All Topics / Legal & Accounting / Reasonable length for a Sunset Clause on my first offer

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  • Profile photo of emmybemmyb
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    @emmyb
    Join Date: 2009
    Post Count: 23

    Hi there,

    I want to put in my first offer and have a sunset clause as part of that offer.

    The house was up for auction and got passed in a couple of weeks ago. It was advertised for $620 – $680k prior to auction and is now being advertised for $635+. However the agent is saying that the Vendor is desperate to sell as they have commitments elsewhere which they have to abide to. She is saying that they would accept $605 -$610k.

    So we are thinking of putting in an unconditional offer (once we are sure the condition of the property is not too bad by my builder friend thoroughly looking through it and once my conveyancer has checked the contract).

    We have quite a bit of finance and although we will be getting a loan for some of the amount we feel confident on getting approval so it will not be conditional to finance.

    One condition we will add though is early access but we are willing to do a 30 day settlement with release of a 10% deposit when both parties sign the contract. (Although there will be a clause here stating that the early release of the deposit will be subject to my conveyencer confirming the discharge of all morgages, debt etc.. on the property.)

    So we feel that we are offering a pretty attractive offer given their circumstances but want to put a sunset clause on it. Is 7 days a good length for something like this? We want to act quickly before anybody else gets a chance to make an offer as it open for inspection this weekend. I have no idea what a standard sunset clause is.

    Any advice would be greatly appreciated.

    Thanks, Emmy

    Profile photo of Michael 888Michael 888
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    @michael-888
    Join Date: 2005
    Post Count: 260

    Hi ya Emmy

    I would never give any vendor seven days to accept or reject an offer.

    If the vendor is desparate, as you mention, they should be in a position to give an answer pretty much immediately.

    I would allow them a fixed date and time. I have often only given them two hours to accept or reject. The agent will play your offer to others if you allow them the luxury. Even if it was passed in and has had price reduction, I would give the vendor till the close of business (say 5 pm) on the day you sign a contract of offer.

    In the event you are phoned by the selling agent and congtratulated on being successful, always ask for a copy of the counter-signed contract (pick up in person or have it faxed to you) to ensure you are not gazzumped.

    Check with your solicitor and obtain legal advice about releasing deposit early.

    Don't know your personal finance situation, so no comment there. The above is not advice but merely my 0.02 worth

    Good luck.

    Profile photo of emmybemmyb
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    @emmyb
    Join Date: 2009
    Post Count: 23

    Thanks  so much for your valuable advice Michael… :)

    I will give them until the close of business day from signing the contract of offer. I just had no idea on what a normal sunset clause was but if it's not too out of line to put such a tight one in there then I will.

    So if we want to make an offer do we tell them our first offer over the phone or put it all in an email with the terms and then sign a contract of offer once we know that the Vendor has verbally accepted it? Just unsure of the correct processes here. In the past we have signed a contract of offer for our first offer (it was beaten by somebody else) but this time we are willing to negotiate so have come up with three offers to be put to them one by one until they (hopefully) accept. Do we have to sign a contract of offer every time we change it?

    eg…

    offer number one –
    600k and 60 day settlement
    – not subject to finance (we were thinking that on the off chance if anything went horribly wrong with the finance then a 60 day settlement would give us enough time to find finance elsewhere, but both us and our mortgage broker are confident this won't be the case).
    – We would also allow an early release of the deposit once the conveyencer has checked there are no debts or mortgages upon both parties signing the contract.

    offer two –
    605k and 30 day settlement
    – subject to finance
    – early access for quotes, measurements and maintence of a non-structural nature
    – release of the depoist upon the contract becomming unconditional
    or
    a 60 day settlement not subject to finance

    – Should I give them the options here? Or should it be one or the other? If so, which one do you think? 30 day subject to finance or 60 day not subject to finance?

    offer three –
    610k and 30 day settlement
    – subject to finance
    – early access for quotes, measurements and maintence of a non-structural nature
    – release of the depoist upon the contract becomming unconditional
    or
    a 60 day settlement not subject to finance
    (whichever settlement terms they picked in offer number two will be put forward in offer number three).

    Does that make sense?

    Any advice or opinions would again be greatly appreciated.

    Cheers,
    Emmy

    Profile photo of Michael 888Michael 888
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    @michael-888
    Join Date: 2005
    Post Count: 260

    Not sure where you are located and where you are buying Emmy, so the following relates to Vic contracts as I am most familiar with those. Cooling off is different in NSW and Qld where one forfeits a small (0.25 % deposit) for the leisure of 5 days cooling. Unsure of other states and territories.

    The following is not advice, however merely my opinion. I haven't had cause to provide three alternatives, however have read about giving two options to vendors before in theory (books) however never applied it myself.

    Your strategy is not without merit as it shows you are serious and are catering to possibly cover their needs. In so doing however you may be exposing more of yourself to them. The property is obviously overpriced and going to get stale if it hasn't already, so if their prime need is funds to commit elsewhere, I would start with a short settlement (however caveat this with ensuring you are market ready with finance) and for the price of a short settlement, you would expect a deep discount.

    You can then offer slightly more for a longer settlement if they refuse your first offer. When trading terms or price, make sure they offer a consession, or the rea will grind you into a corner. If they are desparate, they should play the game.

    If you are buying nearby to where you live, then I would sign a contract and attach a small token deposit of say 1,000 dollars to show you're serious. You can then also play clause amendment ping pong by altering price, terms and initialing. If from a distance and fax clause is stated in the contract then a similar scenario would be played.

    Again I would seek legal counsel over releasing any deposit funds. If you're keeping to 60 days and under, personally I don't release anything until settlement. Lengthy settlements are different and your offer may be made more attractive by releasing (PART) deposit…..after checking with your lawyer.

    Personally I wouldn't play all three options at the same time. Uness this is for a PPOR and there is some emotion attached to your decision, keep it cool. Make sure the numbers stack up.  If it goes to someone else who can offer sweeter terms………next.

    Good luck

    Profile photo of emmybemmyb
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    @emmyb
    Join Date: 2009
    Post Count: 23
    Michael 888 wrote:

    If you are buying nearby to where you live, then I would sign a contract and attach a small token deposit of say 1,000 dollars to show you're serious. You can then also play clause amendment ping pong by altering price, terms and initialing. If from a distance and fax clause is stated in the contract then a similar scenario would be played.

    Do you mean sign a contract of offer? I have heard of putting in a token deposit when doing this. So the contract of offer often gets signed first with our very first offer and then the negotiating begins aka ping pong? Wow, there is so much to learn and I guess the only real way is to do it but when hundreds and thousands of dollars are at stake I just don't want to make any stuff ups and learn the hard way!

    Sorry to keep asking you questions.. and thanks for your patience :)

    Emmy

    Profile photo of emmybemmyb
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    @emmyb
    Join Date: 2009
    Post Count: 23

    I also don't think I explained it properly. We would put in three seperate offers one by one.

    So if they said no to offer number one and asked for more money we would then come back with offer number two. If they came back and asked for more money again, we would give them offer number three. That's why it goes up 5k each time. I think I have written it a bit confusingly.

    The only thing that makes me a bit nervous is giving them an unconditional 30 day offer. I have been told in the past to always include a subject to finance clause in the offer even if we have pre approval which we do. But you don't have anything like that when buying at auction and non conditional offers are so much better to negotiate with. They seem to give you more power. We are borrowing 65% from the bank and have more in the bank for renos but do you think it would be risky to give an offer for 30 days settlement and not condition to finance. just wondering on your thoughts here.

    Also, I thought that a 10% deposit was payable when the contract is signed by both parties and the rest was payable upon settlement. Or have I got that bit wrong?

    Cheers,
    Emmy

    Profile photo of Michael 888Michael 888
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    @michael-888
    Join Date: 2005
    Post Count: 260
    emmyb wrote:
    I also don't think I explained it properly. We would put in three seperate offers one by one.

    OK Understood.

    So if they said no to offer number one and asked for more money we would then come back with offer number two. If they came back and asked for more money again, we would give them offer number three. That's why it goes up 5k each time. I think I have written it a bit confusingly.

    Fair enough. Not a bad strategy then.

    The only thing that makes me a bit nervous is giving them an unconditional 30 day offer.   Then you should not do what makes you nervous and folow the advice given to you and insert the finance clause. It doesn't sound as if this property is hot, so stack the deck in your favour and hedge your position I have been told in the past to always include a subject to finance clause in the offer even if we have pre approval which we do. But you don't have anything like that when buying at auction and non conditional offers are so much better to negotiate with. They seem to give you more power. We are borrowing 65% from the bank and have more in the bank for renos but do you think it would be risky to give an offer for 30 days settlement and not condition to finance. just wondering on your thoughts here.

    Keep safe and stay sane…..SANF (sleep at night factor) is very important

    Also, I thought that a 10% deposit was payable when the contract is signed by both parties and the rest was payable upon settlement. Or have I got that bit wrong? Everything is negotiable. I give a token deposit and the balance to 10 % (or less depending on what you negotiate) when it goes unconditional.

    Cheers,
    Emmy

    What state are you buying in?
    Is this a PPOR or an investment?
    If it is the latter, what is your yield (likely rent) in a renovated and non-renovated state?

    Your LVR is conservative, however if you are not certain about finance then insert that clause. Credit/lenders rules are changing weekly these days :( so cover yourself.

    Profile photo of Scott No MatesScott No Mates
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    @scott-no-mates
    Join Date: 2005
    Post Count: 3,856

    The deposit is what you negotiate – if you can get them to agree to 5% or less, great.

    Releasing the deposit to the vendor – the usual 'what if' scenario: what if the vendor delays settlement, blows your deposit, walks from the deal, dies……… where is your money? Goooone.

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