Making an Offer: The Basics
WRITE IT DOWN! This is the first, most crucial and most basic step in making an offer on a real estate property.
The Proposal:
The first thing you should do is start with a written proposal. This, of course is not a contract, but having all of the negotiations written down prevents and unexpected misunderstandings in the future. Well, it doesn't prevent them, but it makes them easier to clear.
The proposal will not only list the price, but it will also list any other features that you hope will end up on the contract. This could include the seller's commitment to help with the down payment; of any stipulations like if the price is contingent on a new roof.
You can easily obtain standardized forms for contracts and proposals that insure that you don't miss any steps in the process. These forms also insure that the mortgage agreement and selling points are compliant with state laws. If you are buying a property in another state there may be some differences.
Of course in many instances, the realtor that is brokering the deal will handle many of these duties, but it is always best to know what you are doing.
The Contract:
Once you have made you proposal the seller must accept it. If it is accepted and the contract is signed, you are both legally bound to comply with every aspect of the contract, even if situations change.
The contract will also provide the blueprint for the final sale. This should contain:
Address and legal description of the property and home Agreed sale price Terms of sale, all down payments and mortgage conditions Seller's promise to legally hand over the title of the land A target date for the finalization of the sale Amount of down payment. This may also be known as earnest money or deposit. It should also be specified whether this money would be delivered in the form of cash, check, and promissory note. You must also specify how that money will be returned if the deal does not go through, and how that money will be paid if you brake the contract Method and agreement by which all insurance, property taxes, fuel, water bills, and any other utilities with be transferred from the seller to the buyer Who will pay for independent inspections? Type of deed to be given Any state specific clauses. For instance, attorney review of the contract and disclosure of any hazards such as fault lines, flood plains and contamination A time limit that, if passed, nullifies the offer CONTINGENCIES (very important) Contingencies
Contingencies are what we call 'deal breakers'. Essentially they are things that if not fixed or dealt with before the sale of the home, the contract becomes null and void. While a contingency can be anything the two most common contingencies are as follows:
The buyer must obtain a specific lending agreement from a bank or other institution. If a suitable loan can't be found, there is no way to pay for the home, therefore it is unreasonable to expect a purchase. An independent contractor completes an inspection. If he determined that portion of the contract was not met (e.g. fixing a roof) then the contract again becomes null and void.
It is contingencies that make writing all of this down so important. If it s not in writing, you could find yourself in an extended legal battle that could be so expensive it'll leave you homeless in more ways than one.
Negotiating
You are going to want to be in best bargaining position possible when you make an offer in a home. This will most likely be the largest investment of your life and poor negotiating can mean the difference between thousands of dollars.
If you can hit the negotiating table armed with the following you are bound to get a good deal:
You are willing to pay all cash You are pre-approved for a mortgage Your purchase of the property is not contingent on the sale of your existing home.
If you have any of these criteria you are instantly the sellers best friend and they are likely to reward you for it. Especially in a buyer's market. If you happen to be in a sellers market having all three criteria could also get you the property versus someone who may only have two; providing your bids are close.
If you know you are going to be negotiating it is a good idea to know what is motivating the seller. If they are desperate, or even just highly motivated this can also work in your advantage. How can you tell if a seller is motivated? Try the following.
Is the home for sale currently vacant? If it is they are probably paying two mortgages. They'll be eager to ditch one of them. Was there a recent divorce? Nobody wants to prolong the painful ordeal of a divorce; this could work in your favor. Estate sales. If the family of a recently deceased individual wants to settle the estate, they too will be eager to unload the property.
Earnest Money
This is not a down payment. It is instead a smaller sum which, if written in the agreement can give you sole bargaining rights for a specified period of time. The money is usually help by the realtor and is added to the down payment if the sale goes through.
Offer/Counter-Offer
When you make an offer you are in no way legally bound to it. This is part of the negotiation. If you make an offer and it is rejected, that's that. It's dead. In some cases they may send back a counter offer. You may then choose to accept it or reject it. But unless the seller agrees in the contract, the counter-offer is merely a means of communication; not a binding document.
Withdrawing An Offer
You will need to contact your lawyer about this one. Roughly the answer is yes. You can withdraw your offer. For instance, if send a counter offer and that is accepted by the seller you can change your mind at the last minute, even if the offer has been accepted. The only thing that does matter is that you do not know that they have accepted the offer. The minute you know the other party has sign the agreement you are now legally bound to that offer. You can still appeal to the good nature of the seller but this is no guarantee.
One Last Thing
As a buyer, never underestimate the desire of your seller to sell. They may be a master negotiator, but still desperately want to get the property of their hands. Naturally, one of the biggest problems you'll face is getting the down payment, earnest money, moving fees and inspection costs all together before you move.
If you think that maybe you are at an impasse with the seller because the market price for the house is well above the appraised price (thus requiring a larger than though down payment) you should mention the option of having the seller pay some of the up front costs.
For instance: Ask them if they will pay the initial costs of the following.
Termite and infestation inspection Home protection policy Buyer's broker Buyer's closing costs Survey Points to the buyer's lender Repairs mandated by the lender
GOOD LUCK!
