What to Know About a Homebuyer When You're the Seller

The inkwell runneth over from the words that have been written why sellers must tell all about property defects. But what about buyers? Is there a truth or consequences for buyers of real estate?

“It’s a sticky wicket,” is the answer you get from the Alaska Real Estate Commission when you ask the staff about buyers who aren’t very forthcoming with sellers about their ability to perform. The commission’s focus is on agents, after all, so they don’t become as involved with what buyers say.

Suppose, for instance, that a buyer doesn’t have the funds for a down payment unless he or she sells some property. The business tradition in Anchorage is that the seller has the right to know. How the seller responds to the offer is going to be influenced by his or her judgement about the ability of the market to absorb that property.

Suppose the buyer has already signed an offer, however. The buyer has no serious reason to believe the transaction will not close. Must the buyer disclose the pending sale?

What if the down payment is coming from a bonus that’s normally paid by the buyer’s employer? Is there much reason to doubt the bonus is coming through, and on time? What obligation does the buyer have to volunteer the possibility that he or she might not be able to perform.

The reason buyers hold back is to make the offer as attractive as possible. They may be competing with other buyers and know the seller is going to choose the best offer. They may be trying to get the seller’s best price and fear that the seller might not negotiate flexibly.

With on abundance of optimism, or even bad faith, some buyers will overstate their abilities. Promising an early closing in the hopes of getting a favorable price or terms from the seller is a common negotiating tactic. Where the buyer can perform on schedule, this fact is material. What’s frowned upon is locking in a favorable deal with a short closing and then coming in with excuses and extension requests.

When investigating the merits of a property, whether commercial or residential, buyers have a due diligence obligation. Perhaps sellers have a similar obligation to investigate a buyer before accepting an offer.

Buyers press for a prompt response to an offer. The hope is to lock in an agreement before someone else enters the picture. Sometimes all it takes to get other buyers off the fence is the information that an offer is under consideration. That competitive environment is to a seller’s advantage, however. Taking a day to look into what a buyer has said, or not said, about his or her ability to perform is prudent. If another offer comes in, so much the better.

If an offer is for cash, a seller should ask for evidence that the money is in place, or a clear statement of how and when it will get there. If the offer is contingent on financing, a seller should speak with the buyer’s loan officer, obtaining permission from the buyer for the lender to make full and complete disclosure about the buyer’s capabilities. If the offer is subject to competing a sale of other property, the seller should review the sales contract for that property. The buyer may appear strong, but what about the buyer of his or her property? Maybe that transaction is the weak link in the daisy chain. Indeed, does the chain extend even farther, with sales up the line all of which have to close?

Tax-deferred exchanges of investment real estate involve contingencies of timing. A seller needs to know where in the process the buyer is. If the buyer cannot close the sale within 180 days of the closing of the property he or she is relinquishing, the deal may die because of the loss of the tax incentive.