Negotiating the purchase
Deciding
how much to offer when buying a home
In deciding how
much you should offer when buying a home, there are a number of factors you should
consider.
Market
value of the house for sale
Based on sales of houses in the same area
your looking in, how does the asking price of the house you’ve
chosen compare with other?
You
can request this information through your real estate agent.
They will prepare a “comparative market analysis” (CMA)
about the property. This
report reviews prices between comparable homes currently for sale,
under contract, or just sold.
Condition of the house
When buying a home, make sure you are aware
of any major problems in the house, before making an offer.
The house should have been inspected, especially if it is
not a new home. Make
sure that if there are any major problems, you have a clear idea
of the repair costs.
Circumstances surrounding the sale
Before making an offer, try to see if the
owners are anxious to sell. You
may be in a good negotiating position if the sellers already have
a contract on another house, and are depending on the sale of
their house. It would
be to your advantage knowing how long the house has been on the
market, and if the price has been already been reduced.
Financing terms
When buying a home there are two sides to an
offer, the price of the house, and the financing terms.
For some, the terms maybe more important than the price.
If the seller is offering attractive financing terms, such
as paying for the title search, the home inspection, and other
closing costs, the buyer might be more inclined to agree to the
asking price.
Submitting
the offer
To make an offer, submit a signed offer with
a given price under specified terms to the real estate agent. If your price reflects any flaws you encountered during the
inspection, be sure to explain this in detail to the realtor.
Real estate agents are required by law to deliver your
offer to the seller.
Earnest money deposit
Earnest
money deposit is money put down to demonstrate your seriousness about
buying a home.
It
must be substantial enough to demonstrate good faith and is
usually between 1-5% of the purchase price (though the amount can
vary with local customs and conditions).
If
your offer is accepted, the earnest money becomes part of your
down payment or closing costs.
If
the offer is rejected, your money is returned to you.
If
you back out of a deal, you may forfeit the entire amount.
What the offer includes
The offer to
purchase should include at least the following:
-
a complete legal description of the
property
-
the amount of earnest money accompanying
the offer;
-
the price you are offering;
-
the size of your down payment and how
the remainder of the purchase will be financed (including the
maximum interest rate you are willing to pay);
-
any items of personal property that
the owner has said will stay with the house or that you want
to be included;
-
a proposed closing date and occupancy
date;
-
the length of time the offer is valid
(three to five days); and
- the
satisfaction of certain specific contingencies.
Negotiating the final purchase price
The seller may
respond to your offer in one of three ways: by accepting it, by
rejecting it, or by making a counteroffer.
Always take your time in considering a counteroffer.
Negotiating the
final purchase price is usually accomplished in much the same way. You may be expected to put a larger deposit down once the
seller has signed your offer to buy.
You need not tie up the entire amount of your down payment
at this point.
Terms
of contract
There are many different “contingencies”
that may be included in the contract in addition to the basic
terms of the sale. These
conditions must be met for the contract to go into effect.
The following are some common contingencies that can be
added to a contract.
Financing contingency
The contract
should state the buying price, the amount of down payment, the
total amount, and the financing terms you will accept—as well as
how long you have to find the agreed-upon financing. This
is why being pre approved for a mortgage is to your benefit.
Get pre approved for a mortgage now.
It will also state the amount of deposit being held in
escrow, and which closing costs are to be paid by the buyer and
which are to be paid by the seller.
This contingency
makes clear that if you don’t get the money you need at the
terms you have specified, the deal is off and your deposit will be
refunded.
Inspection contingencies
You may want to
specify that certain inspections are completed before the sales
contract takes effect.
Professional home inspections.
Your contract should be contingent on a satisfactory report
by a professional home inspector.
If major problems with the structure or systems of the
house are uncovered, you have the right not to go ahead with the
purchase or to renegotiate the terms of the purchase.
Termites. It is
standard practice to require the seller to pay for a termite
inspection and to provide a written certification stating that the
property is free of termite infestation and that any damage from
past infestation has been repaired.
Environmental hazards to investigate
Radon.
A lot of homebuyers want the house tested for radon.
Radon is a odorless gas that can seep into the house and
cause major health problems.
For more
information about radon in your area, you can call your state or
county public health department.
Lead-based
paint. If the
house you are buying was built before 1950, it is almost certain
that lead based paint was used.
If the house was built between 1950 and 1978, there is a
chance that lead based paint was used.
This is an serious issue and should be investigated.
Even low levels of exposure to lead can have very serious
intelligence, health, and behavioral consequences.
Young children, infants, and pregnant women are especially
vulnerable.
If the house was built prior to 1978, before
the sales contract can be finalized, the real estate agent must
provide you with information discussing the hazards of lead and if
there is any lead based paint in the home.
You are also allowed ten days to have a certified inspector
inspect the home for lead based paint hazards.
For more information contact the federal lead
information hotline at 800-LEADFYI
Asbestos. According to
EPA, homes constructed during the past 20 years probably do not
contain asbestos products. You
may hire a qualified professional to inspect the home.
A professional knows where to look for asbestos, how to
take proper samples, and what corrective actions will be most
effective.
Hazardous waste sites. Testing
for hazardous waste involves skills and technology not available
to the average homeowner or home remodeling contractor.
The EPA has identified more than 30,000 potentially
contaminated waste sites nationwide. Contact the nearest regional office of the EPA for
information on the location and status of local hazardous waste
sites.
Appraisal contingency
When applying for
a loan, the mortgage lender will require a professional appraisal
of the market value of the property.
The appraised value of the house determines how large a
mortgage the lender will be willing to give you.
If the appraised value is lower than the agreed-upon
purchase price, this contingency gives you the right to withdraw
your offer.
Repair work. You may
want to specify that the sellers are responsible for ensuring that
the plumbing, heating, mechanical and electrical systems are in
working order at closing.
Without
this clause, you agree to accept the house “as is”.
Provide for a walk-through inspection of the house on the
day of closing or several days before to make sure if all
conditions in the contract have been satisfied.
Personal property. List
in the contract everything that the owner is supposed to leave
behind. Don’t rely on the seller’s verbal agreement that
specific fixtures, and appliances are included in the sale.
Closing
and occupancy date. You
may also want to include a clause that the sellers must pay you
rent on a daily basis in the event they haven’t moved out by the
agreed-upon date.
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