A Full Price Offer?  BEWARE!

by Wayne D. Lewis, Sr.

            It is a highly anticipated move:  A FULL PRICE OFFER!  For the buyer, it means a tremendous opportunity.  The buyer is cutting to the chase, they are offering the seller of their property a full price offer.  To a seller, it is PAYDAY! Load up the truck and move to Beverly---Gardens, Road, or wherever the seller anticipates moving to.  But whoa your horses!  Waaaaait a minute!  Did you read not only the fine print, but the full print as well?  Is this really a full price offer or, are there a few caveats, quid pro quos and contingencies that the seller needs to be aware of and agree to?  Most likely. There exists that probability.  And, there should be an extra eye to be sure that a full price offer is without any unsuspecting requirements, demands or concessions on the seller.  What could those concessions be?

            Some of those concessions may have to do with occupancy; purchaser fees; inspection time; waivers; disclosures, or taxes. These are just a few things that could be a potential pitfall to be on the look out for in a full price offer.  While an ideal full price offer would be  a cash one that closes in possibly2 weeks, no inspections and a quick claim deed.  It could also be appreciated  if the financing was a 20% fixed-rate loan, and a close in 30 days.  Well, dream on, because those possibilities are becoming almost a thing of the past. Let’s talk about some of the realities of a full priced offer and what to be aware of.

            Sellers of a 4 bedroom 2 ½ bath 3000 square foot home with an in ground pool accepts a surprising and welcomed full price offer as bought to them by their Realtor.  The first confirmation is for the sales price, but the Realtor does advise the sellers there are conditions.  The sellers can’t imagine what conditions that  a full price offer could have that they wouldn’t accept.  The Realtor further advised them to allow him to meet with them.  They agreed.  Here is what they learn:

• Sales      Price: $300,000.00
• Deposit:  50% of the required 10% : ($300,000 X      10% = $30,000 X 50%= $15,000) upon successful completion of a satisfactory      inspection.
• Inspection:      30 business days
• Seller      agrees to pay 3% of purchaser’s closing costs. (FYI:  3% of loan amount ($240,000) is equal      to: $7200.00  (Loan Amount is the      amount left after 20% required down payment)
• Application      for loan: within 10 days after purchaser and seller acceptance
• Terms      and Conditions: 
  • Sellers       agree to allow purchaser to move in 15 days before closing at a prorated       rental rate of $50.00 a day (Based on proposed $1500 monthly  rental)
  • Sellers       agree to leave chandeliers in foyer and dinning room (Appraised       Value-$2,500).
  • Sellers       agree to replace Kitchen appliances for models of similar or greater value       before close or an appliance allowance of no less than $$7500.
  • Close       date  September 30, 2012 (86 days       from now)
  • 24       hours for sellers to consider

            This information is somewhat exaggerated, but not far from a possibility.  A full price offer sometimes may suggest to purchasers that if they are going to pay a full price for a home, then, the seller should be willing to make some type of concession.  While that maybe the case, the seller has overhead and responsibilities as well.   

            In this particular case, the seller needs to evaluate the information to see if there is going to be an economic impact to their anticipated bottom line.  If, for example, the seller has a remaining mortgage of $210,000, any terms suggesting seller concession will be an added expense from the total $300,000.  That means the sellers have fees that have to come out the $90,000, plus what they will need towards the purchase of another home. 

            With an anticipated $90,000 to work with after the mortgage is paid off by the seller, the purchaser is asking for $7200, that leaves $82,800.  The sellers then have to subtract an additional 6% commission for the Realtors, or $18,000.  Then, the purchaser is asking for an appliance allowance of $7500.   So, on a full price offer of $300,000, where the sellers are looking to walk away with $65,000, they appear to fall short .  There is also a possible $1500 directly back to the seller for allowing the purchaser to move into property early. 

            As we look back over the offer to purchase, one of the things the sellers will have to weigh out is whether to allow such a long time to conduct inspections, and whether they want to be, or need to be at the property for an inspection, as the purchasers presented in the offer.  Since the Sellers need to walk away with approximately $65,000 to purchase another home, we thought it would be helpful for you to look at what the sellers had to evaluate from the purchaser’s perspective in their Full Price Offer.  Let us look at a table of the terms and conditions and what they represent from the offer proposed by the purchasers.

            In looking at the table above, it seems that the Sellers decided to concede to the purchaser’s request for 3% or $7200 in closing costs.  The Sellers also agreed to allow the purchasers to move in early and collect $750 in rental.  They opted not to pay the purchaser’s request for $7500 in an Appliance Allowance, nor allow the purchaser to keep the chandeliers, with the appraised value of $2500.  Other concessions remain sketchy on this particular offer, but it remains clear that the Sellers had to look twice at their full price offer. 

            While this is an exaggerated example, it remains clear that a seller receiving a full price offer, should be on guard when a full price offer is presented to them.  What ultimately could happen, as this example presents potentially, would be that the seller would have fallen far short of their goal to walk away with the needed monies to buy their next home, to the possible tune of $35,950, where they would have only netted $54,050 rather than the $65,550 that this table shows they netted.  Just so you know, there are other costs that would have been involved between both the sellers and purchasers, but for demonstration purposes, we used this example.

            If there is a lesson to be drawn from this, it is that Sellers should be very aware of what a full price offer could mean, and how it should be evaluated to make sure that the seller doesn’t loose more than they gain because they are blinded by a full price offer.  For further information on how to negotiate your full price offer, contact your Realtor.

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