Purchasing Real Estate
The offer as an outline of intention on purchasing (when there is a 2 part process to purchase)
Price
Asking price is a marketing tool. Value is established by the most recent sales in the neighborhood of similar homes w/ the same amenities, size, and condition. Value is in the eye of the beholder--the buyer. Value is not established based on how much it was purchased for by the current seller or by the amount of money the seller has invested in the property
Asking price may be above the real value or below value. It is usually in the vicinity of the value but it isn’t the be-all, end-all. The best possible pricing for a seller to get the highest price is to be slightly below value. If there are 3 properties with similar characteristics priced at 100k, and the 4th property comes on the market for 97k. Which property would you want to see first? The lower the price the more interest with the larger pool of potential buyers (which can drive the price up)
Some information should be taken into consideration as you make an offer:
Are there any offers on the table? Has there been an accepted offer on the property?
Do not ask, “How long has it been on the market?” – Your agent can tell you that, when you sit down to make an offer-- It has nothing to do with what the sellers will accept or the value and is immediately seen as a clue that you are attempting to negotiate the price down and you’ll make the other party defensive.
In some cases you can offer an additional amount to have toward “closing costs.” The typical buyer’s costs are: title insurance for both the buyer and the bank, attorneys’ fees, bank appraisal. Incorporating costs into the mortgage may be helpful if you want to put most of your available money toward the down payment and won’t have a lot of money available at the closing. At the closing (day you buy the property and “close” the deal) you will also need to bring money for “pre-paids” You will pay the interest on the loan for the next month. So ,if you close on Dec 20th , you would pay interest from Dec 20-January 30 on the loan and your first mortgage payment would be February 1. You will also need to escrow taxes. The lender will want ¼ of the annual taxes put into an escrow account so that it is available for the next tax period.
Terms and Conditions
Things to consider:
The seller’s time frame and situation and use it to your advantage:
v When are they looking to close?
v If it is a family in need of finding suitable housing, you may want to know that going in.
v If it is vacant, you may save some money on price with a willingness to close sooner than later (the sellers have carrying costs and if you can close earlier you can cut the price by the money they will save – we can start with an offer that is lower with an outside closing date..then negotiate the date to an earlier date this will allow you to counter terms not price)
Typically your offer will include “contingencies” time frames to allow you to secure a mortgage and to insure that the property has no major issues that will need to be addressed (termites, foundation issues, problems with the systems and structure) When making an offer it is essential that you know what you are looking at.. what you see is what you are making an offer on.. broken window, peeling paint, the one outlet in the dining room are things that you should be aware of when you make an offer.
Mortgage contingency
v The mortgage contingency allows an “out” of the contract if you cannot get a loan.
v You can remove the contingency and still get a mortgage
v You can ask for typically 3 weeks from the final contract to purchase to get a mortgage
v In the event you are confident that a mortgage company will give you the mortgage you could remove the contingency and improve your offer (this is good when you are competing against investors or have multiple offers) – it is risky but if you have a good pre-approval with a huge amount down, It can allow you to compete with a higher offer that has a mortgage clause
For instance:
Offer 1: 305k, close in 60 days, mortgage amount of 90%
Offer 2: 300k, close in 45 days (property vacant) and no mortgage contingency
Those offers are very close and may be worth taking the 300k offer. In today’s market when mortgages can be difficult this will be appealing.
Home inspection contingency
v The inspection is a time to reconsider your offer.
v Having a licensed professional home inspector go over the property point of possibly backing out or renegotiating your original offer
v You typically have a week to complete a home inspection
v You could have the inspection but NOT make it a “contingency” but use it to get more information. In the event you do want “out” of the contract and do not have a clause to protect you, you would lose your 1000. Offer deposit.
v If you are in a competing offer and you don’t want to increase your offer price you can remove this contingency or add a dollar amount, “if there is more than $10,000 worth of work, then I want to reconsider my offer
Even in a buyer’s market there are times when you want to structure your offer in a favorable light to the seller. Your goal is to get your offer accepted. There are instances when you want to protect yourself but improve your offer without improving price or when there are competing offers.
Pest, radon and lead inspections:
Pest- can be discovered as you have a regular inspection (ask your inspector if they will do a “preliminary” pest inspection, if they will and they find signs, they will suggest you get a full pest inspection)
Radon- #2 leading cause of lung cancer it costs between $1000-1500 on average to add a ventilating system to mitigate radon. You should test for radon, especially if you have finished basement space or live below grade. Radon is a natural occurring gas that is produced with the breakdown of rock, primarily granite. Circulating air mitigates radon.
Lead paint exists in properties built before 1978. It is a hazardous material that causes brain damage; in particular, to children, who are more at risk because of their size and nutritional needs. Never sand paint unless you know it is free of lead. The presence of lead in a property will not affect the value. Most sellers will not renegotiate the value of a property because there is lead paint. An offer that requires that the buyer test for lead paint is a more cumbersome offer, you can always test for lead paint and not make it a “contingency”. If it is a serious worry or concern, buying property just for your information.
All contingencies are cumbersome for the seller. They are to protect the buyer and allow the buyer an “out.” If a buyer is not capable of getting a loan or is not happy with the detailed information on the property, they may want to get out of the deal; but many buyers use the contingencies as an out when they have “buyer’s remorse.”
Buyer’s remorse is just that-- a second thought on whether the property is the right decision. Having 2nd thoughts is a natural reaction. It happens all the time. If you were talked into buying the property by your real estate agent or a partner or friend you may have more of the feeling that you made the wrong decision. It is an important decision and you should have moment to pause. It is essential that you have as much information about the property in order to make the best decision. Having a Realtor who is familiar with the location and is experienced with the process and real estate who is a trusted advocate --is worth their weight in gold. A trusted consultant will guide you effortlessly through the process and offer you opportunities the entire way to allow you to make the right decision.
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