You’ve found your dream home! Now what?
First, your agent will prepare a current market analysis or CMA for the property. We will look at the property’s history. We will also look at the Sold’s and Pending’s in the area for the last two years to determine whether or not the property is priced appropriately and to help you make an informed offer on the property.
Your agent will then contact your lender and ask he/she to prepare a good faith estimate with the price that you intend to offer for the property. The good faith estimate will show you all your costs for the sale and will advise you as to what your closing costs and pre-paids will be if that is a condition that needs to be negotiated in your offer. This estimate is required to comply with federal RESPA law. If your lender will not give you one or fails to provide you with copies of your estimates--RUN! Remember this is an estimate and a reputable lender will update these estimates throughout the purchase process.
Once we’ve determined a purchase price and how much we will need for closing costs and pre-paids, we’ll sit down and work up an offer, otherwise known as a contract. This should take us approximately one hour. We will go through the offer line by line to be sure it states your terms exactly, how much you want to offer, how much you may be asking them to pay for closing costs, items you would like to remain with the property, and possession just to list a few. Once you, as the buyer, and the seller reach an agreement and sign an offer reflecting that agreement, you have a legally binding contract.
Before we get out the pens and pencils, it is important to be aware of the possible scenarios that can arise while negotiating with a seller: The seller can accept your offer, reject your offer, or execute a counter offer. Don’t be surprised if you and the seller initially do not see eye-to-eye on every issue. The seller may deliver back to you a counter offer modifying certain terms that are not acceptable to him. Typical counter offers include modifications of the purchase price, closing date, possession date, and/or inclusions, although any term(s) of the contract can be countered. You will then have to decide whether the new terms will be acceptable to you. It is not uncommon for negotiations to go back and forth several times before both parties agree to the terms.
Another possibility is that there may be another offer on the table along with yours. If this happens you want to make sure that you write your best possible offer. Your agent has no way of knowing what the other offer will be. The seller then has the option to accept any offer they choose.
Generally, you are in a stronger bargaining position if you have already been pre-approved for a mortgage, are not selling a house at the same time, and have not loaded your offer with contingencies. If we are experiencing a “seller’s market,” you may have to offer at least the list price and possibly more to come in at the top among multiple buyer offers.
Your offer will need to be accompanied by earnest money as well as a letter from your lender indicating your qualification to purchase. Earnest money typically equals between 1% and 3% of the purchase price. Not only does earnest money indicate your sincere interest in buying but also is necessary for a contract to be legally binding. Buyers often ask if they are at risk of losing their earnest money, and, no, your earnest money cannot be lost as long as you do not default on your contract. Your earnest money will be credited to you at closing or returned to you if the contract is terminated in accordance with its terms.
When an agreement is reached on all the issues, and both the seller and you as the buyer have signed the offer, you are both under a legally binding contract. The search is over and now it’s time to take the necessary steps to ensure the smooth and successful closing. Your agent will begin the process by doing the following things: 1) order title insurance; 2) hire a professional home inspector; and 3) order an appraisal. Don’t worry, your real estate agent is still with you along this journey and will advise you how to proceed.