Once you have located the house that you will want to call home, you no doubt will feel a bit anxious. Don’t worry; everyone feels the same way. Often knowing what to expect will help get you through the process.
By now you and your agent should have declared your working relationship. If the agent is representing you, the agent (buyer agent) is obligated to help you negotiate the most favorable deal. A favorable deal is not always just a matter of the price you will pay. It can include how you will finance the home, when you move in, what items are to be included and what important contingencies will be in the offer to help protect you in your purchase. Remember a seller agent is obligated to help the seller get the best price and most favorable terms.
An offer to purchase is a written document that will clearly state the details of your intentions. The offer will contain, but is not limited to the amount you will offer for the home, finance, and give as an earnest money deposit. The offer will also contain provisions for: personal property items you wish to be included in the sale, an attorney approval, and structural integrity contingencies such as a radon test, well water test, septic test, pest/terminate test, structural inspection and any others common to your area. (Naturally, not all of these items will be required. For example, if there is a municipal waste system, you will not require a septic test.)
The written offer will also state a closing/transfer of title/escrow date. If you need to sell your current home before you can close on another home, a contingency needs to included. In fact, whatever your situation is, you will need to discuss the full details before the offer is written. If the agent is a seller agent, however, do not discuss your willingness to pay a higher price for the property.
Once the Realtor® presents your offer, the seller has three choices. They can accept, reject or make a counter offer. If the seller accepts the offer, they must do so in writing, and when that occurs the “offer to purchase” becomes a Purchase and Sale Agreement. If the seller outright rejects the offer, you should try to find out why, so that if you wish to make another offer you can try to solve the issues the seller had. If the seller makes a counter offer, you will have the same three choices the seller had. You can accept the counter offer, reject it or make a counter offer. Many times there are a few counter offers before there is a meeting of the minds. When you know the price and terms are fair, you should buy the property.
Fair Price and Terms
There are no hard and fast rules about what you should offer or ultimately pay. Considerations for making an offer should be based on the homework you and your agent have done. If you have looked at several homes and compared the asking prices, condition of the properties and location, you will have a good idea of the home’s value. To check your instinct, you should ask your agent to provide you with a comparable property report. This report will show you what other homes in the area have sold for, what condition they were in and what features they have.
If a seller has a limited time to sell because of a job transfer or major life change, you may be able to make a more favorable deal. If the property has been on the market longer than the average sale time for homes in the area, you may be dealing with an overpriced listing or an unmotivated seller. If you need to move into a home quickly, or if the home you want is the only one of its kind on the market, you may not be able to negotiate a lower price. Homes that are tastefully decorated in neutral tones and that are in mint condition normally sell at a better price.
Earnest Money Deposit
This “deposit on contract” money will show the seller your earnest in making a offer. Your agent could ask for an amount from one percent to 10 percent of the offered price. The money is deposited into the brokers escrow account. An escrow account is a special account the broker is required to maintain wherein the broker is not allowed to use this money for the operation of their business. If your offer is accepted, the earnest money becomes part of, or all of, as the case may be, your down payment for the property. Here’s an example:
Purchase Price: $ 200,000
Mortgage Desired: $ 180,000
Required Down Payment: $ 20,000
Less earnest money deposit paid on contract: $ 2,000
Deposit due at *Closing/ Escrow/Transfer of Title: $ 18,000 (excluding closing cost).
If your offer is not accepted, the earnest money deposit is returned to you without penalty. If you back out of the contract, the money will not be returned. The Purchase and Sale Agreement is very specific about the conditions under which your money will and will not be returned. These conditions are set in the contract to protect your interest. You should consult an attorney either before you sign a contract or have, as a condition of the contract, a right to consult with an attorney by a specified date — normally three to five days after you have entered into an agreement.
Notes:
*The Transfer of Title is known in various parts of the United States as a closing or as escrow. In some areas a lawyer is used to conduct the transfer of title. In others an escrow agent is used.
An excrow agent is also authorized to hold the earnest money deposit in an escrow account.
