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Tuesday, March 2, 2010

Re-negotiating the sale: how and when sales are renegotiated

Standing on your lawn three days ago you shook hands with the buyer. Everyone was smiling and laughing and you thought you had a deal. But now suddenly the buyer wants to re-negotiate the sale. Should you tell the buyer to go fly a kite or is it better to bite your tongue and try to still make a deal happen? As most veteran real estate brokers will tell you - it depends.

Even the simplest real estate transactions involve conditions and contingencies which can cause a buyer to reconsider the purchase of a home. For instance, a buyer may discover easements that allow neighbors to cross the backyard, or a nest of red ants under the front porch. Rather than let the buyer ride off into the sunset, prudent sellers would be wise to at least attempt to re-negotiate the sale. On the other hand, buyers who want to change the terms of the sale as a result of buyer's remorse may need to be shown the door.

To prepare for the times when a sale may be re-negotiated let's examine the key areas buyers will be most concerned with during escrow:

1) Disclosure statements
Generally buyers will have an opportunity to review and approve a sellers disclosure statement prior to closing as a condition of sale. A disclosure statement is a document that is designed to reveal any material defects known by the seller to the buyer. In many cases these forms will be delivered after the buyer has made an offer but before closing, giving the buyer an opportunity to reject items revealed on the report they weren't previously aware of. To minimize the risk of this occurring, consider delivering the disclosure statement to the buyer before they make an offer.

2) Preliminary title reports
Once escrow is opened the buyer will receive a copy of the preliminary report. This report will reveal all (or most) of the recorded documents that affect the title to the property. These will likely include easements, licenses, covenants, conditions, restrictions, and outstanding mortgages. If an item jumps up that a buyer wasn't expecting to see, it can be a problem. An example might be an expired access easement, a restriction on the number of vehicles a buyer can park on the property, or an unexpected tax assessment. To avoid surprises, consider requesting a preliminary title report from a local title company before you receive an offer.

3)Inspection reports
Inspectors are hired by buyers to ensure that the home they are purchasing doesn't have any hidden problems that even the seller may be unaware of at the time of sale. Once received, a negative inspection report can give a buyer a window of opportunity to either withdraw from the sale or attempt to renegotiate the sale. To avoid surprises, many sellers conduct a pre-inspection of the home by a licensed professional. By dealing with any negative issues in advance a savvy homeowner can deliver a "clean" report to the buyer. Be aware though that any issues discovered during a pre-inspection will likely need to be disclosed to a buyer whether you fix the issues or not.

As over 90% of buyers will utilize some type of financing to purchase their next home, it's highly likely that your home sale will involve an appraisal. As appraisers and banks have taken the brunt of criticism for the recent market meltdown, they are much more cautious when assigning fair market value to a home. The result is that an appraisal can often come in lower than both the buyer and seller have agreed to. If this happens, be prepared for the buyer to ask for the price to be adjusted downward to meet the appraisal price. To help avoid low appraisals, many sellers and seller's agents attempt to provide the appraiser with the comparable sales that were used as a basis for the listing price, as well as notes on any improvements that have been done to the home that would not necessarily be obvious.

The question to ask yourself if a buyer is attempting to renegotiate the terms of the sale is - Am I OK with this sale failing? If the answer is no, consider how far you will go to keep the sale together. What will you bend on? What won't you bend on? The best negotiators are those that see the big picture. They know their priorities and are willing to make small concessions to achieve bigger goals.

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