Why you should not make a verbal offer?

photo credit: tranchis

In our previous post “How to negotiate the purchase?”, we have discussed about how to negotiate the purchase of the property you wanted. We would like to add another point here – try not to make a verbal offer to a seller.

Why? Don’t expect to walk up to the owner of a property and say, “I want to purchase your property, but $250,000 is too high, I’ll give you $230,000.” Do you know what he would say?

I will not repeat it here. You cannot buy a new car without signing a contract and making a deposit, so do not expect to purchase a $250,000 property without one. And yet, you would be surprise how many “knowledgeable” investors ask their property agents to “call up the seller and see what he’ll take.”

How to do it right
The proper way to negotiate a purchase is to prepare a formal written offer to purchase, spelling out all of the terms and conditions under which you want to acquire the property. Equally important is that the executed offer to purchase will be accompanied by an earnest money deposit cheque, preferably in the amount of two to five percent of the offering price.

When the purchase is a sizable one and you do not want to tie up even two percent of the price with the contract, you can offer a smaller amount, say $1,000, with the balance of the two percent earnest money due within a few days after the offer is accepted by the seller on terms also agreeable to you.

What is the difference between the verbal and written offer? Suppose you were the seller of the property and someone you did not know told you he would give you $230,000 for your property. What would your reaction be?

He is asking you to reduce your price by $20,000. If you agree, he may or may not purchase the property. You do not know, and he has not obligated himself to anything at this point. Even if he agrees to purchase it, you have no idea as to the terms he wants.

Maybe he is trying to buy your property with only a $5,000 or $10,000 down payment. Assuming you do not come to contract with this buyer and your property is still on the market, you cab be certain that every potential buyer will shortly know that the price is now $230,000 not $250,000. the next potential buyer will probably offer $220,000.

A formal letter of offer/intent or contract protects both buyer and seller. Professional property agents normally have a standard form of letter of offer/intent for buyers. You can check with them to alter the standard terms of offer if you want.

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