Getting Through More Paperwork

The Offer

When you see a house you really like and decide you want to buy it, you’ll need to make a formal offer to the owner. This is done in writing by drawing up a contract (also called a purchase agreement) to be presented to the seller for the purchase of the property. It’s a good idea to schedule a time and date to formally present your offer. Let the seller know that you’ll deliver your offer at a certain time, to reduce the chance that the home will be sold before your offer is reviewed.

WHAT GOES IN THE OFFER?

The offer normally will include several provisions:

• Buyer(s) name and contact information
• Identification of the property
• The offer price
• Deposit information
• Financing terms
• A proposed closing date
• All contingencies
• A provision for the transfer of clear title from the seller to the buyer
• A final walk through provision
• How closing costs will be shared

• A time period for the seller’s response to your offer

HOW DO YOU DETERMINE THE INITIAL AMOUNT TO OFFER?

You have found your dream home and you are ready to make an offer to the seller. The list price seems high to you. What do you do? How do you judge whether the list price is a fair one? What amount should you initially offer to the seller?

It is important that you know the value of the house before you decide to make an offer on it. This will keep you from making the mistakes of either overpaying for the house or insulting the seller by making your initial offer too low. You don’t want to start off the business relationship with the seller on a bad note. Therefore, how do you obtain information regarding the value of the house? Consult with your agent. Your agent should be knowledgeable of the area and will provide you with a Comparative Market Analysis (CMA) on the home. This analysis tells you what similar homes in the area have sold for during the past six months or more. The homes in comparison should be similar to the one you are considering in age, style, size and condition. If the market is active – lots of buyers and maybe not enough houses are available for sale – prices may be a little higher than the CMA indicates. Why? Because in an extremely active market, some sellers receive several offers to consider at once, which tends to result in a higher price. Alternatively, if the market is slow – fewer buyers as in previous months – then prices may be a little lower than the analysis indicates because sellers may be anxious. In either case, the CMA, together with the market knowledge and experience of your agent, provides a good starting point for your decision about the amount of your initial offer.

Another way to get an idea of the value of the home is by checking the tax value of the property. But keep in mind that tax values don’t always keep up with increasing market property values, especially in neighborhoods that are revitalizing, but it’s still a good estimate that you can initially work with.

It’s a good idea to inquire about the monthly utility bills from the previous owner. This will give you an idea of how much your own utility bills will be. If the seller is unwilling to provide that information you can contact the utility companies directly.

DEPOSIT INFORMATION/EARNEST MONEY

The offer should include a provision of the deposits you will be making prior to closing. You may be asking yourself why you may be required to make a deposit before closing. Well, what you are really doing is making a “good faith” deposit (or earnest money deposit), at the time the offer is made, into an escrow account to show the seller that you are serious about buying the property. This deposit will usually be a small percentage of the agreed upon price. When the home sale closes, your deposit is applied to the purchase price of the home. Be sure you really want the house, because your deposit may not be refundable if you later back out of the deal.

WHAT HAPPENS AFTER YOU MAKE THE OFFER?

One of three things will happen when you make your offer:

1. The offer is accepted. The contract becomes binding on both parties. If you change your mind for any reason and breach the terms of the contract, the seller has the right to declare the contract null and void and retain your earnest money. You may also be liable for any other financial damage suffered by the seller and the seller’s agent. However, if the seller fails for any reason to complete the sale of his/her home according to the terms stated in the contract, the earnest money will be returned to you and the seller may be liable to you for damage.
2. The offer is rejected. If you offer to the seller has been rejected don’t give up. If you’re intent on buying a home, use this experience to learn how you can improve your chances of success the next time around. Start by finding out what went wrong. Ask your agent to talk to the seller’s agent to find out why your offer didn’t work. Why was your offer rejected? Was it the price? Were the other terms of the offer unacceptable? Find out how your offer ranked in a multiple offer competition.
3. The seller counters your offer with his/her modified requirements for sale (i.e., a counteroffer). This is where the negotiating process begins!

BE READY TO NEGOTIATE

Don’t be upset if the seller does not accept your initial offer. Depending upon the market in your area, after you make your initial offer, the seller may come back to you with a counteroffer. If they counter your offer, you have essentially returned to the beginning of the process – but with a better understanding of the seller’s negotiability. Don’t feel like you have to accept the seller’s counteroffer, feel free to walk away if you are uncomfortable with the seller’s counteroffer. Consider all of the information before you decide to increase your price or walk away. Patience is an important element of the negotiating process. Some sellers have unrealistic expectations about the current market value of their homes. Their list price may be based on comparable sales information. But those sales may be out of date in terms of current market value. In addition, many times sellers base their pricing on how much they paid for, how much they invested in, or how much emotional sentiment they have in their home.

Always remember during the entire process to:

• Plan out your negotiation strategy in advance. Find out as much as you can about the seller’s situation. Determine the highest price you’re willing to pay. Make a deal with yourself to walk away from the property if you have to significantly overpay to get it.
• Home sale negotiations will involve not only patience, but the ability to compromise, as well.
• Maintain some emotional distance so you can negotiate well. Stay objective!
• Every transaction comes with a few snags, but most of them are solvable problems.
• Remember that during the negotiation process, you are the one who has complete control. It’s all up to you. If the terms of the offer do not meet your standards, you have the power to decline the offer and refuse to buy the house.

The Agreement

Finally you and the seller strike a deal and agree on the sale price, and all other provisions of the agreement. The agreement is signed and executed! This is referred to as a ratified contract.

What happens next?

Usually what occurs next is your good faith deposit check is deposited and held in a trust account, an escrow account, or by an attorney, depending on where you’re buying. Your deposit money will apply to the purchase price if the sale goes through.

The time period between the agreement being signed and closing is spent carrying out the terms of the agreement:

• The inspection contingency, which allows the buyer to have the property professionally inspected, is usually completed soon after the contract has been accepted. The most common types of inspections are:
  • Home inspection
  • Pest/termite inspection
  • Lead inspection
  • Radon inspection
  • Asbestos
  • Other environmental concerns based on your region

It’s in the best interst of both the seller and the buyer to get this contingency out of the way quickly. Inspections can cause deals to fall apart. The outcome of these inspections may require more negotiations between you and the seller. Be very careful! The seller wants to sell, and may be covering up something important.

• Secure mortgage approval. While you are securing your mortgage approval, your financial provider will then order an appraisal to establish the market value of the propery.
• The loan approval process (discussed in the “Pre-Approval/Pre-Qualified for a mortgage loan” section). Be prepared! This is the most nerve-wracking part of the home buying process. This is where you’re really going to need the most patience.

Don’t forget to review the title report. You want to make sure that you will receive clear title to the property

Keep Your Cool!…because you’ll be asked the same questions many times in many different ways. So, maintain your composure. Stick it out. You’re almost home!

Note: You, as the buyer, have the right to select the company that will be conducting the settlement/closing.

Preparing For Settlement & Moving In

Prior to your settlement meeting, you will need to provide your homeowner’s insurance information to your lender. It is important that you’re insured. Your lender will not provide your loan without it.

Contact your utility companies – telephone, cable, gas, electric, water and sewer companies – and transfer these accounts to your name at your new address.

Notify the Post Office of your move to make sure your mail is forwarded to your new home. And make sure to allow plenty of time to have everything changed to your name.

You should bring your HUD-1 settlement sheet that you received from your lender to your settlement meeting. A closing agent (lawyer, title agent or home loan officer) will review the settlement sheet. During this process all final costs for the purchase transaction and required documentation will be evaluated.

The Final Walk-Through

This is your final approval of the property and you review the property prior to your closing/settlement meeting. You literally conduct the final walk-through of the property as agreed to, per the terms of your contract. You walk through the property you’re about to buy. You are completely in charge. You check it out from plumbing to electricity, make sure everything’s in working order, especially appliances. This is your day. Make sure every detail is to your satisfaction.

You have a contract. You have the right to verify that the property is acceptable to you according to the terms of that contract.

About this time, the settlement company you’ve chosen is responsible for coordinating with your lender to make sure all documents such as deeds of trust are properly prepared.

Make sure your settlement company has verified that the title to the property is free of all encumbrances and that property boundaries and easements are specified. These may affect the insurability of the title of the property.

The lender will require title insurance to protect itself from any claims made on the property after settlement. You may be offered the option of obtaining and paying for an owner’s title insurance policy. This is optional, but it might be something you want.  Consult with a trusted professional real estate advisor to determine whether or not you want to purchase it.

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