The Buying Process - Step 2 Acceptance, Decline, Counter

Once you have completed discussing your strategy and have written an offer to purchase it is now up to the seller(s) to decide whether or not to accept this offer. Many buyers and/ or buyer's agent use this fact as a reason to sit and wait. I strongly recommend you do exactly the opposite. When the offer is written it is now up to the buyer's agent to sell that offer to the sellers. Calling the listing agent and faxing over the contract is an extremely weak sales pitch.

Presenting the offer face to face with the seller is always the best alternative. It allows the buyer's agent to present the offer properly, read the seller's motivations, and work to get a signed contract before leaving. It is this approach that can help bridge any gaps between the seller's expectations of the offer and the actual offer. It also helps if the seller begins to like the buyer's agent. Remember it is difficult for many people to say no to someone the like. Conversely it is very easy to say no to a piece of paper without a face attached.

Sometimes listing agents prefer if the buyer's agents did not present the offer face to face. The law, however, states that you may present all offers face to face unless written consent from the seller says otherwise. If a listing agent is insistent that the offer by made through him/her, by request of the seller, ask to see that in writing. It may just turn out to be the agent's wishes rather then the seller's desires. Remember it can never hurt to ask.

Ok the offer is written and is has been presented to the seller what next? The seller has three options; accept, decline, or counter. It is important to view things this way because there is never rejection. Rejection does not exist. If a seller does not accept the offer and does not offer a counter he/ she are declining to negotiate. Let us focus on decline a little more in detail to understand what exactly it means and how to make decline become accept.

Decline  

When a seller declines an offer he/ she are giving the buyer a clear message. What the message is truly depends on the situation and the seller(s) in question. If the buyer's offer is declined by the seller, but the buyer still wants the house, the buyer can still submit another offer. This time, however, the buyer needs to know why the offer was declined. This is where presenting the offer face to face will be helpful. If done properly the buyer's agent will be able to observe what part of the contract the seller was unhappy about. If the offer was not presented in person do not worry because most sellers or seller's agents will acknowledge why they declined the offer. Although this reasoning is important you must also read between the lines. Simply declining an offer is a risky move because some buyers will walk. A seller will usually counter to keep the negotiation table open. Why then did the seller just decline? Many reasons could exist. Consider these examples:

Example: A seller has been on the market for five months and has yet to lower the price of the home down from $700,000. Being the market savvy buyer you are, you decide to offer $600,000. This is due to extensive market research which caused you to conclude that the house should sell at $620,000. The seller hears your offer and completely declines. You knew the seller might not accept, but you did expect the seller to negotiate. This could mean two things. The first is that the seller feels your offer was so low it was offensive. Sometimes sellers do get caught up in the emotion of selling their home and lose sight of the business aspect of real estate. This is one of the reasons a Realtor is important. It is the Realtor's profession to keep these sellers focused on keeping the buyer rather then becoming offended. The second possible outcome is that the seller(s) are not offended, he/ she is just not ready to negotiate. Many times sellers will become fixed on a certain value for their home. The market may not dictate this value, yet it is always the seller's decision in the end.

There are a couple ways of dealing with both these outcomes. First is to reconsider how much you would be willing to offer for the home. Since you now know what you have offered is not enough it is time to consider how important this home is for you. If you deem the home to be valuable enough to write a higher offer you should do so. The key to this situation is knowing how high to go. For instance using the example above you might consider $620,000 to be the maximum amount you would be willing to pay. You could offer $610,000 and see how the seller responds. You could also offer $620,000 and explain that this will be your best offer. The seller still might not accept, but at least you know that the house will not meet your perception of value at the given time. Remember a seller may also decline and come back to you at a later point if the home has still not sold. No matter how you act just remember to never let the seller's stubbornness cause you to overpay for a home because this may cause buyer's remorse. You never want to regret the purchase of a home so be patient and make smart decisions regardless of the seller's decision.

The second way to deal with a seller who expects more then his/her house is worth is to by not submitting a second offer and waiting to see how the market responds in the future. If you watch as a seller sits on the market for months and months it will begin to become frustrating for this seller. Ultimately the seller may have to lower the price and this could be the ideal time to submit a second offer. You now know that the seller has discarded the bench mark value that was expected in the past. Once this hurdle is crossed the seller will be more likely to consider your offer; especially if the new list price is much closer to your offer.

Example 2: Another important aspect to consider when a seller declines your offer is motivation. What if the seller(s) lack the motivation to move? The seller(s) may already own another home and can afford to wait until the market becomes stronger. Remember for some sellers the proceeds of the home they are selling are irrelevant to the purchase of another home. In this case the sellers decide to list their home where they deem fit regardless of the market. If they get what they are looking for they will sell. If not they will not settle for anything less because they can afford to be patient. In this situation the buyer must make the decision wisely. Is the home worth the premium or should they continue to look? Many times this decision will be based on many other variables such as school districts, prime locations, specific communities, and/ or the time these buyers plan to live in the home.

As I mentioned above it is important to put a seller's declination of an offer in the right perspective. In a strong seller's market a buyer may lose numerous homes in multiple bids before a contract is finally accepted. It is crucial to view all of these setbacks in the context of a business environment rather then a rejection. Rejection is personal and causes buyers to become desperate. Desperation will lead to poor emotionally driven decisions in the future. This is what causes many buyers to overpay for homes and later regret. If you view a declination as just that, you will realize that the seller made the best business decision; similar to the offer which represented the best business decision for the buyer. Much of this relates back to Step 1, writing an offer, because buyers who fail to offer everything they deem the home to be worth may later regret.

Acceptance 

The next and best possible outcome of writing and presenting an offer is the seller's acceptance of this offer. Although acceptance is not as complicated as declination there are some important factors to consider once your offer has been accepted. The first and most important factor to understand is the attorney review period. Depending on the state in which the home is located the laws involving real estate and specifically attorney review are very different. Since my expertise and real estate license is in New Jersey I will of course be focusing on the laws and procedures of
New Jersey. Thus the attorney review process will begin once both parties, the buyer and seller, have signed the contract and both parties receive signed copies of the contract. This is an important point to remember because without both parties having a signed contract the contract is not official.

Once signed and distributed both parties are given a grace period of three days during which either the buyer and/ or seller may walk away from the contract as if they had never signed. As the name would suggest the attorney review period was created to allow both attorneys the time to review the contract. Of course using an attorney is entirely optional, yet strongly recommended. Upon receiving the contract both attorney's are now in control of the attorney review period. This means that both must first sign off before the period officially ends. Consequently this allows the attorney's to act as fast or as slow as they would like. As a buyer you need to understand how this period can work for or against you. Consider the following example:

Example: You are a buyer interested in a townhouse located in a highly desirable complex. The home is just listed at $700,000, but after researching you realize that it is under priced by about $75,000. You decide to present an offer of $725,000 immediately and the sellers accept. Both you and the sellers receive a copy of the contract that day which happens to be a Wednesday. You being the motivated buyer that you are decide to drive to your attorney and hand delivery the contract just to avoid any time delays. The seller does the same and the attorney review period begins Wednesday afternoon. In your mind you expect to be out of attorney review on Friday, hence the three day period, and you are excited. On Friday you find out that the attorney review process was unfortunately extended to Monday by your attorney because he was overloaded with other clients. On Sunday the sellers receive another offer of $800,000 and decide to walk away from your offer and accept the other buyer's offer. Similar situations happen all of the time and although these may seem unfair they are actually completely legal.

As a buyer you must protect yourself from these situations by understanding what the circumstances of the contract are and acting accordingly. For instance if a home has been sitting on the market forever and is never repositioned it may not be crucial for you to rush your attorney to sign off on the contract. It probably will not hurt or help your situation. The opposite is true; however, in the example above because you knew that it was only a matter of time before another buyer submitted an offer. It is during these circumstances that you must speak to your attorney and ask to be processed quickly. Yes, the seller's attorney can stall or slow down as well, but that is out of your control. What you can control is your side of the deal and sometimes acting quickly will cause the other attorney to respond in kind.

Another important factor to consider about the attorney review period is that this is the seller's last contingency. After attorney review all actions will be preformed by the buyer unless a seller's action is negotiated later in the contract during home inspections. This is important because once the period is over the seller is committed to you as a buyer unless you fail to perform. This means that even if the seller receives an offer $200,000 over what you have offered they cannot walk away from your contract.

Counter 

The third possible outcome of writing and presenting an offer is a counteroffer. Although acceptance is the most desirable response and a decline the least desirable a counteroffer is probably the most interesting. What makes this response so interesting is that it is always different. The terms, the sales price, the motivations, the situations are always changing from one contract to the next so having a defined rule for dealing with counteroffers is foolish to say the least. This is yet another reason to work with a professional real estate agent or Realtor. Someone who is trained and experienced in the act of negotiation will have better chance at getting you what you want then someone unfamiliar with this process.

Like any form of negotiation the steps are reminiscent of a dance; each step closer to reaching a state of equilibrium between the buyer and seller's desires. As a buyer you hope the dance is short and sweet because the farther you reach the more it will cost you. The seller would love to dance all night and slowly bring you closer and closer to where they want you. The art is the ability to read the seller's steps, understand what moves them, and gain their acceptance.

Example: You're an investor interested in buying a multi-family house currently priced at $800,000. You feel comfortable spending $800,000 on this property though you only offer $700,000 because any money you can save is factored in to your profit margin or operating expenses. The seller counters your offer with the same terms, but a price of $795,000. Now think about the situation. You and the seller were $100,000 apart from one another and the seller returned a counter only giving up $5000. If you read into the seller's counter you know that this seller is willing to negotiate, yet will expect you to make up more of the $100,000 difference. Is there a right answer to this question? Probably not, but knowing your situation you might not want to ask the seller to split the difference just yet. Remember getting the price as low as possible is your goal. You can now counter back with $720,000 and see how the seller responds. Another alternative is countering back with the same offer to see how far the seller would be willing to budge.

Nothing is guaranteed because all sellers are different, yet sometimes taking the right step during a negotiation can cause the seller to become worried about losing you as a buyer. Once the seller shows his/her weakness you may find yourself saving plenty of money at the negotiation table. It is also important to remember that the seller is reading you as a buyer. Letting the seller know that you have to buy a house in the next five days due to a corporate relocation and his/her house is the only one you love is not always the smartest idea. The desperation is no longer on the sellers but instead on you as the buyer. It is this need that can cause a loss of power to exist between either party. As a buyer you must recognize this and always use it to your advantage.

As you may have noticed all three outcomes are dependent on a series of influences. Motivations, situations, individual personalities, needs, and expectations are just a few of the many variables that can cloud a seller's decision. As a buyer it is important to focus on which variables are present by reading the response and analyzing the motivations behind that response. Obviously a buyer will never analyze a seller's acceptance as much as he/she would a counter offer. This fact is inconsequential. The important aspect or point that needs to be made is that all three responses can spark a series of events. Like dominos or pebbles on a lake any written offer can act as a catalyst. It is the buyer's job to educate him or herself with the process enough to acknowledge this fact and respond accordingly. Once this education is complete the buyer can feel confident in completing Step 2 of the process and gaining the seller's acceptance.

Coming Soon:   The next step of the process will cover the contract contingencies in greater detail.

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