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Have you ever started a conversation with a professional about their line of work, and within a few minutes you could only stare blankly, wondering what language they are talking in? We have all been guilty of it from time to time, forgetting that the terms we use in our day to day job are completely foreign to the people we’re talking to. To make matters worse, many people are too embarrassed to admit that they don’t understand, assuming that they should already know the lingo, just nodding and smiling through the conversation.
In real estate, we are a very document-heavy field, and most clients don’t enter into the process with a clear understanding of the different types of documents we use. In today’s blog post, we will do our best to explain the differences between a few of the most commonly misunderstood documents: Counter-Offers, Amendments, and Notices.
Let’s begin with counter offers and amendments. A counter-offer and an amendment share one thing in common. They both make a change to an offer to purchase. The difference is WHEN that change is made. A counter-offer is used BEFORE an offer has been accepted, and an amendment is used AFTER an offer has been accepted.
Counter-offers are typically created during the initial negotiation process, and can be submitted by either the buyer or seller. The counter-offer is effectively the same as the original offer with the exception of any changes delineated in the counter offer.
Here is an example:
A buyer submitted an offer to purchase a home with the following terms:
Purchase price $300,000
Inspection, Appraisal, and Financing Contingency
Closing date of July 31.
The seller decides that they don’t want to accept the offer as it is, and so they make a counter-offer. Their counter offer states that the purchase price is $315,000, and the closing date is July 15th. All other terms of the original offer remain the same. Once the seller submits the counter offer to the buyer, the ball is back in the buyer’s court. The buyer has three choices: Accept, Counter, or Decline.
If the buyer accepts the counter offer by signing it and returning it to the seller, the offer has been accepted, and the process moves to the next phase, working to satisfy all contingencies and prepare for closing.
If the buyer is not satisfied with the terms of the seller’s counter-offer, the buyer can offer a second counter offer with their own terms. Each counter offer is labeled with a number, starting with “1” and going up for each subsequent counter, and will state on the top WHO is making the counter offer.
For example, in our scenario, the buyer may be ok with changing the closing date, but only wants to pay $310,000. They would have to include both of these terms in their counter-offer. None of the terms in the first counter-offer will automatically transfer to the second counter-offer. The second will be labeled on the top as “Counter #2 from the Buyer”.
There is another document called a Multiple Counter-Proposal, which we will cover in a future article.
Amendments are used when the seller as already accepted the buyer’s offer, but both parties agree to alter the terms of the deal. There can be many reasons that both sides may agree to alter the deal. Here are some examples:
• The Inspection has disclosed several defects and the buyer and seller have negotiated a price reduction.
• The appraisal was lower than the purchase price and the buyer and seller have negotiated a lower price.
• For some reason the transaction will not be able to close on time, and both parties agree to reschedule the closing date.
Because these changes affect a legal agreement that buyer and seller have both signed, it is required that BOTH parties agree to and sign an amendment for it to take effect. Often, one party will submit an amendment to the other as part of the negotiation process. For example, if the buyer would like to negotiate for the seller to fix the water heater, the buyer’s agent may send an amendment to the seller’s agent stating the new terms which is already signed by the buyer. Much like a counter-offer, the seller will have the option to accept, offer the seller’s own amendment, or just simply reject.
Some transactions can have several amendments executed before the deal closes. Like counter offers, amendments simply state what has changed or been added
