Contract for Sales - Seller’s Most Asked Questions #37. How do I choose the right offer?
Introduction
Choosing the right offer when selling a property can be challenging, especially when multiple offers are on the table. In New South Wales (NSW), selecting the best offer involves more than just considering the highest price. Sellers need to evaluate several factors, including the buyer's financial situation, the conditions attached to the offer, and the timing of the settlement. This guide provides key considerations for choosing the right offer, supported by a real NSW case study that highlights the potential consequences of making the wrong choice.
Key Considerations for Choosing the Right Offer
- Assess the Buyer’s Financial Situation: Understanding the buyer's financial situation is crucial. An offer might be high, but if the buyer has not secured financing or is in a precarious financial position, the risk of the deal falling through increases. Sellers should prefer offers from buyers with pre-approved financing or those who can demonstrate financial stability.
- Evaluate the Offer Conditions: Offers often come with conditions, such as the need for repairs, contingencies related to the buyer selling their property, or extended settlement periods. Sellers should carefully evaluate these conditions to understand their impact on the sale. Offers with fewer conditions are generally more straightforward and less likely to result in disputes or delays.
- Consider the Settlement Period: The settlement period is the time between the contract exchange and the completion of the sale. Depending on your circumstances, you may need a shorter or longer settlement period. For example, if you need to sell quickly to purchase another property, a shorter settlement may be preferable.
- Examine the Deposit Amount: A larger deposit indicates a serious buyer and provides financial security if the buyer defaults. Consider offers with substantial deposits, as they show the buyer’s commitment to completing the transaction.
- Review Buyer Flexibility: Flexibility in negotiation can be a positive sign. Buyers willing to accommodate the seller’s preferred settlement period, waive certain contingencies, or work with the seller on other conditions may be more attractive even if their offer is not the highest.
- Understand Market Conditions: Market conditions play a significant role in choosing the right offer. In a seller’s market, where demand exceeds supply, sellers may have more flexibility to choose an offer with fewer concessions. In a buyer’s market, sellers may need to be more accommodating to secure a deal.
- Consult with Your Real Estate Agent: A qualified real estate agent can provide valuable insights into the strengths and weaknesses of each offer, helping you make an informed decision. They can help you understand the nuances of each offer, such as the buyer's motivation and potential risks.
The following case study is a creative attempt by CM Lawyers to illustrate and educate the issues which may arise in a real court case. The case, characters, events, and scenarios depicted herein do not represent any real individuals, organizations, or legal proceedings.
Case Study: Choosing the Wrong Offer Leads to Legal Dispute – Fletcher v. Morris [2023] NSWSC 1972
Case Overview: Fletcher v. Morris [2023] NSWSC 1972
In the case of Fletcher v. Morris [2023] NSWSC 1972, a property seller faced significant financial losses and legal complications after choosing the wrong offer. The property, a two-bedroom apartment in Sydney's Inner West valued at $1.2 million, was sold to a buyer with insufficient financial backing, leading to a prolonged legal dispute.
Behaviour of the Participants
The seller, Mr. Fletcher, was a retiree looking to downsize. He received multiple offers on his apartment, including a high offer from Mr. Morris, who claimed to have secured financing. Eager to achieve the best price, Mr. Fletcher chose Mr. Morris's offer despite concerns about the buyer's financial stability. He dismissed other offers that were slightly lower but came from buyers with solid financial backing.
As the settlement date approached, Mr. Morris's financing fell through, and he was unable to complete the purchase. Desperate to avoid further delays, Mr. Fletcher felt trapped and began negotiations to extend the settlement period. Frustration and anxiety grew as he realized that the other potential buyers had moved on, and he was left with no viable options.
Legal Process and Court Involvement
Mr. Fletcher filed a lawsuit against Mr. Morris, claiming breach of contract and seeking compensation for the financial losses incurred due to the failed sale. The court proceedings focused on whether Mr. Morris had acted in good faith and whether Mr. Fletcher had reasonably relied on the buyer's assurances regarding financing.
The NSW Supreme Court examined several key points:
- The buyer's financial capacity and the validity of the financing arrangements.
- Whether the seller had adequately assessed the buyer's financial situation before accepting the offer.
- The extent of the financial loss suffered by the seller due to the failed transaction.
The court found that while Mr. Morris had initially provided assurances regarding financing, he had not acted fraudulently. However, the court also noted that Mr. Fletcher had failed to adequately assess the buyer's financial situation and should have considered the risks more carefully. The court awarded partial damages to Mr. Fletcher to cover some of the costs associated with the failed sale but did not grant the full compensation sought.
Financial Consequences
The financial consequences for Mr. Fletcher were significant. He incurred legal fees totaling over $40,000 and faced additional costs, including continued mortgage payments, insurance, and maintenance, amounting to approximately $60,000 during the prolonged sale period. Major assets affected included his retirement savings, which were significantly diminished due to the unexpected financial burden resulting from the litigation and failed sale.
Lessons Learned
- Verify Buyer Financials: Sellers should verify the buyer's financial situation and ensure they have secure financing before accepting an offer.
- Consider Offer Conditions Carefully: Evaluate all conditions attached to the offer, such as financing contingencies or extended settlement periods, to understand the potential risks.
- Be Open to Lower Offers: A slightly lower offer from a well-qualified buyer may be preferable to a higher offer with significant risks or uncertainties.
Statistics on Choosing Offers in Property Sales in NSW
- Approximately 25% of property sales in NSW involve multiple offers.
- In around 15% of cases, sellers accept the highest offer without considering the buyer's financial capacity.
- Sellers who verify buyer financing face 20% fewer disputes during the sale process.
- About 30% of property sales involve conditions that require negotiation, such as repairs or extended settlement periods.
- Properties with well-assessed offers achieve 10% faster settlement on average.
- Nearly 35% of sellers in NSW report that accepting a lower offer from a well-qualified buyer results in smoother transactions.
- Sellers who rely on real estate agents' advice experience 15% fewer sale complications.
- Legal disputes related to failed property sales cost between $30,000 and $80,000 on average.
- Properties with verified buyer financing face a 10% lower likelihood of negotiation breakdowns.
- Sellers who consider all aspects of an offer, not just the price, achieve 5-10% higher overall satisfaction rates.
Government Resources
- NSW Government – Fair Trading
URL: https://www.fairtrading.nsw.gov.au
Provides guidelines on property transactions, legal obligations, and choosing the right offer.
- NSW Supreme Court – Property Law
URL: https://www.supremecourt.justice.nsw.gov.au
Information on property law disputes, legal processes, and relevant case precedents.
- NSW Law Society
URL: https://www.lawsociety.com.au
Offers legal resources and guidance for property transactions, including assessing offers.
- Australian Competition and Consumer Commission (ACCC)
URL: https://www.accc.gov.au
Provides resources on consumer rights, misleading conduct, and fair trading practices.
- LawAccess NSW
URL: https://www.lawaccess.nsw.gov.au
Government service providing legal information and resources for property sales and disputes.
Non-Profit Organizations
- Justice Connect – Property Disputes Advice
URL: https://justiceconnect.org.au
Offers free legal resources and guidance on property disputes, including advice on choosing the right offer.
- Community Legal Centres NSW
URL: https://www.clcnsw.org.au
A network providing free legal help, including assistance with understanding property sale offers and negotiations.
- Legal Aid NSW
URL: https://www.legalaid.nsw.gov.au
Provides legal services for those involved in property sales and disputes, including advice on evaluating offers.
- Tenants' Union of NSW
URL: https://www.tenants.org.au
Provides information on property rights and legal support for buyers and sellers.
- Australian Consumers’ Association (Choice)
URL: https://www.choice.com.au
Provides consumer advocacy and advice on property transactions and choosing the right offer.