Tips and Traps When Negotiating Real Estate: Dealing with Time

Negotiating a Sales Agreement: Dealing with Time

Time can also be a deal point. In post 2, we saw why time was important as a negotiating tool. Now we’ll consider a specific appli­cation of time in the sales agreement: the date of occupancy.

When—the exact date—the seller turns the home over to the buyer is usually a point of vital interest to both parties. Normally, occupancy is given to the buyer on the date the house transfers title. But there are exceptions. For example, a few years ago I was selling a vacant house, and the buyers, as part of the sales offer, wanted to be in the property within 30 days. The buyers were coming from Central America and their furniture was arriving in about three weeks. They wanted to have a home ready for it. Also, they didn’t want the inconvenience and extra expense of renting a motel room.

The problem was that, at the time, the earliest a lender could arrange financing was four weeks, probably closer to five. That meant that the buyer wanted to be in the premises for one to two weeks before the deal could close. The buyer wanted to get posses­sion of my vacant house before the deal closed.

What’s the Problem Here?

To see the problem, you have to look at the downside risk. What if the buyer moved in, eventually couldn’t get financing, and the deal couldn’t close? What if the buyer decided to back out of the purchase? In short, there are many sce­narios that would lead to the deal’s not closing. Also, if I gave possession prior to closing, I’d now have someone in the property, and getting them out later might turn into a big problem. Obviously, tim­ing was a deal point here and a great inconvenience for me. Why should I bother with all the hassle involved? Why not simply dump the deal?

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The buyers understood the problem. So they offered me very close to full price and no other conditions—I would receive all cash with most of it coming from their new loan. I would gel nearly my full price and all cash, something I wanted and something that was a strong inducement for me to find a way to make it work.

Ultimately, I had the buyers sign a month-to-month rental agreement, putting up both first month’s rent plus a substantial security/cleaning deposit outside of escrow (paid directly to me). The sales agreement stipulated, however, that if they bought the prop­erty within five weeks (which should be enough time for them to secure financing), all the rental money, including the deposit, became part of the down payment. If they didn’t buy, then, of course, they were tenants.

They were satisfied with the deal. They had a house to move into when they needed it. I was likewise satisfied. I had a pretty sure shot at a sale. And if the sale didn’t go through, then I had the property rented. Since the house was a rental anyway, this fit in well with my plans. Ultimately, the buyers did qualify, did get the mortgage, and the deal closed—a successful negotiation of time.

TRAP

One of the dangers of letting a buyer in before closing is that, if the deal doesn’t close, the buyer then may be considered a tenant with tenant’s rights. This means w that if the buyer refuses to move or pay rent, you might have to go through expensive and potentially lengthy (if the buyer contests) eviction procedures to remove them from the house.

Of course, this can work both ways. Sometimes a seller wants to stay after the transaction closes. Buyers have to be wary of this, lest they later have difficulty getting the former seller to leave the premises.

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And there’s also the problem of what condition the property will be in when the seller/buyer finally leaves, even if the transaction closes. There’s realistically no opportunity here for the other party to inspect prior to closing if someone is already in the house.

TIP

A different concern with regard to time that we saw in the first example of this chapter is that the property is usually taken off the market once buyers sign a sales agreement. If the house is off the market a month or so while the buyer hunts for a mortgage, and if ultimately the deal falls through, that’s a lot of time wasted during which another potential buyer could be found. Some sellers will, therefore, negotiate a clause in the sales agreement that allows them to continue showing the property and to take back-up offers until the deal closes.

As a buyer, the problem here is that if I have trouble securing financ­ing or the closing is delayed for any reason, and the seller has another, better back-up offer, I could lose the deal. Before granting permission for the seller to keep showing the property and to take back-up offers, therefore, a buyer should negotiate a concession elsewhere.