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.

Your Journey Home – Finding Your Dream Home

OK, so you have decided on a Realtor, and you have found a Lender that you like.  It is important to get a pre-approval letter from the lender.  Your pre-approval letter will spell out the terms and the price of a property that you can afford.  This is very important information for your realtor.  Buyers should ask a lender 2 things…  what price they qualified to purchase, and what sales amount you can afford at a payment that you are comfortable with.  The difference between these two numbers is really where you need to focus your price point.   

But back to your search, start looking at that sales figure that is within your comfort level first.  If you cannot find the house you want at that amount, then have your Realtor increase the search by an agreed upon amount.  It’s all about choices. 

So now that you have a price range, the next thing to think about is your wants and needs.  Make a list of the things that you HAVE TO HAVE in a house, then make a 2^nd list and add on the things that you want – this list can be numbered with the most important want to the least important.  The HAVE TO HAVE list includes location, number of beds/baths, garage configuration etc.  Give both lists to your realtor, who then will be able to set up search criteria.  Now some of the HAVE TO HAVE items may not be searchable.  An example, you have a dog and you have to have a fence … fences may or may not be a searchable item, and maybe the house you are looking at has a fence, but that fence (all sides) could belong to neighbors.  So it’s important to talk to the realtor and ask them what items they will be searching for.  It’s best to cast a “wide net”, keeping searches down to basic’s …. You can look at photos and read descriptions to fine tune the search.

With the advent of the internet many buyers are coming in with a list of houses that they have found. Realtors very much try and honor those showing requests, but it is not unusual for these properties to be already under contract and no longer available to show, so don’t be disappointed.  

So you have your list of requirements, and now your realtor is sending you listings of houses to look at.  It’s time to get into a car and go looking.  Make sure that you have plenty of time to look at what’s available.  I wouldn’t suggest that you make a marathon day of house hunting; even the most organized person can get properties and amenities confused, so limit your house hunting trip to 6-8 houses at a time.  It is also ok for buyers to “stalk” neighborhoods.  If you really like a neighborhood, and your realtor isn’t showing you homes there find out what it is with your list of HAVE TO HAVE’S that is keeping you out of a neighborhood.  If you need to pop up the price, and it’s within that range between your comfort level and what the lender has told you your max loan amount is – then that’s one of the choices.  It may be that the neighborhood you love only has one car garages, and you are telling the realtor that you have to have a 2 car garage; again it’s the choices that have to be made.

It’s also very important that your realtor is listening to you – many buyers become dissatisfied because they feel a realtor is not showing them the houses that meet their needs. If this is the case, ask the realtor why they are not showing them properties that meet their needs, it may be a miscommunication. It may be that the needs do not meet with the reality of purchase price or location that is desired. 

House Hunting should be fun …. You will see some properties that on paper sound just wonderful, but in reality are not, and there is always that sleeper, the photos don’t show well, the description is so-so, but you walk in and it’s perfect.  So remember choices are good, embrace the adventure, and have faith in the realtor you have chosen.

Next … writing an offer and getting it accepted

Your Journey “Home” – Get good advice.

It’s time, you have decided to purchase that first home.  Excitement, Anticipation, A little anxiety. You’re probably feeling a mix of all these emotions, especially if you have started to look at houses online, but what do you need to know about the process? After years of working with buyers I get the same questions over and over …. And they are good questions.   So here goes the first in a “Road Map” to purchasing your home.

Up front there are 2 big decisions that you must make and they go hand in hand.  The choice of a Buyer’s Agent (your Realtor) and your choice of a lender.  You need to feel confident that these individuals are truly looking out for you. They should be willing to spend the time that you want and need to find you your home.  You will probably be spending several days with that your realtor looking at houses, and hours talking to them when it comes to negotiating the purchase and bringing the transaction to a close. As for your lender, you will be telling them all about your finances as they work to get you the best financing available. 

Your Buyer’s Agent should have a “counseling session” and walk you thru the process.  Purchasing a home isn’t just about looking at houses and writing an offer.  When selecting a Buyer’s agent ask about their experience and if they have any advanced real estate certification.  Now don’t get me wrong, we all had to start in this profession somewhere and being a new agent isn’t terrible, but you want your agent to be able to answer your questions and give you the right information.  If your agent is new to the business ask him or her if they have a mentor.   A good Realtor will be able to spot possible pitfalls before they even occur.   It’s about thinking “down the line”  - as I tell buyers while they are looking at the size of the closets and updates, I’m looking at a Seller’s Disclosure to see how old the mechanicals are, and was the roof replaced in the last 10 years.  No matter how good a home looks, there will be some kind of issues that come forth after an inspection.  While I’m not an inspector, it’s my job to point out that yes, there is new granite in the kitchen, and the seller (who says they’ve lived in the house for 10 years) cannot tell you how old the roof is – or when the furnace was last cleaned.  I’d much rather sell a house, that while may not be updated with the current “must haves” does have new mechanicals and other big-ticket items. 

As for a lender … this again needs to be someone that will take the time to “walk-you” through the process.  Mortgage lending has become so very complicated with changes to lending regulations (yes, there are regulations that the lenders MUST adhere to) that the process can be very intimidating.  It always seems as if there is one more document that the lender wants, and sometimes it’s not the lender that you are talking to who wants some obscure document, but the dreaded “underwriter”.  Now in 25+ years I’ve never spoken to an underwriter, but they seem to always want something and that something can derail a purchase in a heartbeat. 

So my advice is to “interview” several Realtors and Lenders.  Start first by asking for referrals - we all know someone who has just finished purchasing a home – so ask, were they happy with their realtor and or lender?  If not, why? Purchasing a home is an emotional journey and you need to understand that there may be some diversions along the way. 

It’s the role of the Realtor and the Lender to keep the transaction on track and reach a successful conclusion.  Once you have chosen a Realtor and Lender the fun begins ….  Searching for a home,  and we’ll cover that in the next post....

Buying a Home …. Credit Pitfalls That Buyers Need to be Aware of: The time has come and you are looking to purchase a home. Whether it’s your first home or if you have purchased before, you have done all the right things or so you think, but here are some pitfalls that can trip up a buyer, especially if it’s your first home.

1. You have talked to a lender and have been pre-qualified for a purchase and that’s a good step forward, but once you get pre-qualified and are looking for your house, do not make any new significant purchases during the time of the search or after you make an offer.  Lenders will recheck the credit report 24hrs before the closing and if a new installment  payment shows up on the report, the lender will not be able to do the loan

Remember:  Don’t take on new debt during the mortgage-approval process no matter what. I tell buyers not to even pull out their credit cards until the closing.

2. Don’t change your job.  Sounds pretty self-explanatory, but during the time of making an offer and a closing making a significant life change like a new job can derail you purchase.  Especially if it’s a new job in a different field from what you are currently in.  So if a great offer comes along your way, somehow put off that change until after the closing, lenders are looking for a stable “track record” of employment when it comes to mortgages.  This does not apply to people who are moving because they have been relocated by their company, a job promotion is different than a new job.  However if you are moving for a new job that is significantly different that the one you held before there could be more questions to answer and documents to provide a lender.

Remember:  Don’t switch careers or take drastically different employment paths.

3. Don’t pack away important financial documents.  Lenders will need financial documentation during the critical time between mortgage pre-approval and the closing or settlement. Lenders need copies of bank statements and pay stubs for up to 6 months, and back tax records for 2 -3 years.  They may also need proof that obligations have been paid off, and while you may have sent those documents to someone earlier, an underwriter may want those documents at the last moment. 

Remember: Keep important paperwork where you can easily access it until the transaction is completed and you’re in your new place.

4. Get a copy of your credit report as soon as possible and check for debts.  Identity theft is up, and many people have items that are on their credit report that do not belong to them.

Remember: Have your credit fully checked at the very beginning of the process.  If there are items that do not belong to you, you have time to correct any issues.