There is much more strategy that goes into making an offer than most people think.
As a Realtor, when advising my client on an offer price, I consider several factors:
1. How many days has the property sat on the market and did it “come back to the market”?
2. Is the property owned by cooperation, bank, or investor?
3. How many showings did the home receive today or are there currently any other offers?
4. Is the buyer using a loan or cash to purchase the home?
5. What condition is the home in? Are there obvious necessary repairs?
6. Could there be loan appraisal repair requirements because of the condition of the home?
7. How likely is the seller to receive a better offer?
Once You Find A Home, Let Your Realtor Help You Determine The Right Price
Contrary to what most buyers tend to believe, lowballing a seller will not help them purchase a home for a cheaper price. Many sellers get offended and become very difficult to negotiate with after receiving an extremely low offer. Many times, sellers will flat out reject low offers OR spitefully counter the buyer’s low offer, just a few dollars less than the listing price. Negotiating with an emotional and angry seller is not the best tactic.
Review The Property Condition Disclosures
The PCD (property condition disclosure) will disclose any issues the property has had or changes the owner has made to the property since their ownership. In some states, sellers do not have to disclose anything to a buyer, but in the great state of MS, it is required a seller provide a PCD to all potential buyers. Sometimes, if a property owner has not occupied the property or if the property is bank-owned, a PCD is not provided. A property owner can only disclose what they know to be true.
Negotiate – With The Help Of Your Realtor
The Realtor you choose to work with will greatly affect the terms negotiated in your favor! The purchase price isn’t the only thing that is negotiated in an offer. Most buyers do not realize that some sellers are willing to pay for: the buyer closing cost, a Home Warranty, the termite inspection, a survey, “x” amount of home repairs, having the property professionally cleaned, and much more. Also, a knowledgeable Realtor will know how to protect your best interest should something go awry during the transaction.
***In a buyers market it is easy for buyers to ask for home warranties, for the refrigerator, for the seller to pay for the termite inspection, etc.
*** In a seller’s market it is best to write a “clean offer” – an offer with as few contingencies as possible.
*** A contingency is a provision added to your offer to protect you from unforeseen events or circumstances.
Examples of contingencies:
- Appraisal – the home must appraise for the offer price or you do not have to purchase the property.
- Termite Inspection – the home must pass a termite inspection or you do not have to purchase the property.
- Home Inspection – you have the right to purchase a home inspection and if it is not satisfactory or if the seller will not complete the requested repairs you do not have to purchase the property.
- Insurance – you must find satisfactory home insurance or you do not have to purchase the property.
- An offer can be contingent upon anything but keep in mind the seller has to agree to your contingencies.
Until You Are Under Contract
Until you are officially “under contract,” other buyers can present offers to the seller. You are under contract once all parties have agreed on terms and signed the offer. If multiple offers are presented to the seller, the seller may call for “highest and best” offers, and all buyers will have the option to present their highest and best offer without knowing what the other offer amount is. Once the buyer and seller are under contract, the seller can no longer accept another offer. A verbal acceptance is not a legally binding contract.
Earnest Money is also known as “good faith money.” It is basically a deposit the buyer puts down within 3-5 days after both the seller and buyer have signed the offer and the property is officially “under contract.” The earnest money is refunded to the buyer at closing. Typically, the only way a buyer may lose their earnest money is if they break the contract for an illegitimate reason. An illegitimate reason is a reason not outlined in the contract as a contingency. You can not back out of a contract just because you found a better-looking home and retrieve your earnest money. If you back out of a purchase contract for an illegitimate reason, not only will you lose your earnest money, but you may be sued by the seller for “failure to perform”. You must back out for one of your contingencies in order to avoid losing your earnest money. In most states, the amount of earnest money a buyer puts down is 1% of the contract price. Often buyers offer a minimum of $500 as earnest money, but many sellers find this to be unacceptable. If you find yourself in a multiple offer situation be sure to offer an acceptable earnest money amount as you don’t want to lose the deal over funds you are most likely going to get back.