Here are 7 of a number of strategies to guard against:
1. Renting with the Option to Buy--sometimes considered when a seller is having a hard time selling a property.
The buyer may have chosen renting with an option because he cannot qualify for a mortgage to buy. If a buyer’s ability to qualify for a mortgage does not improve within the option period, he still won’t be in a position to buy. As a result, the Seller can be stuck with a home unsold one year or more down the road.
Through the rental period, the buyers live in the house. They may find aspects of the home they don’t like, discouraging them to proceed with the option.
An option to buy should have a dollar value the buyer stands to lose, otherwise the Buyer risks nothing if he does not follow through with the option. After all, the Seller has taken his home off the market. On exercising the option, this dollar amount is applied to the purchase price.
Better to reduce the price and attract a sale.
2. Granting a First Right of Refusal
With this approach the seller grants a First Right with Buyer 1. On receiving an Offer to Purchase from Buyer 2, the Seller notifies Buyer 1 who then has a set time to match the price and terms of Buyer 2’s Offer. Granting a First Right of Refusal discourages other buyers from negotiating an offer, only to find they lost out to the Buyer 1 who matched the price and terms they negotiated.
3. Holding a mortgage without a credit check
As a Seller you are the buyer’s lender and should ensure that the Buyer has a good track record on meeting financial obligations. As well, don’t allow the mortgage to be assumable by another buyer.
4. Giving Possession before closing
Who is liable if possession is given before money changes hands and title is transferred? What if on moving in the buyer now finds aspects of the home he doesn’t like and threatens not to close or wants a price reduction?
5. Allowing the Buyer to do work on the property before the closing--this too can present all kinds of liability issues.
6. Accepting an Offer Conditional on sale of Buyer’s home without an escape clause
An escape clause allows the Seller to continue to market the home for sale. Upon receiving a 2nd Offer the Seller now notifies the 1st Buyer who has 48 hours or more to remove conditions and buy the house or walk away. Without an escape clause the Seller does deprives himself of this option.
7. Agreeing to a Long Closing Date (6 months or more)
This can lead to a Buyer having second thoughts about the purchase. A Seller should negotiate a sizeable deposit that the Buyer risks losing if he fails to close.
Anticipate and Diffuse Potential Problems…Hire a Full Service REALTOR®.