Making An Offer
Good real estate agents are invaluable
when it comes time to make an offer on a house. Invariably the agent
will provide you with a preprinted form of a purchase contract, which
together you rework to fit your needs. The contract begins by identifying
the focal points, buyer, seller, property location, brokers, etc.,
then quickly moves to the most important matter: the purchase price,
the down payment, the loan amount, and the deposit. Time limits are
set for a response to the offer, for obtaining
financing, for closing on the home, and for moving in. In addition,
contingencies or terms are outlined, such as the offer being conditional
on an inspector's report.
The offer is really a combination of
both price and terms. If you give something up on price, you can expect
to take something on terms. Everything is negotiable - the price,
the terms, the occupancy date, furniture, everything. You can ask
for what you want. You may not get it, but you can ask. Unless you
are in a very competitive seller's market, don't offer your best price
first. Leave room for negotiating.
Price
A buyer should understand with confidence
what comparable properties in the neighborhood are selling for. Assuming
your agent is a busy local player, he or she should know very well
what a fair price is for the house of your choice. Ask your agent
for statistics of list price versus sales price for the neighborhood.
Compare the price and quality of other homes you've seen with the
one you wish to purchase. Experts estimate that most homes sell for
about 6 percent less than asking price, but that's just an average
and it varies widely from market to market. While no buyer should
be afraid to offer below asking price, it's not realistic to expect
a seller to go below 5 percent of the list price unless the property
has been on the market for a long time and the buyer has set very
few contingencies.
Certain indicators can clue you in to
the seller's motivation to sell quickly. Find out how long the house
has been on the market. Has the price already been reduced? If yes,
and more than once, you may be dealing with a highly motivated seller.
When did the seller originally buy the home and for how much? If you
can't ask directly what their equity is, your agent may be able to
come up with a ballpark estimate, not to mention other valuable information
such as whether the seller is going through a job transfer, or has
already purchased a new home. If either is true, the seller is unlikely
to have time and money to wait for a buyer who will meet the asking
price.
Terms
Sellers are said to focus on price more
than anything else, so if you're offering full or close to asking
price you may have an opportunity to improve your terms. There are
many reasonable requests you might make with an offer. For instance,
you may ask the seller to contribute to closing costs, or to provide
a home warranty in case something wrong is not detected during escrow
or goes wrong in the following year. Ask that the seller check the
boxes warranting that all appliances are working. Then, if you find
something not working during escrow, the seller will have to fix it.
Most offers will be contingent upon the buyer getting financing and
on a professional inspection and lender appraisal.
Even here you have an opportunity to play with the terms. You could
ask for 60 days to secure financing and then set a date for the seller
to be out of the property. You may also ask for assistance on the
prorating of taxes, club dues, homeowner's association fees, and so
on.
House inspection
A thorough, professional property, roof,
and termite inspection should be completed during escrow. This should
not replace a buyer's own inspection, trying every appliance, inspecting
faucets and sinks for leaks, etc. In most states the seller is obligated
under law to disclose all known defects of the property in written
form as part of the purchase contract. This should divulge material
facts that could affect the property's value, such as noisy neighbors
or a spate of recent home burglaries. If you want the offer to become
null and void if an inspection turns up major structural damage, make
sure that is a clear contingency in the purchase contract. Check to
see what sort of permits have been issued for the property. This is
easy since the city usually keeps them all in one file. These permits
can tell a lot about the work that was necessary on a property, which
gives you an opportunity to double-check if the problem was repaired
properly or just executed as a stopgap measure.
Money
A fairly complete financial portrait
of the buyer is revealed in a purchase contract, which works to both
parties' advantage. An offer is far more attractive to a seller if
the buyer is pre-approved for a loan. Pre-approval
is not to be confused with prequalification. Prequalification is merely
the result of a loan officer asking a few questions and typing up
a superficial letter. Pre approval from a lender is far more meaningful
because the mortgage company has done the same due diligence necessary
for full approval. The only thing missing is the appraisal and title
search on the house. Being preapproved turns a buyer into someone
akin to a cash buyer, which resonates much better with the seller.
A buyer could save thousands of dollars having this advantage in the
negotiations. Many mortgage companies will preapprove at little or
no cost if they can check your credit and verify your income and assets.
When you write up a purchase contract,
define the maximum interest rate at which you are prepared to finance.
This is to protect yourself against volatile, escalating interest
rates, which could land you with a much higher mortgage payment than
you had anticipated. At the same time, the seller will probably want
to see that you have some flexibility in the financing terms you are
willing to accept.
