc. (GLAR) Residential Sales Contract), did you know that it stays in place until closing, even after other contingency periods have expired? That’s right, it never goes away, so the buyer can lose their job the day before settlement, which causes them to lose their loan commitment. This voids the contract and allows the buyer to get their deposit money back without penalty. Therefore, this is a term in the contract that you want to think twice about before accepting. Even if your buyers offer the most for your home, they might not be able to obtain financing, leaving you high and dry.  

• EMD – Earnest Money or “Good Faith” Deposit. This is the money the buyer gives to the Broker of the buyer’s or seller’s agent. This payment is made to ensure that the buyer will show up for closing OR it’s the money they get back if they void for a reason allowed in the contract. It’s important to have a healthy EMD amount based on the sales price. Typically, we want to see approximately 1% of purchase price for an earnest money deposit. Anything less would make me question how “earnest” they really are about their purchase.

• Appraisal contingency – This is a big one these days.  Even if your buyer doesn’t include an appraisal contingency in their offer, their lender is sending out an appraiser no matter what.  We still need your home to appraise to avoid any hiccups while under contract.  Homes are selling for more than the comps will support and we are seeing many contracts have issues with appraisals, even when there is no appraisal contingency.  Therefore, I pay extra to have the square footage confirmed at listing—because accurate square footage can circumvent an appraisal issue.  Nine times out ten, the square footage in the tax records is lower than the actual square footage and I can give the appraiser our measured square footage to help with the appraisal. The other thing I do to “help” the appraiser is I meet them personally to discuss the comps and how we determined the price, plus I share an overview of the offers received and how we came to the agreed upon price.  I also share a list of updates you’ve made to the home with the appraiser. This way, we’ve done everything we can to establish the purchase price and the appraised value of the home are equivalent and will not have to reopen price negotiations or risk the contract being voided by the buyer due to lender concerns based on appraisal,

• Proration of property or sales taxes – all taxes, dues and assessments will be prorated at closing, so be prepared to pay your portion of these things for the time you were in the home, if you haven’t already (it may be included in your escrow account).

• Home Inspection – This is the contingency that can make or break a deal after going under contract.  Depending on what the inspector finds, it could even change the price you receive at settlement.  The GLAR contract requires that the buyer indicate a timeframe for the inspection (typically 12 days) and subsequent repair requests, that you can accept, reject, or negotiate in a designated number of days (typically 2-3).  

• As-Is Clause – In today’s market, buyers are waiving inspections and buying a house in the condition it’s in as of the date of the offer. I don’t recommend this, unless there are circumstances (i.e., you are a builder or contractor or home inspector) that make this an acceptable risk for the buyer. For the seller, it does make the contract easier and more predictable, since there is no waiting period for inspections/repairs, no additional negotiations, and no additional costs for repairs.

• Closing Date – We’ll discuss your ideal move-out timeline and suggest a preferred settlement date that suits your overall timeframe. Of course, I can’t guarantee that every buyer will be able to agree to the exact date you want and we certainly don’t want to scare off any potential buyers simply because of closing date, so this is something that I can say the sellers would prefer, if possible…a suggestion instead of a requirement.

• Date of Possession – This clause allows for possession of the property to begin simultaneously with closing OR by a designated number of days after closing. If you want to stay in the house (“rent back”) after closing and the buyer agrees, I have a Post-Occupancy Agreement that all parties can complete. The rent-back fee can be negotiated and can be an important term to consider when reviewing offers.

• Title Company choice – Technically speaking, the buyer chooses the title company, but we can suggest a title company we prefer. Having a good title company is critical because they are responsible for making sure settlement happens on time and that everything that needs to be done while under contract goes smoothly. I can suggest title companies based on my experience with several in the Louisville area. 

• Contingency of Sale/Closing of Buyer’s Property – In our competitive market, these contingencies aren’t typical, BUT, oftentimes, buyers need to sell their home and just don’t disclose that or don’t include a contingency.   So, it’s important to know where the funds are coming from for the down payment. Even if they don’t present a contingency addendum, I ask both the lender and their agent, do they have a home they must to sell and if so, where are they in the process? 

• Condo Seller’s Certificate – If the property being sold is a condominium, we are responsible for providing a Condo Seller’s Certificate, which includes the condominium building’s Master Deed, Bylaws, Rules & Regulations, Financial Documents, Budget, etc. In KY, the contract can be voided until the buyer receives this information and for up to 5 days after.

Why A Cash Offer Is Not Always The Best Offer To Choose

Cash offers are great if they are the highest offer received and if there are no other terms (see above) that are deal breakers. If the cash offer isn’t the highest or has other terms that don’t make it as favorable, then it’s worth looking at how the financed offers measure-up. 

It’s All About You

I can’t reiterate it enough: don’t focus solely on price, even in this seller’s market. 

Yes, of course getting the best price is important, but equally important is getting to the closing table and move-out day on your terms.

It’s about both price AND terms. Both equally determine how your experience will be and define the relationship you will have with the buyer between offer acceptance and closing.

As always, don’t worry, I’ll be with you every step of the way to make sure you get the best price and the most favorable terms that fit YOUR situation, goals, needs, and timeline.

If you or anyone you know is thinking about buying a home in the next year, I’d love to help.  Email me at jennifer@skeltoncompany.com and we’ll start with a conversion about why you are moving, where you are headed, and when you want to be there.