Deciding to accept an offer is one of the most stressful decisions ou will make when selling. To accept a non-binding offer that the buyer then wants to renegotiate after their due diligence has been done is demoralising. It’s crucial to differentiate between a binding and non-binding offer during negotiations.
An offer in the eyes of the law (Fair Trading) can be made in writing or verbally. Real Estate agents must pass all offers onto the owners. This includes unacceptable offers, low offers and non-binding offer.
“It is a rookie error to call a non-binding offer a true offer”.
An offer in practical terms is an unconditional signed contract with a Waiver Certificate and the agreed deposit. An offer in this format is as secure as you can get when selling. It is so secure that the bank will lend against the exchanged contract in the form of a deposit bond for the vendors next purchase.
A buyer who makes a non-binding offer is not necessarily unreasonable or playing games. Buyers are often lied to by estate agents about the true price guide for the respective property. The end result for the buyer is they fork out thousands of dollars in due diligence for a property they were never in the running for. Understandably, many buyers wish to negotiate in advance of spending money on due diligence.
If you are selling, there are some basic rules to follow when negotiating that will protect you from a renegotiation.
Full disclosure of faults – A buyer that discovers faults mid negotiation is likely to respond worse than if they knew in advance of making an offer. If your house has issues, it’s best to offer a buyer full disclosure in advance of the buyer making an offer. Once the offer is made, you know that it’s then made with the facts in play. If a few buyers withdraw due to the facts in the disclosure, don’t panic, they were going to withdraw anyway.
Agree to a price, but not an individual’s offer – If an acceptable offer is made in a non-binding format, accept the price but not the offer. Respond via the agent with something such as, ‘the price and terms are acceptable if the offer were put to us on a signed contract’.
Be extra wary of valuations – Since APRA’s toughened stance on residential property, an offer subject to valuation has increased risk.
Stay on the market until sale is complete – The best time to find a buyer is when you have a buyer. Conversely, if you accept a non-binding offer and close the campaign down, Murphy’s Law says the offer will crash – leaving you stranded.
If there is more than one buyer, only unconditional offers considered – Being considerate and fair to buyers is crucial to success in real estate. If you are fortunate enough to have multiple interested buyers, every buyer is given a fair and equal chance to bid. But, all offers must be unconditional on the specified deadline.
You run an unacceptable risk accepting a non-binding offer, dismissing the underbidders and then have the non-binding offer withdraw. Your campaign will be back to square one.
- Written by: Peter O'Malley, Author 'Inside Real Estate'