Sale isn’t the only thing negotiated between buyer and seller. Here are 8 of the the most commonly negotiated terms of a home purchase (other than price):
1. Contingencies
A contingency in a home purchase offer essentially says that the buyer doesn’t have to go through with the purchase if certain conditions are not met. Contingencies are good for buyers and bad for sellers. Common examples of contingencies are:
- The house must pass a home inspection,
- The title insurance company must not find any issues with the title,
- The buyer’s lender must come through with the financing on time, and
- The buyer has to finalize the sale of their own, previous home before closing the deal.
Buyers and sellers negotiate which contingencies go into an offer, the timeline for different contingencies to be satisfied, and what happens if contingencies are not satisfied (e.g. does the buyer forfeit an earnest money deposit if their lender doesn’t come through with the financing).
I’ve also dealt with a situation where a seller was trying to offload a property with permitting issues as fast as possible. Most buyers wanted to add a contingency that they could clear up the permitting issue before closing. The seller ended up choosing a lower offer which did not have such a contingency.
2. Closing Date
A seller wants to close as fast as possible. A buyer often wants to ensure they have enough time to secure a mortgage before closing (lenders often promise they can come through in 30 days but in reality often take longer).
If either the buyer or seller is an investor, then they may also have tax considerations which affect their desired closing date. For example, investors have a limited amount of time between when they can sell one property and buy another if they want to use a 1031 exchange or invest in an opportunity zone.
3. Repairs & Credits
Are there any repairs the seller will complete before closing? If the seller will complete repairs, then will the buyer have any say into what contractor is hired to complete the repairs or how the repairs are completed? Typically, it’s better for the buyer to NOT have the seller complete any repairs prior to sale but to instead give a credit to the buyer for the expected cost of the repair. Then the buyer can ensure the repair is done properly after the sale goes through.
4. Appliances & Credits
Which appliances are included in the sale? I once bought a property where the initial listing specified that the oven was included. However, right as the sale was about to close, the seller notified me that the oven was actually owned by the existing tenant. I then negotiated a $500 credit from the seller to take the place of the oven that had initially been promised.
5. Home Warranty
Buyers sometimes want the seller to pay for a home warranty which covers certain repairs if certain appliances or systems break.
6. Property Taxes
Will the seller pay all property taxes due up until the sale? Will they make a prorated payment for property tax liability accrued but not yet due before the sale? If the answer to either of the previous questions was ‘no’, then will the seller provide any credit to the buyer to cover those expenses?
7. Move Out Arrangements
Sometimes, a seller will want to remain in a property for a period of time after closing. This can be negotiated within the purchase contract or as an accompanying lease agreement.
8. Closing Costs
Who is responsible for various closing costs (e.g. title insurance, transfer taxes, document fees, attorney’s fees, etc)?
Bonus
When selling a home, it’s important for a seller to consider the merits of different buyers who submit offers. If a seller wants to sell their home quickly, then it may be better for them to choose a slightly lower cash offer instead of a slightly higher offer from someone who needs to qualify for an FHA loan. This isn’t something that is actually negotiated between buyer and seller, but it is a “soft” factor that sellers should consider before accepting an offer.