Lorraine Ryall
Whether you are the buyer or the seller, understanding the purchase contract is the first step to conducting successful negotiations and turning an offer into a contract.
This is the first of three articles. Next month will address inspections and negotiation of repairs. The third article will deal with the closing process.
Price
Many different factors can drive the decision as to what price to offer. These include:
- If the home is over or under priced, which is based on the comps.
- The length of time it has been on the market.
- If you think there may be multiple offers, and how much you are willing to pay for the home.
Negotiable Terms on the Contract
Some terms of the contract can be negotiated when you are writing an offer to make yours the strongest and best one presented to the seller. The seller can then review your offer, accept it or counter it. In addition to changing the price, all the terms below can be negotiated when you are writing an offer.
Earnest deposit—This usually is at least
1 percent of the purchase price. However, if you want to make your offer stronger, the more you put down, the stronger your offer. The earnest deposit is completely refundable during the 10-day inspection period. Once the inspection period is over, and the buyer and seller agree on repairs, the earnest becomes nonrefundable unless the home does not appraise for at least the contract price or the buyer can no longer qualify for the loan.
Down Payment—This really is going to depend on how much of a down payment you have and what type of loan you are going to use. For Federal Housing Administration, or FHA loans, the requirement is only 3.5 percent. While conventional starts at 5 percent, if you can put down 20 percent, you eliminate mortgage insurance. A buyer with a conventional loan with 20 percent down will look like a stronger offer to the seller than a buyer with a conventional loan with 5 percent down or an FHA. This really only matters, though, should there be multiple offers.
Close of Escrow—You will write the close of escrow date on which you want to close. Keep in mind the time your lender needs to close, such as 30 or 45 days. You also may want to add a few extra days to leave time for negotiations and counter offers. Your Realtor will help advise you on the timeframe needed to close.
Seller Concessions—A buyer can ask the seller to contribute toward the buyer’s closing costs, which usually is stated in a percentage, such as 2 or 3 percent of the purchase price. Your Realtor will help you determine what percentage you will need to cover your closing costs. Remember, this will reduce the net to the seller. So, you may need to increase the purchase price if you are asking for the seller to pay your closing costs. This is a benefit to you if you don’t have a lot of extra cash and would like to keep as much as possible.
If you are willing to pay $350,000 but want the seller to contribute $5,000 toward your closing costs, so you don’t have to come out of pocket for the $5,000 at closing, you may have to increase your purchase price to $355,000. So, you still are paying the closing costs, just in the mortgage rather than cash out of pocket.
Inspection Period—The contract is set for a 10-day inspection period. This is the time for the buyer to carry out all their inspections and due diligence on the property. This inspection period can be changed when you are writing the offer. If you are trying to beat other offers, you may want to reduce this to 5 or 6 days, as long as you can get the inspections done within that timeframe. If you are out of state and want to be present for the inspection, you may need extra time. Therefore, you may want to extend it to 15 days.
Home Warranty—While the buyer will order a home warranty, it can be paid for by either the buyer or the seller. You can ask for the seller to pay for the warranty, and see if it is agreed to or countered. The result may depend on the strength of the offer you are submitting.
SELLER
All the above terms are negotiable, and you can counter back, changing any of them. If you want more of an earnest deposit, don’t want to extend the inspection period, or need an extra week for closing, etc., these aspects can be changed in a counter offer.
All the negotiations are going to be based on the strength of the offer, the terms and conditions and if we are in a buyer’s or seller’s market or have multiple offers. This is why it is so important for both the buyer and seller to be represented by a good Realtor with strong negotiation skills.
If you would like to start working with a local Realtor, or for more information on buying or selling a home, please contact me, or visit my website.
Lorraine Ryall has been a Multi-Million Dollar producer for the past seven years. You can reach Lorraine at (602) 571-6799. You also can send her an email at Lorraine@Homes2SellAZ.com, or visit her website at Homes2SellAZ.com.