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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!
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