What to look for on For Sale By Owner route

Q. We just put our house on the market without a broker. We'll take any offers we receive to our lawyer, but could you give us an idea of what to watch out for?

A. First of all, understand that in the sale of real estate, oral agreements are not enforceable. If a buyer says, "Would you take $10,000 less than your asking price?" don't answer. Even if you did say yes and they wrote you a check as a good-faith deposit, you couldn't hold them to it. Just say, "We'll be happy to consider any written offers."

It's best to ask for a couple of days to consider an offer. That gives you time to consult your attorney. If another offer is presented in the meantime, you're free to consider both. The first offer does not have any precedence. As long as you have not acted on an offer, you are free to respond to whichever you choose.

Before you tie your house up in a contract and take it off the market, you'll want some assurance that the buyers have the necessary cash and the right credit for whatever financing they're planning. All-cash offers are rare and usually worth a discount on your asking price. Sometimes potential buyers request in their offer that you pay points to their lending institution to help them get a loan.

Real estate brokers learn to ask about buyers' incomes, other debts and credit ratings. You may have to do that yourselves. These days, though, many buyers have already been preapproved by a lender.

Buyers often make their offer subject to certain happenings (contingencies). For example, they promise to buy only if a home inspector returns a satisfactory report or they get a mortgage loan. Each contingency should contain a time limit, so your house is not off the market too long while you wait.

You'll have three choices with an offer:

• You can reject it - but you can't change your minds later and take it back.

• You can accept it as it stands.

• You can counter. Signing a counteroffer means you accept the offer except for something in particular (whatever that may be). A counter is valid for just the few days you specify. Buyers may accept it, reject it or let it expire.

Q. I am curious as to what happens to the down payment if a potential buyer puts one on your home and then backs out of the deal.

A. It all depends.

First off, although the check that accompanies a purchase offer may eventually wind up as part of the down payment, it is known as a deposit - a good-faith deposit or an earnest money deposit.

It is not turned over to the seller but held by a third party, according to local custom. It shows that the buyers are in earnest and have something to lose if they simply change their minds and want out. If they do, the deposit typically becomes the seller's property as compensation for lost time on the market.

Sometimes, though, it may be returned to the buyers - if, for example, they've made legitimate efforts to arrange financing and failed. Or a contingency might be written into the contract (approval by an out-of-town spouse, for example, or the buyers' receipt within a few days of a favorable home inspector's report). The contract usually says that if those contingencies fail, the deposit is returned to the buyer.

Q. You wrote an article in response to a letter from a couple that had to leave the state for job reasons. You went over the pros and cons of renting out their home. I don't think you mentioned that after two years or so the couple would have to pay capital gains on their home if they sold it, because it would no longer be considered their personal residence.

I enjoy reading your articles. So many of today's columnists seem wet behind the ears, but no one can say that of you.

A. Now that I'm 90 years old, I'm not in much danger of being wet behind the ears.

You're right - I should have included information about the possible loss of the home seller exclusion if the house is later sold. It's two years that the owners could be out without losing that tax break. The exclusion allows tax-free profit of up to $250,000 on the sale of one's principal residence, and twice that for a couple filing jointly.

• Contact Edith Lank on www.askedith.com, or 240 Hemingway Drive, Rochester NY 14620.

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