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You’ve found a property that you like. It meets most of your requirements and you get that “feeling” that most house hunters get when they’ve found “their house.” Now is the time to make an offer on the property.

How much should you offer?

There are several factors that you should consider when determining the value of a property. Things such as sales price history, home characteristics (i.e. number of bedrooms and bathrooms and amenities) and comparable home prices in the neighborhood are effective tools for estimating the value of a property. This is information that your real estate professional should be able to provide to you.

You may sometimes hear that the amount of your offer should be some percent below the seller’s asking price or some percent less than you’re really willing to pay. In practice, the offer depends on the basic laws and supply and demand: If many buyers are competing for homes, then sellers will likely get full-price offers and sometimes even more. If demand is weak, then offers below the asking price may be in order.

While much attention is spent on offering prices, a proposal to buy includes both the price and terms. In some cases, terms can represent thousands of dollars in additional value for buyers—or additional costs. Terms are extremely important and should be carefully reviewed.

Submitting an Offer

When you make an “offer” or “bid”, the seller of the home can accept or reject it, make a counter-offer or not respond. Many buyers believe that even though they have made an offer, they can still look at other homes. However, if you are notified that the seller has accepted your offer, it’s a legally binding contract. If the seller rejects your offer, makes a counteroffer or doesn’t respond, your options remain open. You can accept the counteroffer, make another offer or reject it and keep looking. It’s important that you think through your decision before you make an offer. You won’t be able to think it over more after you’ve made the offer.

It is important that you are specific about what is in your offer:

• Your proposed purchase price—the offer
• Concessions you would like the seller to make, like helping with the closing costs
• Financing contingencies, like approval of a satisfactory mortgage with specific interest rate and terms, etc.
• Home inspection contingencies—what will happen if the house doesn’t pass inspection.
• Conveyances—what will b included in the sale, like a refrigerator or washer/dryer.
• The amount of earnest money –your deposit—that is being attached to the offer.

Make sure that everything is in writing. Never make verbal agreements. If the seller tells you that the refrigerator will come with the house but the contract doesn’t specify, the refrigerator may not come with the house.

Click here to see a sample real estate purchase offer contract.

Negotiating the Sales Price

If you want to negotiate the price of a home with a seller, decide who has the stronger bargaining position. If the local market is active with many other buyers interested in the home, the seller may have the better position. If your local market is not active and the seller really needs to sell the home, you may be n a better position to negotiate.

Do not be afraid to negotiate! You can use your home inspection to claim replacement or repair values for items that are not in good condition. If an old roof needs repair, you can ask that this amount be deducted from the sales price of the home. You can negotiate with the seller which appliances or fixtures will remain in the house after the sale and which the seller will take with him/her. You can adjust the sales price accordingly.

Remember negotiating has several stages:

• Initial asking price, or list price by the seller.
• An initial purchase offer with contingencies including inspection and financing.
• Acceptance of offer or a counter-offer by the seller. The counteroffer process can take some time as you and the seller find a mutually agreeable price and begin the home inspection and financing phases. If you included an inspection or appraisal contingency and if either reveals serious defects, you will likely want to submit a new counteroffer.

Like any negotiation, the seller will probably ask for more and then be prepared to lower the price. But the seller will also be expecting you as the buyer to offer less than you are willing to pay.

When the Offer Becomes a Contract

Keep in mind that the offer that you sign becomes a legal contract. If the seller accepts what’s written in the offer—the offer becomes a contract and you have bought a home. Most contracts include the following language: “This is a legally binding contract. If not understood, seek competent advice before signing.”

In California, most real estate contracts will contain the following items:

• Legal description and address of the property
• Selling price
• Mortgage contingency: meaning the sale is subject to you getting a specific mortgage, rate and term
• Deposit: how much money you will pay when you sign the contract
• Closing date and location
• Conveyances: what is included in the sale of the house. For example, the refrigerator or washer and dryer
• Home inspection: what inspections are required, when the inspection will take place and a plan for any potential issues
• Warranties: a list and description of any warranties that come with the house
• Condominium: any terms associated with buying a condominium (i.e. home owners’ association fees and rules)
• Well & Septic: if the property has either, they must be tested and pass inspection
• Possession Date: the date you can move in, usually the closing day or shortly after it.
• Acceptance: how long the seller has to respond to your offer
• Arbitration: how you and the seller will deal with any disagreements
• Insurance: whose insurance covers the home until the closing date
• Property Disclosures: notification of any issues or problems with the property.

Other negotiating tips

You are in a strong bargaining position—meaning, you look particularly welcome to a seller—if:

• You are a all-cash buyer; or
• You’re already pre-approved for a mortgage; and
• You don’t have a present house that has to be sold before you can afford to buy.

In those circumstances, you may be able to negotiate some discount from the listed price. On the other hand, in a “hot” seller’s market, if the perfect house comes on the market, you may want to offer the list price (or more) to beat out other early offers.

It’s very helpful to find out why the house is being sold and whether the seller is under pressure. Keep these considerations in mind:

• Every month a vacant house remains unsold represents considerable extra expense for the seller;
• If the sellers are divorcing, they may just want out quickly; and
• Estate sales often are a bargain in return for a prompt deal.

Sources:
http://www.realtor.com/
"Opening the Door to Home", FannieMae Foundation 2004