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 Making an Offer
There is no "one good" initial offer based upon asking price. Why? Because there are so many variables in real estate and because sellers rarely set their asking prices with consideration to market value.
A simple guideline: a first offer that is 10 percent below your fair market value estimate, not the seller's asking price, will keep you from insulting the seller. It will also keep you from having your first offer snapped up because it was higher than the seller's lowest ultimate selling price.
Now that you have a number, how do you go about making that offer? Your offer must be presented to the seller in writing. This contract will include the date, your name, address, the amount of earnest money you are willing to deposit ($500-$2000), the description of the property being sold, the offering price, closing date and signatures. The contract may also contain additional requests based on items you may want included, repaired or removed from the property before closing. If the contract comes back signed by the sellers, you have purchased the home.
If you are borrowing money to purchase the property and you have not already been approved for a loan, your contract should be subject to your ability to secure a mortgage. Then if you can't get the money, you are legally released from the contract to purchase and will get all of your earnest money back. The length of the loan and interest rate are also included on the contract.
You may also want to include the following in the contract:
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Termite Inspection - this contingency would allow you to withdraw from the contract if the home was infested or badly damaged by termites
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Home Inspection Contingency - the contract is subject to the inspection and repairs can be negotiated (most of the time a buyer will pay for the Inspection)
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House Delivered Vacant - this covers whether the home is to be vacated after the closing date or if the sellers will be renting the home from you for a period of time. Or perhaps you are purchasing a 2-family home where the sellers remain in one unit.
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Sale of Existing Home - You might want to include a clause that indicates the sale of your home before purchase. This is a point not all sellers will agree to, unless perhaps it is a very slow market or the sellers are not in a hurry.
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Promise of Clear Title - this clause states that the seller provides the title to the home free and clear. You can negotiate over who pays the title fees.
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Personal Property - everything that is not nailed down is considered personal property, but sometimes this does not hinder the seller from removing the dishwasher or light fixtures which are indeed attached and considered part of the sale. It is best to include all items on a separate sheet and have that signed by both parties.
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Subject to Buyer's Review of Covenants - if you are buying into a community with owners association regulations or covenants, you must agree to abide by them if you live in the home.
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Day of Closing Inspection - a good contract will provide the opportunity for the buyer to inspect the property on the day of closing before the transfer takes place.
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Closing Costs - these are negotiable, although there are some that are traditionally the buyer's
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Liability and Maintenance - this means that the property is essentially in the same condition as the day you signed the contract. If any damage occurs to the property or home it must be repaired by the sellers.
Writing the First Check
Your earnest money check is given to a fiduciary agent to hold in trust while the negotiations take place. Often it is given to a third party or lawyer. Never give the earnest money directly to the seller.
The Counteroffer
The counteroffer is the seller's response to your initial bid. Most of the time this counteroffer will state a new price that the sellers will now agree to sell the home for. Sometimes it is simply flatly refused with no new price. When you receive this counteroffer, record not only the facts and figures pertaining to the offer, but jot down everything that the agent says the sellers said. And do not take everything said as gospel truth.
Now you must consider a second offer. Work with a fresh new contract. At each step of the bidding process, mention to your real estate agent that you like the home but it does need kitchen remodeling or you would rather it have a 2-car attached garage instead of detached. You want the agent and seller to know that you are not so committed to this house that you will pay anything to own it.
As you continue to negotiate on a selling price, remember to keep emotion out of the arena. Do not let your love for the house dictate your business actions. And don't let the frustrations of long negotiations cause your anger to lash out at family, agents or sellers.
Changing Your Mind
If there is no legitimate reason to back out of the deal, and the sellers will not let you out of the contract, you will have to purchase that home. In some instances, the seller may agree to let you out of the contract but will keep the earnest money. In rare cases, a seller may even return the earnest money. But don't count on that. The wisest course of action is to be certain that you ready, willing and able to purchase the home before you make that initial offer.
Secrets of Successful Negotiating
- Know a property's value
- Be flexible
- Never show your hand
- Ask for concessions as you increase your bid
- Use the closing date in your negotiations
- Use financing in your negotiations
- Know when to stop negotiating
If this article did not answer all of your questions about this topic, please call us and a Knecht representative will be happy to explain all the details and legalities that are involved with selling or buying real estate property.
920-921-0396
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