So you have finally found the house you want, and now, you are ready to ??make
an offer?? or in other words sign a purchase contract. If you are a first-time
buyer, you should keep the following points in mind and if you are a veteran
buyer it still serves to be vigilant in reviewing the purchase contract your
agent will prepare on your behalf for your signature.
Your offer is the first step toward negotiating a sales contract with the
seller. Since this is just the first step in the beginning of negotiations,
between you and the seller, try to see yourself from the seller??s perspective
examining everything you include from that angle. Your goal is to get what you
want and at the price you want to pay; however, evaluating your purchase
contract from the seller??s perspective will allow you to make a reasonable
offer at fair market value so that the seller will take your offer seriously
and take it under consideration when he or she receives it.
Here is where national and local market conditions begin to play a factor in
your offer. If it is a seller??s market (meaning the supply of homes for sale
is less than the demand and market conditions are favorable to sellers), the
seller is likely to have several offers on the property and your offer will
compete with the other offers on the negotiating table. In a buyer??s market
(meaning there are plenty of homes on the market and market conditions are
favorable to you the buyer), a buyer is very likely to ask for more concessions
from the seller. At this point in the transaction, this is where the
negotiating expertise of your agent comes in to play. Your agent should have
identified if the seller is ??motivated?? (usually a seller who is anxious to
sell for a fair price due to relocation, divorce, etc.) or other pertinent
details that will improve the acceptance of your offer.
The purchase contract is a legally binding contract, so both you and the seller
want to build in protections and contingencies to protect your investment and
limit your risk.
In an offer to purchase real estate, you include not only the price you are
willing to pay for the property, but you will include many other details of the
purchase as well. Some of those items are: how you intend to finance the home,
the amount of the down payment, who pays what closing costs, what inspections
are to be performed, what the expected timetables are, whether personal
property is included in the purchase, if any, terms of cancellation, any
request for repairs you want performed, which professional services will be
used, when will you get physical possession of the property, and how you will
go about settling disputes should they occur. Most states require or use pre-
written real estate contract forms (written by real estate lawyers) for the
purchase offer; however, items that will be added need to be in writing.
In most well written purchase transactions, there may be a few challenges to
the buyer??s request but usually the process will progress smoothly. However,
you want to anticipate potential problems so that if something does go wrong,
you can cancel the contract without penalty. These are called "contingencies"
and you must be sure to include them when you offer to buy a home.
For example, some "move-up" buyers ( buyers who already own a home and are
intending to buy with the equity on their existing home) often agree to
purchase a home before selling their previous home. Even if the home has
already been sold, it is probably a ??pending sale" and has not closed or the
monies have not yet been released. Therefore, these buyers should make the
closing of the sale of their own property a condition of their offer. If the
above situation were to apply to you, you would need to do the same. If you do
not include this as a contingency, you may find yourself making two mortgage
payments instead of one.
There are other common contingencies to purchasing a home that you should
include in your offer. Since you will probably need a mortgage to buy the home,
a condition of your offer should be that you successfully obtain suitable
financing. Another condition to include is that the property appraises for at
least what you agreed to pay for it. During the escrow period you are likely to
require certain inspections such as termite inspections and property
inspections, and another contingency should be that the property has to pass
those inspections.
As you can see, contingencies protect you in case you cannot perform or choose
not to perform on a promise to buy a home. Keeping in mind that this is a
legally binding contract, if you cancel a contract without having built-in
conditions and contingencies in writing, you could find yourself forfeiting
your earnest money deposit. Even worse, if there were issues that were clearly
not delineated and written in the purchase contract, a buyer could be liable
for legal fees and additional monies in order to rectify the situation if he or
she cancels the contract.
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