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LESSON 8: Negotiating
Your Home Purchase
Negotiations over the purchase of a home begin when you present
the seller with a written purchase offer, usually through your real
estate agent. The seller can accept your offer, in writing, reject
it, or write a counter-offer, usually by modifying the original
offer you presented. Several series of counter-offers may go back
and forth before you and the seller finally reach an agreement.
The process of contract building ends when both you and the buyer
sign the contract. At this point, the home is considered to be ?sold,?
though the terms of the contract will not be fulfilled until settlement.
Whether you ever reach an agreement, however, will depend on how
well you and your agent negotiate the terms of the contract with
the seller. If you took the time to prioritize what you wanted in
the home and contract terms, you can refer back to those priorities
at this stage to help you focus your negotiations.
Work For The Win-Win Solution
The whole point of negotiating is to find that point at which both
parties to the contract get enough of what they want. Yet, sometimes
the stickiest issues in negotiations over a home sale are very small
ones. Sales have been lost, or nearly lost, over minor details when
both the buyer and seller insist on getting their way and neither
will compromise.
It?s important to be flexible, while keeping your attention
fixed on your primary goals and the final outcome. Ask yourself:
Should you demand a specific item or group of items to convey with
the property at the risk of having your offer rejected? How much
would it really cost you to delay, or move up, your occupancy date?
Will you kick yourself if your initial offer is rejected (or out-bid)
because you offered too little or asked for too many contingencies?
Be aware that market conditions will play an important role in your
negotiations. If you?re fortunate enough to be buying in a
buyers? market, you won?t need to be quite as flexible,
or generous, as you might need to be if there aren?t enough
homes to go around.
Sales Price
Although the offer price is certainly important, it is only one
part of the contract. Other contract terms will increase or decrease
the amount of money you actually pay for a home. For example, you
may offer full listing price (or more), but ask that the seller
pay some or all settlement costs, which could amount to several
thousand dollars. Keep your calculator handy when negotiating. You?ll
want to assign value to everything you receive and offer in the
contract.
In a strong market, you could face a multiple-offer situation. In
this case, you may want to include an escalation clause in your
contract, indicating that you?ll top the highest bidder by
a certain amount, say $5,000. Be sure to see a copy of the highest
offer before letting the clause go into effect. Also, make certain
you have enough cash to cover the difference if your lender doesn?t
appraise the home at the contract price.
In a weak market, you may offer somewhat less than the asking price,
and hope to get a bargain. Consider, though, that other contract
terms might be nearly as important to the seller as the offer price.
Deposit
Your offer will be accompanied by a deposit check or earnest money,
representing the seriousness of your intentions. The seller will
think about the size of that deposit before accepting a contract
that pulls his or her home off the market. The larger the deposit,
the more confident the sellers will be of your ability and willingness
to follow through with the contract.
Settlement Costs
Different traditions exist in different areas of the country as
to who typically pays certain types of settlement costs -- loan
points, attorneys? fees, title searches, recording fees, etc.
Nevertheless, you and the seller can split these costs any way you
want as you negotiate your contract.
You and the seller may agree to pay particular costs. Or, one of
you may agree to pay a specified amount, say $2,000, toward the
total cost of settlement. Be sure to factor the costs you decide
to pay, if any, into your bottom line.
Conveyances
Make sure you know what belongs to a home (what ?conveys?)
and what the sellers can take with them. Generally, if something
is connected to a wall, floor or ceiling, it?s considered
a ?fixture? and stays, unless specifically stated otherwise
in the contract.
Items that are not connected to the home, such as appliances, outbuildings
or play sets, may also convey with it. These items should, however,
be specifically listed in the contract. Again, assign a value to
these items so you know how getting them (or not) affects the bottom
line.
Contingencies
You?ll discover all sorts of contingencies in real estate
contracts. In most cases, you?ll want to include a financing
contingency, making the sale dependent on the your ability to secure
a particular type of financing, at or below a specified rate, by
a certain date. (Ideally, you?re already pre-approved for
a mortgage.)
Another common contract inclusion buyers seek is an inspection contingency.
With a ?general inspection contingency,? you would have
the option to walk away from the contract if you don?t like
anything found in the professional inspector?s report. If
you include a ?specific inspection contingency,? however,
you?ll only be able to get out of the contract if certain
problems exist or, if other problems are found, the seller isn?t
willing to resolve them (e.g., timely repairs at the seller?s
expense, reduction in sales price, etc.). Sellers would be more
inclined to accept a specific inspection contingency.
You can ask for a home-sale contingency, making your purchase of
the home dependent on the sale of your old home within a specified
period of time. If you?re in a strong sellers? market,
this isn?t likely to be accepted since it could delay settlement
or increase the possibility that settlement won?t occur.
A number of other types of contingencies and terms are possible.
Rely on your professional agent?s advice to help protect your
interests as you move through the complexities of contract negotiation.
ANY QUESTIONS? We?d be happy to answer your specific questions
about your particular situation.
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