Nolo's Essential Guide to Buying Your First Home (52 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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Who normally pays which fees depends on local custom, which your agent can tell you. Many preprinted forms have these fees already listed, and you’ll check the box to indicate who pays what. You could just ask the seller to pay for everything, but unless you’re in a cold market, the seller probably won’t agree to this and it could start negotiations off on the wrong foot. Additionally, your offer will likely address real estate agent or broker fees separately from the costs discussed above.
Deal or No Deal: Picking an Expiration Date
 
Your offer to the seller should include an expiration date—language that says, “After this, the offer is no longer on the table.” Without this, the seller could take his or her sweet time before accepting your offer. (You can also leave the expiration date open, then revoke your offer in writing later, but using an expiration date is easier.) Another good reason to put a little pressure on the seller is if you’re preapproved for financing for 30 or 60 days or face other time constraints.
Some agents advise giving the seller a very short time—like 24 hours—to respond to your offer. That’s to prevent the seller from using your offer to “shop” for others—telling other potential buyers, “You better get in now, and for more than this.” In a hot market where a seller might be able to move a property quickly, a short expiration period can be a good idea. But if you’re in a relatively balanced market, this may be interpreted as a pressure tactic.
If you’re making an offer on a bank-owned property or a property advertised as a “short sale” (requiring bank approval), you may not hear from the seller for several weeks or even months. In that case, you may choose not to have an expiration date or choose one in the more distant future, then revoke your offer in writing if you find another house in the meantime.
Think Ahead: Closing Date
 
Your offer may also include a closing date: the date the transaction will be completed and the house become yours. (This may not be an actual date; it could also be “within 30 days of signing” or “no later than” a certain date, for example.) Assuming you set an exact or near-exact closing date, consider:
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How much time you’ll need.
You’ll need time not only to complete all the contingencies, but also to prepare yourself to move. Between four weeks and two months is normal.
 
TIP
 
Don’t agree to close within a “reasonable time.”
Some contracts use vague phrases like this. But what’s reasonable to you may be different from what’s reasonable to the seller. Far better to set a date, then later agree with the seller (in writing) to change it.
 
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Impact on your first interest payment.
Loan interest is paid in arrears—meaning the beginning of one month, you pay for the interest that accrued the previous month (on October first, you pay the interest that accrued in September). You’ll prepay that cost when you close (so if you close September 15, you’ll prepay the interest that accrues between September 15 and 30). If you close at the end of the month, you pay only the few days left before month’s end. If you close at the beginning of the month, you pay interest for the entire month. Closing at the end of the month keeps some cash in your pocket—at least for a short while.
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Moving date.
If you plan to move the day you close (which is ambitious), schedule the closing as early in the day as you can.
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Year-end tax concerns.
If you’re buying toward the end of the year, keep taxes in mind. Any points and interest paid before the new year can become deductions for this year’s taxes. On the other hand, if you don’t expect to itemize your deductions this year but will the next, it’s probably worth waiting. Check with a tax adviser for the timing of any other deductions.
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Property taxes.
Depending on what state you live in, you may be able to lower your property taxes through a “homestead” or “principal residence” exemption. (Some states limit this to certain groups, like the elderly or disabled, and other states don’t have it at all.) If such an exemption is available, you may need to be living in your home by the 1st of January. Check with a tax adviser.
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Your lender’s patience.
Make sure the closing date is set before your lender’s commitment—or any interest rate lock—expires. You may be able to extend the commitment, but at a price.
 
Strategies in a Cold Market: What to Ask For
 
If you’re buying in a cold market, your offer may be the only one the seller sees, which you can use to your advantage. Virtually every aspect of the purchase agreement—price, closing date, who pays various fees, and what the seller leaves behind (such as custom decorations)—becomes negotiable. Your agents can suggest other things to ask for, such as a $5,000 to $10,000 credit at closing, a year of paid property taxes, or a year of paid assessments (for a condo).
Of course, notes adviser Mark Nash, “Your number-one priority is a reduction in the sales price. Many sellers resist that, but it raises fewer questions with both the IRS and your lender.” In Massachusetts, adviser Nancy Atwood reports, “I’ve also noticed sellers coming up with their own incentives—for example, offering to leave their car or widescreen TV behind!”
Strategies in a Hot Market: Making Your Offer Stand Out
 
If you’re in a particularly hot market, or just know that other buyers will be aching to get their hands on a particular house, you’ve got to work harder to make your offer the top pick. Here are some steps you can take:
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Act quickly.
Chances are you’re not the only one who likes this house, so you may have to submit an offer immediately.
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Have your agent personally present your offer.
Unless the seller refuses, this can show the seller why you’re better than the rest.
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Offer more money.
Your offer will stand out if it’s the highest, even by a few thousand dollars.
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Tell your personal story.
When you submit your offer, include a letter explaining why you want to purchase the property and what you like about it. Include information that you think will be important to the seller, based on both the home itself and what you know about the seller personally. For example, if the garden is lovingly cared for, your letter might mention your own green thumb. Although some real estate professionals scoff at this idea, it’s not ridiculous if it works—and a seller who is attached to a home will appreciate knowing that it will be cared for by the next owner.
 
 
Tell the sellers our story.
Aaron and Sasha were buying their first house in a particularly hot housing market. Aaron says, “We were trying to be realistic—a friend of ours had made nine offers before one was accepted. But we pretty much fell in love with the first house we saw. In our offer, we included a letter about how much we loved it and were looking forward to raising a family there. But we didn’t submit the highest offer: A developer who was going to gut and flip the property offered more. I think the sellers couldn’t stand the thought of having the place ripped apart, though, because they accepted our offer instead.”
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Limit contingencies.
While contingencies like financing and inspections are normal, try not to go overboard. In some very hot markets, buyers are even willing to forgo inspections—but this is a risk we wouldn’t advise taking, since the house could have serious, but not immediately obvious, structural or other problems.
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Get preapproved.
This shows that a lender has proclaimed you loan-worthy—and the seller can be confident that you’ll likely meet the financing contingency.
 
 
Start with an all-cash offer.
Octavio and Gina were trying to buy a house in a hot market and had already been outbid twice. Octavio recalls, “On our third offer, we not only bid more than we ever thought possible, but we made a high down payment (emptying our savings) then got both our parents to loan us the rest on a short-term basis. That let us make an offer with no financing contingency. It worked—we got the house, and then were easily able to get a mortgage and repay our parents.”
•
Offer better nonmonetary terms.
You might find a seller motivated by things other than money, such as the need to close quickly (perhaps to pay the mortgage on a new house) or to rent the property back from you for a while (to look for a new house).
Contracting to Buy a Brand-New Home
 
If you’re buying a newly constructed home from a developer, the process will probably differ from what we’ve described above. Whether or not you’ve got an agent representing you, the developer is likely to pressure you to use its standard purchase offer and maybe a separate form for the contract as well. While these might look like what you’d get from a local real estate agent, they can be very different, and the variations won’t be written to benefit you.
The developer’s form contract may, for example, allow the developer to substitute comparable products for the products you select (so if the flooring you chose is no longer available, the developer will select “comparable” flooring). It will also likely allow a big cushion for late delivery. If you see these terms, you’ll have to argue to change them—and ignore the developer’s insistence that the standard form can’t be altered (it can).
To add to the challenge, you might not have a real estate agent to help you negotiate, understand, and interpret the contract language. In that case, you should either have the document reviewed by an attorney before signing or include a contingency allowing your attorney to review it before the deal is done.
If you feel the agreement is too one-sided, you can alter or write in additional terms—the developer, like any seller, can decide whether it wants to deal with you on those terms. For example, you might:
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Limit your earnest money deposit.
If you put down less cash, you’ll have less at stake if the developer’s performance is lacking.
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Add a drop-dead date.
Choose a date by which the house must be completed, or you have the option of walking away.
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Negotiate a holdback.
Add a clause requiring that a portion of the purchase price be set aside if the house isn’t complete at closing, which you can then use to have the work completed.
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Request several inspections and walk-throughs.
If your house will be constructed according to your specifications, negotiate to have professional inspectors
and
you (by yourself) go through it several times—not just right before closing. That’s to make sure the installations are happening on time, and that everything is being done right.
•
Get the same quality.
If you’re buying a home that looks like the model, add a clause saying that you’ll get the same or better quality, not simply that the quality will meet local building codes.
 

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