Nolo's Essential Guide to Buying Your First Home (50 page)
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Authors: Ilona Bray,Alayna Schroeder,Marcia Stewart
Tags: #Law, #Business & Economics, #House buying, #Property, #Real Estate
BOOK: Nolo's Essential Guide to Buying Your First Home
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Your agent or attorney can tell you of any special contract requirements in your state. Your contract may also include other terms—for example, it may address an existing lease if the property is being rented to a tenant or may specify whether all documents must be transmitted in person, by fax, or by email.
Too Much? Not Enough? How Much to OfferThe most important, and visible, term of an offer is the price. If you offer far less than a seller thinks the house is worth, your offer might be rejected outright. But if your offer is very high, the seller might snatch it up quickly—and you might overpay. To find a balance, look at:
Whether the Market Is Hot or Cold• whether the market is hot or cold
• the amount that comparable properties have sold for
• your agent’s opinion
• the seller’s position (confident or desperate?), and
• your own state of mind.
Part of what determines a house’s relative worth is how hot or cold the market is. In very hot markets, some sellers set prices deliberately low, and you’ll have to decide on a price that will outdo the competition without going overboard. In a cold market, many sellers accept offers below the asking price.
CAUTIONStick to your budget.
If a house costs more than you can afford, it’s not the house for you—even if it’s a great deal. You don’t want to land in dire financial straits.
Unless you’re in a really hot market or facing multiple bidders on a hot property, it’s best to offer less than you’re ultimately willing to pay, because the seller will probably counteroffer. If you leave room for that, you may get a better deal than you’d hoped for. If you can’t reach a compromise, you can walk away.
EXAMPLE:
Soledad tours a home and decides to make an offer. The asking price is $385,000, but she thinks it’s worth between $365,000 and $375,000. Soledad offers $360,000. The seller counteroffers for $367,000, which Soledad accepts.
Soledad tours a home and decides to make an offer. The asking price is $385,000, but she thinks it’s worth between $365,000 and $375,000. Soledad offers $360,000. The seller counteroffers for $367,000, which Soledad accepts.
That being said, don’t offer an amount so far below market value that you insult the seller: You might not even get a response. Or the seller may push right back, resisting compromise on the asking price or other terms. Of course, “insultingly low” depends on market conditions, too. In many markets throughout the country of late, where prices have dropped dramatically and there’s lots of competition, motivated sellers may be more willing than ever to accept, or at least negotiate, a very low offer.
How Much Comps Have Sold ForTo gauge a property’s worth, you’ll want to know how much houses with similar features have sold for in the area in the last six months. Your real estate agent should provide you with a list of comparables. Make sure the comps really are comparable—for example, an older home with an original kitchen isn’t worth the same amount as a similar home with a remodeled, state-of-the-art kitchen in the same neighborhood.
If you spend several months searching and your agent gave you a list of comps at the beginning, ask for an updated list.
CAUTIONOffering too much may get you nowhere.
If you offer more for a house than it’s worth, either because you don’t know any better or because you desperately love the place, it could cost you the deal. Your lender will eventually require you to have the house appraised and won’t lend you more than its appraised value.
Ask your agent about the value of the home you’re interested in and what a reasonable offer price is. Your agent should be experienced enough, and familiar enough with the market, to express a helpful opinion. The agent will also know how to take other variables into account—for instance, the seller’s eagerness to get rid of the place.
Of course, this assumes you’re working with your own agent. A dual or seller’s agent is obligated to get the most money possible for the seller and might encourage you to bid more aggressively than is necessary.
The Seller’s PositionWhen you make an offer, think about what the seller wants from the deal. For example, if you know that the seller has rejected several offers, the seller may be holding out for top dollar—but if the house is overpriced, you can possibly get around this by asking for other concessions, like payment of closing costs. Or if you know the seller has already put in an offer on another home but needs money from the current sale in order to proceed, you might get away with offering less.
Clues That a Seller Might Accept a Lower PriceHere are some signs that a seller may be motivated to unload a house:• The house has been on the market a long time, with no real interest.• The seller has put in an offer on a new home that’s contingent on the sale of the current home.• The MLS or other listing describes the seller as “motivated” or says “seller will consider all offers.”• The seller has already moved out.• The seller has dropped the price at least once.• The seller has changed real estate agents at least once.• A previous offer on the house recently fell through.• The house is being sold in winter, when buyer interest is generally low.• The seller plans to move out of the area by a specific date.• The seller has a major life change on the horizon (getting married, having a child, divorcing, or retiring).• The seller inherited the house but doesn’t live in it.• The house is an investment property and rents are falling.
TIPFind out all you can about the seller.
Your real estate agent may know some information—like why the seller put the house on the market, how long it’s been for sale, and whether the seller is particularly motivated to sell.
Fatigue (“I’m so tired of looking at houses”), anxiety (“If we don’t get this house, real estate prices will go up”), and excitement (“I love this house!”) may all affect the terms you’re willing to offer. Don’t let your emotions control the process. Instead, focus on the externals: the objective value of the house based on market conditions and comparable properties, your agent’s opinion, and the seller’s position. Remember, if this house doesn’t work out, another one will come along.
Sleep on it.
Ross and Yasmin found an okay house for sale on the fringes of a great neighborhood. Ross says, “We liked the place, but we weren’t sure we wanted to make an offer. Then we discovered that another buyer was writing up an offer that night. ‘We’re going to lose it!’ we thought, and drafted our own offer, submitting it that very day. The counteroffer from the seller came back to us with less-than-thrilling terms, including the full asking price. We decided to sleep on it this time. The next morning, both of us realized that we’d worked ourselves into a frenzy over a house we didn’t love, just because we were so anxious that someone else was going to get it. We walked away and have since bought a home we like much better.”
Keeping Your Exit Routes Open: ContingenciesRoss and Yasmin found an okay house for sale on the fringes of a great neighborhood. Ross says, “We liked the place, but we weren’t sure we wanted to make an offer. Then we discovered that another buyer was writing up an offer that night. ‘We’re going to lose it!’ we thought, and drafted our own offer, submitting it that very day. The counteroffer from the seller came back to us with less-than-thrilling terms, including the full asking price. We decided to sleep on it this time. The next morning, both of us realized that we’d worked ourselves into a frenzy over a house we didn’t love, just because we were so anxious that someone else was going to get it. We walked away and have since bought a home we like much better.”
Let’s say you agree to purchase a house with a beautifully remodeled bathroom. But then you learn that underneath the shiny exterior, old pipes are leaking and rusting—an expensive repair job. Suddenly, you feel like you’re overpaying.
You can avoid this trap, and others like it, by including a list of
contingencies
in your offer: conditions that must be met before the deal will be finalized. For example, to protect against the above situation, you’d make your offer contingent on a professional inspection of the property and your satisfaction with the results.
contingencies
in your offer: conditions that must be met before the deal will be finalized. For example, to protect against the above situation, you’d make your offer contingent on a professional inspection of the property and your satisfaction with the results.
Most offers include a set of standard contingencies that protect either you or the seller. You and the seller will agree on a date by which each contingency must be met. They’re a big part of the reason that most house purchase agreements allow several weeks before the closing.
FinancingUnless you’re paying cash, your contract should include a financing contingency, stating that the agreement will be finalized only if you obtain adequate financing. Of course, if you’re already preapproved for the loan you want, removing this contingency shouldn’t be a problem. But remember that your preapproval probably came with conditions, such as an appraisal. This contingency lets you make sure you actually get the loan. You can also use the financing contingency period to shop around for a better deal.
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