First Time Home Buying 101: The Offer

Finally, when you thought it would never happen! You found the house!

This a time when having an experienced real estate agent and a equally competent mortgage person working together to get "this show on the road" is really important!

As we discussed briefly earlier, the seller can ask any price they want for their home. That doesn't mean they will get it. If they have their property listed with a real estate agent, most likely the agent compared the "comps" (the prices that similar homes in the area actually sold for) and the house is priced reasonably for the area. Perhaps the home owner was really diligent and had a professional appraisal completed. The advantage is that prospective buyers know they are close to what a lender will loan on the property. In my world, I don't know to many people that can just "write a check" to own a specific property if its appraised value is a great deal lower than the asking price!

We spoke before about real estate being negotiable! It generally is, however, there are times when a seller just won't budge in price and then you again have choices to make. But first, your real estate agent will likely suggest placing an offer lower than the asking price. Take the advise.
If the seller doesn't like your offer, they will counteroffer.

Just a note on offers and counteroffers: If you submit your offer, and the seller agrees and signs it, it is a signed contract. If the seller, says "no" and returns with a "counteroffer", that is an entirely new contract agreement. If you sign it, it is a contractual agreement which you are obligated to complete. You can offer and counteroffer until you reach a "meeting of the minds". However, most real estate agents will not want to play this game too long. They are pretty aware of the circumstances. They will be speaking with the listing agent and both of them will want to complete the sale, each of them working for the best interest of their client.

Examples of circumstances that may influence your offer:
You want to spend the least amount of money for the home as possible.

• Your realtor has checked "the comps" and feels the price is too hgh.
• The appraisal is lower than the price, therefore you need a down payment higher than you want to spend.
• Their are things on the property which need repair, for example the roof will need replacing, a new heating system, foundation repairs,or you need to do some expensive "updates".
• The home has been on the market for an extensive period and the seller's are "motivated".
• Homes in the area are not selling quickly or there are a lot of foreclosures in the area affecting property prices.
• How badly you want the property. There is always a chance that the seller receives another offer. Will it devastate your life if you don't get it, or at some point are you willing to say, "its time to keep looking".

Real estate agents are generally expert negotiators, but also realistic. Hopefully, your real estate agent is realistic!

Examples of things in you offer that may influence the seller the to accept.

• The house has been on the market for a long time.
• They are living somewhere else and are paying two mortgages.
• You can give them a fast closing date - perhaps prior to their next double mortgage payment.
• They need the money and can't afford the repairs (if they could, they probably would have done them while living there).
• Since you are a first-time buyer, you don't have to wait for your house to sell to purchase.

NRCC's: If your real estate agent may refers to non-recurring closing costs. The laws and/or amounts on this may vary from state-to-state (I have seen them up to 6% of the sales price.) Let me give a hypothetical: You really like the house, everything is perfect, but the roof needs replacement. The seller doesn't want the expense or take the time to do it. You know that once you get your mortgage you will not have the cash available to spend to fix the roof. So, lets say you put in a "full price" offer with "non-recurring closing costs" at 6%.

• You are making a full-price offer (or somewhere close).
• Your mortgage is for the higher amount as well as your taxes.
• At closing you receive a check in the amount of the 6% (or what was agreed upon).
• You have the cash to replace the roof, and yet paying for it in your mortgage.
• If you don't have the cash, the interest rate on your mortgage is likely to be less than a credit card and/or it allows you to keep the savings you have for other expenses, subsequent loans may be hard to get, you can deduct interest paid on your mortgage on your taxes.

There are certain things you want your contract to contain when making your offer and/or counteroffer. Everything is negotiable!

• Who is paying closing costs (usually split), but not always.
• Contingent upon a home inspection that is acceptable to you.
• Contingent upon on your accepted financing. Your realtor may include the maximum interest rate acceptable on your financing.
• You can still accept if the contingencies are agreeable to you, for example if your interest is going to be higher than you anticipated; however, you can still afford the payment and want the house...it is then up to you to say "go for it".
• Someone that is selling their own home to buy this house, might have a clause "contingent upon the sale of their home."

The reason for this: Let's assume your mortgage person or bank is pretty confident that your loan will be approved at "?" interest rate. You sign the contract, the lender say they will give you the loan, but the approved interest rate approved is higher than anticipated and going to put the house out of your budget! If both you and the seller signed the contract, you bought a house. Perhaps, you'll have a real understanding seller, but I doubt it. Most likely, you will have a lawsuit.

To be fair, this can also work the other way, let's say the seller decides they want to change their mind and keep their house. Perhaps, the deal on the house they are moving into falls through, maybe they couldn't get their financing. Do you want to say, "I'm sorry, I'll give it back and start looking all over again." Chances are you've already picked out paint colors, been planning the decorating, maybe even registering the kids for school. Uh-uh! It is your house. These type of situations make that real estate agent or real estate lawyer worth every penny! Some of these agencies have some pretty powerful legal representation behind them and will force the parties to the contract to stand behind the deal!

Both you and the seller agree on the terms, your real estate agent assures you it is a good sales price and you sign the final contract. Your agent will ask you to submit a check to open escrow. This doesn't have to be a large amount, some will accept $500, but generally $1000. This check is never written to the real estate agent, it will be generally be written to the title company that the seller has selected to complete the closing. This money will be deducted from the sale as money paid.