You've finally found the home of your dreams. You're ready to put your money where your mouth is - but wait - before you sign on the dotted line, before you spend the money your lender has provided and before you start thinking about interior and exterior design, find out a few things first. Those things may help you negotiate a better, lower price than what the owner is asking.
Find out the selling prices of similar properties to use as a guideline to set your sales price.
These comparable properties should:
- Have sold no more than six months earlier
- Be around the same age and condition
- Have close to the same number of bathrooms, bedrooms and square footage
- Be in a similar location and on a similar lot
If you still don't feel comfortable setting a price, consider having a professional appraisal done. Appraisers look at what the home is worth today and how the neighborhood may affect future property value. They provide a realistic figure for the true market value of the property
Once you, your real estate agent and the owner have come to an agreement on the sale price of the house - Put it in Writing.
Don't reveal your strategy and don't make oral offers. You know you want this house, but don't hand over your money until you are sure the seller is legally capable of conveying a good title and meeting other conditions. Yet the seller doesn't want to surrender the deed until you've paid for the property.Now what?
With your real estate agent's assistance, offer the seller a written contract setting out the commitments and promises that you and the seller need to agree on and fulfill in order to make the sale. A well-drawn contract should protect all parties.
The first contract you submit should be comprehensive and include everything of any importance. Keep in mind, once the seller accepts the contract, it may be too late to add or change anything. In some states, there may be standard real estate contracts.
However, you should make sure that your contract includes at least the following:
- The offering price
- Down payment
- Legal description of the property
- Method of conveying the title
- Fees to be paid and who will pay them
- Amount of deposit
- Conditions under which the seller and buyer can void the contract
- The settlement date
- Financing arrangements
- A list of appliances, furnishings and personal property being sold with the home
- Earnest Money
After you have come up with an offer price, the next step is to determine how large a deposit you want to make with your offer. You want the "earnest money deposit" to be large enough to show the seller you are serious, but not so large you are placing significant funds at risk.
One recommendation is to make sure your deposit is less than two percent of your offered price. The reason for this is that if your deposit is larger than that, the lender will pay particular attention to how you came up with the funds. You might have to provide a copy of a canceled check along with a bank statement showing you had the money to begin with. Normally, this is not a problem, but if you have a short escrow period or are barely coming up with your down payment, it could pose an inconvenience.
Another reason to limit your deposit is "just in case." Although significant problems are the exception and not the rule, they do occur. "Just in case" there is a nasty or prolonged dispute between you and the seller, the less money you have tied up in a deposit, the fewer funds you have placed at risk.
As with practically everything in real estate, there are exceptions to this rule, too. During a hot market, there may be multiple offers on the property that interests you. A large deposit may impress a seller enough so they will accept your offer instead of someone else's, even when your unknown competitor is offering the same price or slightly higher.
Since large deposits do impress sellers, you may also find that by making a large deposit you can convince the seller to accept a lower offer. More money up front may save you money later.
When it comes to buying your new home, everything is negotiable. Your real estate agent can be very helpful with this process. A partial list of what's negotiable when purchasing your new home may include:
- Closing costs (except where specified by financing or law)
- Occupancy (When can you get the key and move in?)
- Painting (Will the seller repaint a portion of or the entire house?)
- Repairs (Will the seller repair the roof, plumbing, windows, etc., and what kind and quality of repairs will be made?)
- Yard (Will the seller remove unwanted trees, bushes - put in desired landscaping?)
- Fixtures (Which lights, fans, appliances, etc. stay and which go?)
- Wall coverings (Do the drapes stay or go?)
- Furniture (Will the seller include certain pieces?)
- Prepaid taxes and insurance (Will the seller credit you with these?)
Negotiation gives you - the buyer - incredible power in making a favorable transaction. As in any negotiation, be prepared to do some give and take. Let your real estate agent help you and work with you and the seller to come to the best possible terms for everyone.
As an added precaution, you also should have a professional inspector go through the house to look for potential problems. Even though you have made a complete walk-through, asked the right questions and discussed the offer with your real estate agent, a professional may see things that would be easy for you to overlook. Even if they are not things the seller is expected to repair, at least you will have foreknowledge of any potential problems.
Once you receive the inspection, you will want to allow yourself sufficient time to review and approve the report. If you do not approve the report, you may negotiate with the sellers on which repairs should be performed and who should pay for those repairs. Otherwise, you can cancel the purchase without penalty, provided you have included timetables in your offer. Allow a maximum of ten to fifteen days to receive the report and five days to review it.
One more thing, it is absolutely essential that you include a closing date as part of your offer. This way both you and the seller can make plans for moving and the seller can make plans for buying his or her next home. This also allows the time needed to renegotiate after reviewing the professional inspection report.
Though most transactions actually do close on the right date, remain flexible to avoid delays that may create difficult problems.
For example, if you are renting and need to give the landlord notice that you are moving out, you may want to allow some flexibility in your time line. Otherwise, if your purchase closes a few days late you could find yourself staying in a motel with your belongings packed in a moving van somewhere while you pay storage costs.
You're almost at the end of your journey. Soon, your dream will be a reality and you can begin living in the home of your choice. And, now that you and your seller have come to a mutual agreement, you are ready to sign the contract and put down your earnest money (money indicating the seriousness of your offer). There are all kinds of people and services involved behind the scenes to make this happen before you put the key in the lock.
First, you'll want to close the deal. The road to closing is short, with only six major steps. These steps generally are handled at your title company office. Participants at this meeting are you, the buyer, the seller, your attorneys - if you have them, your real estate agent, escrow agents and anyone else who may have an interest in the transfer of title.
And of course, the final step - moving in! Congratulations - you have now accomplished the American dream of owning your own home! Live long and prosper!