Home Sellers Handbook
Accepting an Offer
It’s the moment that you’ve been waiting for. You have a purchase offer on your home! Should you accept it? Deciding whether to accept an offer and setting the terms of the sale are often the hardest parts of the selling process. But they’re also the most exciting. You may accept the offer, reject it, or make a counteroffer by changing some of the terms. Keep in mind that the buyer is trying to get the lowest price possible.
A buyer will submit a purchase agreement. With it, the buyer should include some earnest money—part of the down payment—which is refundable if you reject the offer. The purchase agreement will include the price offered, how the buyer will pay for the home (loan, down payment, and earnest money), and the date the purchase is to be completed.
Reviewing the Offer
If you receive an offer, review the following to decide whether or not to accept it:
The Bid Price
Is it within three to five percent of your asking price? If so, most real estate agents will tell you it’s a good offer and urge you to consider accepting it—unless you have a hot prospect you think will bid higher.
Ability to Pay
A buyer or real estate agent should present you with a lender qualification letter that shows the buyer is qualified to pay for the home.
Is a buyer making an offer contingent on selling his or her home, the results of an inspection, or something in your house being fixed? It’s up to you to decide if the buyer is asking too much. Weigh the risk of the sale falling through due to the contingencies against the bid price.
As a seller, you may want to add contingencies, too. Here are a couple to consider:
- Loan approval. Purchase agreements can be made contingent on the buyer being approved for a loan within a specified period of time, usually 30 days or less. If you are going to help finance the home, put the exact terms of your contract in writing, too.
- Property. Both the buyer and seller benefit from putting all agreements about the property in writing. For example, if the buyer will buy the property only if the roof is repaired or the washer and dryer come with the home, include this in the agreement. Be sure to include in the purchase agreement the maximum price you’ve agreed to pay for repairs.
After having their home on the market for a month, the Klines hadn’t received any offers. Maybe they overestimated the market value of their spiffy master bed and bath. Once they dropped the price closer to what other homes in the neighborhood were selling for, they had better luck. The new listing price of $185,000 drew more interested buyers. Gloria Slivers offered the Klines $183,000 contingent on selling her home. The Klines decided to accept the offer “on contingency.” Their purchase agreement spells out that they can continue to market their home while Gloria tries to sell her house. If an offer better than $183,000 or a non-contingent offer comes along, the Klines must go to Gloria and give her the opportunity to remove her contingency.
Sellers Cannot Discriminate Against Buyers
The Civil Rights Act prohibits you from rejecting an offer based on race, color, religion, gender, or national origin. The Fair Housing Amendments Act adds that you cannot discriminate due to disability (mental or physical) or familial status (families with children under age 18). The Minnesota Human Rights Act also prohibits discrimination due to creed, marital status, status with regard to public assistance, and sexual orientation.
Arbitration Agreements: to Sign or Not to Sign?
If you decide to accept a bid on your home, you may be asked to sign an arbitration agreement with your buyer. You don’t have to sign it, and will want to consider the pros and cons carefully.
So what is arbitration? In simple terms, it’s a system for resolving disputes among buyers, sellers, and agents concerning the material facts of the property without going to court. Disputes are sometimes simple misunderstandings (the buyer thought the washer and dryer came with the house, but the sellers didn’t). Problems can also be more complex. If you can’t agree on a solution with the buyer or agent, you’ll have to go to court or hire an arbitrator. If you sign an arbitration agreement, however, you may give up your right to use the court system to resolve the dispute. In addition, some arbitration agreements may shorten the period of time for you to file a claim and may limit the remedies available.
The arbitration envisioned in the typical arbitration agreement is a system that was developed by the National Center for Dispute Settlement (“NCDS”) and the Minnesota Association of REALTORS® (“MNAR”) to deal with real estate disputes. Their arbitrators have backgrounds in law, real estate, architecture, engineering, construction, or other related fields. An arbitrator will hear disputes between buyers, sellers, and real estate agents. Arbitration is usually held at the home site.
The buyer may be unwilling to sign the agreement, however, because of the administrative fees required for arbitration under the NCDS/MNAR system. The cost of arbitration may exceed $3,750, depending on the amount of the claim, number of parties involved, or the choice of a single arbitrator or a
three-member panel. A schedule of fees as well as additional information is available on the National Center for Dispute Settlement website at www.ncdsusa.org.
If you don’t sign an arbitration agreement, many smaller disputes can be resolved quickly and inexpensively in conciliation or “small claims” court. Judges in conciliation court can decide claims up to $15,000. To have your case heard costs about $70 to $80. You may also appeal the conciliation court’s decision, however, it is extremely difficult to appeal the decision of an arbitrator and arbitrators aren’t bound by legal rules.
What Does Your Buyer Need From You?
Did you think you could just sign on the dotted line, take the money, and run? Selling your home isn’t quite that easy. You may need to scrounge through your file cabinet for the abstract or owner’s duplicate certificate of title.
Before signing an agreement to sell or transfer your property, state law requires you to make, in good faith, a general disclosure about anything that may adversely affect the use or enjoyment of your property in writing. Make sure that all disclosures about the physical condition of the property have also been made.
After you get the necessary papers to your buyer, the buyer and the lender will then have your home appraised, the title examined, and the loan approved. If these tasks aren’t completed by the closing date, your purchase agreement may be null and void unless the parties mutually agree to extend the agreement. You should be aware that in Minnesota there is a statutory procedure for canceling a purchase agreement if the purchase agreement
does not terminate according to its terms.
In Minnesota, real estate records are kept in the county where the property is located in either the Office of the County Recorder for abstract property or in the Office of the Registrar of Titles for Torrens or registered property. Abstract property records trace back to the U.S. Government Survey in the mid-19th century. An owner of abstract property may have an abstract of title, which is a compilation of all entries in the index regarding the property. Torrens or registered property is a system that relies upon a certificate of title maintained in the Office of the Registrar of Titles for each piece of registered property.
If you own abstract property, the purchase agreement will usually require you to furnish the buyer or the buyer’s title company with your abstract of title. The purchase agreement may, however, permit you to provide a commitment for title insurance instead of an abstract of title. If you own Torrens or registered property, all that you need to do usually is furnish the buyer with the number of your certificate of title.
To sell your home, title problems must be cleared up. If any problems appear in the title records, you’ll need to hire a closer or real estate attorney to take care of them. Here are common problems you may need to address:
- Unpaid mortgage loan: An abstract sometimes shows the existence of a mortgage by a former owner. If the mortgage was paid off, but the lender didn’t provide a release or the former owner failed to record the release, a new release will need to be obtained and recorded.
- Lien by spouse: If you are divorced or in the process of getting divorced, your spouse or ex-spouse may put a lien on your property. Perhaps you owe him or her part of the equity from the house sale, or perhaps you owe other payments, such as child support. You should check with his or her lawyer to clarify the terms for releasing the lien.
Some Minnesota cities require a seller to provide the buyer with a Truth-In-Housing Report, which may also be called a code compliance report. Check with your city to see if you must provide such a report. If so, you must have an inspector, usually one approved by the city, check your home for obvious defects. These can include problems with plumbing, heating or cooling systems; dampness in the basement; or an unstable foundation. You must disclose the results of these inspections.
Seller’s Property Disclosure Statement
Real estate agents can provide you with this form for reporting the condition of your home. This disclosure supplements statements about the condition of your home made in the purchase agreement.
In most arms-length transactions, you must disclose any information you have about the property that could significantly affect the buyer’s use of the property, unless the buyer waives this disclosure in writing. Your disclosure must be in writing and can be provided to the buyer or the buyer’s real estate agent. A buyer can file a lawsuit against a seller for damages caused by violation of this law within two years of the closing date. A seller is not liable to the buyer, however, if the seller did not know about the problem. Additionally, the seller and seller’s agents have statutory, contractual, and tort duties which may provide a longer period of time to bring a claim.
Lender’s Home Inspection
If a buyer will be financing the purchase of your home with a loan, the lender may require that the home be inspected before the lender will lend the money to the buyer. If the home fails the inspection, the lender may refuse to make the loan or may require that the items on the inspection report be corrected before the closing can occur.
Well Disclosure Statement
According to Minnesota law, you must disclose information about any wells on your property before the purchase agreement is signed. This includes the location of wells and whether the wells are in use or sealed. You must also submit a well disclosure statement with your deed, or include a statement in the deed that there are no wells or the status of the wells is unchanged since the last statement was filed.
Sewage Treatment System Disclosure
Prior to signing the purchase agreement, you must disclose any underground sewage treatment system on the property. You must describe any system’s location and disclose whether, to your knowledge, it is compliant with applicable law. If a seller fails to disclose a system he or she knows about, the seller can be liable for the cost to bring the system into compliance and for attorneys’ fees.
Lead-Based Paint Disclosure
If your home was built before 1978, you must provide the buyer with any information on lead-based paint hazards from risk assessments or inspections in your possession and notify the buyer of any known lead-based paint hazards. You may obtain a pamphlet entitled “Protect Your Family From Lead In Your Home” which contains information on identifying and controlling lead-based paint hazards from the United States Environmental Protection Agency’s website at www.epa.gov.
Radon Disclosure Statement
Before signing a purchase agreement to sell or transfer residential real property, you must disclose in writing to the buyer any knowledge you have of radon concentrations in the dwelling. The disclosure shall include:
- Whether a radon test or tests have occurred on the property;
- The most current records and reports pertaining to radon concentration within the dwelling;
- A description of any radon concentrations, mitigation, or remediation;
- Information regarding the radon mitigation system, including system descriptions and documentation, if such system has been installed in the dwelling; and
- A radon warning statement.
You must also provide a copy of the Minnesota Department of Heath publication entitled “Radon in Real Estate Transactions.”
Be prepared! Closing time is often panic time. All the paperwork to sell your home must be done by the closing date. If you can’t close the sale on time, you may be in violation of the purchase agreement, have to cancel the movers, unpack your boxes, and possibly even pay for two homes at once.
Ellen Bower’s home has been attracting swarms of potential buyers. The location is attractive and so is the price. By the end of the second week on the market she had two bids. One of them was $3,000 below her asking price with no contingencies. Because the house will apparently sell with little effort by her real estate agent, Ellen will ask the agent to accept a lower commission, which makes the $169,000 bid more attractive. The agent agreed to do so, and she will keep the other bidders’ names and numbers just in case the first buyer doesn’t qualify for financing.