Tuesday, September 30, 2014

Writing an Offer....

So now you have identified that perfect home, the next step is to write an offer – which is not as easy as it sounds - remember it’s not a contract yet until all parties agree to the terms. 

Oral promises are not legally enforceable when it comes to the sale of real estate. Therefore, you need to enter into a written contract, which starts with a written offer.  The offer is much more complicated than simply coming up with a price and saying, "This is what I’ll pay." Because of the huge dollar amounts involved, both you and the seller want to build in protections and contingencies to protect their investment and limit your risk. In an offer to purchase real estate, you include not only the price you are willing to pay, but other details of the purchase as well. This includes how you intend to finance the home, your down payment, who pays what closing costs, what inspections are performed & timetables, whether personal property is included in the purchase, terms of cancellation, any repairs you want performed, which professional services will be used, when you get physical possession of the property, and how to settle disputes should they occur.

Realtors write offers on local area approved forms … these forms are developed and approved by local attorneys, and realtors just “fill in the blanks”.  These locally approved documents have been developed to cover all different aspects of the real estate transaction in that marketplace.

If you choose to purchase without the benefit of a Realtor, you can get basic offer documents on line, or from Title/Escrow companies. 

First thing, determine what the local neighborhood sales have been. Your realtor can run what is called a CMA or BMA of recent sales.  This will give you a basic idea if the home is priced comparable to other recent home sales in the market.  It could be difficult to get an appraisal if a home is “priced outside the neighborhood comps.” If it is a really nice home and just a bit above the neighborhood comps, it might set a new high sale for a neighborhood. But if it’s more than probably 5% over the most recent highest sale for a similar property, you could find that it does not appraise.  Your realtor can advise you on an offer price once you have looked at the recent sales.  They can also tell you if these sales included any seller concessions. All of this is important information to help you build your negotiation case.

Your offer is the first step toward negotiating a successful sales transaction with the seller. Since this is just the beginning of negotiations it is best if you can put yourself in the seller’s shoes and imagine his or her reaction to everything you want to ask for. Your goal is to get the home that you want at a price that’s acceptable. But remember the seller’s goal is to sell the home for a price that they want. SO imagining the seller’s reactions will help you attain your goal. It is important to remember that seller’s make plans based on your offer and this can affect his finances too.

Your offer is more than just money. Terms can also make or break an offer, and the longer that a seller “mulls” over your offer another buyer can slip in with a different offer – and many buyers don’t want to get involved in a multiple offer scenario.  So a seller is going to review your offer carefully, because it also affects how he or she lives the rest of their life.

I believe that the offers that get accepted without much back and forth countering are those offers that are what realtors called “clean” offers.  While these offers do spell out price and terms, these offers do not contain a lot of additional contingencies.  If your offer says "this offer is contingent upon (or subject to) a certain event," you're saying that you will only go through with the purchase if that event occurs.  Most offers cover basic contingencies such as financing, inspections & possession.   It’s when buyers ask for non-standard contingencies that offers get muddy and often don’t get accepted.

A non-standard contingency would be if you are a first time buyer and you want your parents to approve the property. Now if this is the case it may be a time issue.  If Mom & Dad can get into in the house in a couple of days, a seller might be willing to agree to that, but if it’s going to take a couple of weeks, the seller might not be willing to accept that. In this case you are in essence asking the seller to take the property out of the marketplace for that two-week time frame, and a seller might not be willing to lose other possible buyers.  So keep in mind what it is that you are asking the seller for.

Your offer will include an Earnest Money amount, which is good faith that you are desirous of purchasing the property. The amount of Earnest Money acceptable is determined by the seller, so be prepared to write a check that will be sent along with the offer.  When all the terms of the offer have been agreed upon, that Earnest Money Check will be delivered to a title or escrow company where it will be cashed and held in trust becoming part of your down payment or closing costs.

All offers should have an expiration time for presentation.  Your realtor will advise you on what’s typically accepted in your area.

You will have a binding contract if the seller, upon receiving your written offer, signs an acceptance just as it stands, unconditionally. The offer becomes a firm contract as soon as you are notified of acceptance. If the offer is rejected, that's that, and the sellers could not later change their minds and hold you to it.

If the seller likes everything except the sale price, or the proposed closing date, or whatever other contingency that may be in the offer, you may receive a counteroffer, with the changes the seller prefers. You are then free to accept or reject that counter offer or to even make your own counteroffer. Each time either party makes any change in the terms, the other side is free to accept or reject it, or counter again. The document becomes a binding contract only when both sides agree to all the terms and conditions.

Remember once both parties have accepted all the terms and conditions you have a ratified contract …. But the negotiations do not stop at this point.  Next, Getting a Home Inspection.