Buyers: Know What You Need to Know in Making Contract Offers

Buyers: Know What You Need to Know in Making a Contract offer Be it the real estate market in 2009 or any other real estate market for that matter, the structure of a real estate purchase contract offer can be the difference in it being accepted or rejected.

No, the offering price is not the only factor in negotiating a contract to purchase a home.

Regardless of the number of pages in the sales contract, a contract offer can be broken down into 3 separate parts which can be important to the seller: Price, Terms and Conditions.

Each has to be satisfactory in order to obtain seller acceptance. In some situations, full price offers are not acceptable due to the buyer’s terms and conditions in the contract offer. In other instances, contracts get accepted and signed even though the offer was much lower in price than other competing offers, but was more favorable for the seller in terms and conditions.

What then is the secret in preparing and submitting a contract offer to buy real estate? This is where the value of an experienced REALTOR and Buyer’s Agent is with providing assistance in preparing and structuring the contract offer in a manner that does not create questions or concerns for the seller and their listing agent when it is presented to them.

There is more to purchasing a home than just looking at houses, whether the home is in Iselin or Colonia, New Jersey, in Middlesex County or any other state for that matter.

The first step toward purchasing a home is obtaining Mortgage Pre­Approval from a reputable Mortgage Lender( Mortgage Pre­Approval Versus Mortgage Pre­ Qualification), and be sure a copy is included with the contract offer. Why? The first question to be asked by the seller and listing agent at a contract presentation will be “Does the buyer have Mortgage Pre­Approval? And this is where the benefit of a Mortgage Pre­Approval letter provides advantages over a standard Pre­ Qualification letter.

Secondly, there is no cardinal rule that there must be some fixed amount that a seller will negotiate from their asking price. Home buyers need to obtain factual sales information about the market area, and section of Town, they are considering buying in before submitting an offer. While it is very likely that sale prices have declined in the past few years, they have not dropped equally in all Towns and in all neighborhood locations.

Remember Economics 101 from Grammar School: “What’s true of the whole may not be true of the parts”.

That is what I am referring to here. Real estate values are local, and various factors influence market value such as buyer demand, amount of homes for sale, mortgage rates, local economic conditions and so on and so on. As important, similar design and size homes may differ in value due to condition and improvements.

In preparing a contract offer, it is important that a buyer obtain a Market Analysis for the property being considered. A report like this can be prepared by the buyer’s agent and it should contain information comparing similar properties which are active on the market for sale, homes which expired and did not sell in

the past six months, under contract sales and closed sales in the past six months. This information should also provide the asking price history and days on market before sold. With a report like this, a buyer can then have a better understanding of the real estate market and be better prepared when submitting a contract offer.

It is highly recommended that buyers obtain a blank contract of sale and addendums early in the home searching process. Contracts can be intimidating to many buyers. It would be much better to review the contract documents in advance of making a contract offer. Making a contract offer is an important decision.

Being properly prepared is an important aspect of making a successful contract offer.

Thirdly, buyers should be completely aware of their personal finances and the total costs of purchasing a home. Buying a home involves down payment, expenses occurred during the purchase, such as mortgage application fee, inspection fees, and closing costs. It is important for buyers to obtain the estimates related to transaction expenses and closings costs. When a buyer is not properly prepared for expenses like these, they could have an affect on exactly how much a buyer has for the down payment which then could affect how much is needed in a mortgage to complete the purchase.

Buyers should be educated and informed when making an offer to buy a home.

Surprises are for birthdays, not buying a home!

The Contract Offer: What Price to Start With When a decision is made to make an offer to purchase a home, be sure to go back and take a second look. It is so much easier changing your mind about a home before a contract offer is made than after a contract offer is accepted and signed by the seller. This second appointment would be a perfect time to bring along others who may have an impact on a buying decision, such as parents, friend, contractor, etc.

Go through the home a second time and look beyond the owner’s décor, whether it was the home just previewed, the first one seen earlier in the day or the one previewed last week. Why? There are many reasons, but most importantly is seeing if the second look creates the same good feeling as the first, and then taking a closer look to see if there are aspects of the home missed during the first preview which may alter the decision to submit a contract offer.

So what is the right price to start with?

That depends on a number of things, such as the risk of losing the home to another buyer, how close to market value the seller’s asking price is and what is the maximum price willing to be paid for the home. As mentioned earlier, there is no cardinal rule that there must be some fixed amount that a seller will negotiate from their asking price.

Even though the current market is considered a buyer’s market, there are many properties on the market for sale where the listing price is at, or very near market value, and where price negotiation will not be as great as other properties on the market that are priced well above market value.

In fact, don’t be surprised to find that there are multiple offers being submitted and negotiated. This does occur, more often than most buyers imagine, and it happens when a seller prices their home to sell and sets a very attractive list price to attract buyers and sell fast.

When negotiating a real estate purchase offer, the seller wants to sell at the highest price and the buyer wants to buy at the lowest price! The reality is that a home will sell for what is worth, whether a seller is looking to get more or a buyer wants to pay less. Contract negotiation is all about getting agreement.

Often overlooked by home buyers at this point in the home buying process is the experience and value of their REALTOR in the contract negotiating process. In preparing to make a contract offer, a buyer needs to obtain as much information as possible, and much of that information will be provided by their buyer agent.

This is the point in time when buyers need to have trust in their REALTOR when asking for recommendations and guidance. The truth of the matter is that this is the point time when the buyer must know and believe that their agent’s concerns are for them, and not for themselves!

in

An experienced buyer’s agent should prepare, provide and review a market analysis of the home and provide the history of the listing with their client when preparing a contract offer. In addition, a buyer should also a obtain a sellers disclosure if one is available and obtain additional background information about the home, such as the sellers desired closing time frame, if any offers were previously submitted or if a contract offer is currently being negotiated. This is information buyers should have when preparing to make a contract offer. Information like this is invaluable when deciding what price to offer and how to negotiate when submitting a contract offer.

So how does a buyer start negotiating to purchase a home?

That depends on the home. There are homes on the market for sale that are simply over priced, some slightly over priced, and then there are those listings that are priced to sell. There are home sellers who are pricing their home at three year ago price levels and will sell only if they get there price, there are sellers who must sell within a certain time frame and there are sellers who just have to sell.

In contract negotiations, one size does not fit all.

While there are many homes on the market, only one buyer gets to own the home in contract negotiations. A home buyer needs to decide how much they want a specific home and at what price!

Future Articles to Look For: Part Two: Terms of the Contract Offer Part Three: Conditions in the Contract Offer: “Licensed to Sell Since 1971” David Fialk, REALTOR Choice Realty Co. Broker Owner, CRB, CRS, ABR, GRI, e­Pro certified Internet Professional 732­283­3400 David@ChoiceRealty.com