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So, you've selected a lender, you've obtained a pre-approval letter and you've
looked at a number of homes with your Professional One Real Estate agent.
Now the moment of truth has
arrived: you've found the home of your dreams, and you want to buy it! What
happens now? Here's an overview of the process from this point until the
negotiations begin:
- Obtain an Updated Pre-approval letter - As soon as you make the decision to
make an offer on a property, you should call your lender to obtain a
preapproval letter
that is specific to the offer you are about to make (your lender and your Professional
One agent will explain this to you in further detail).
- Review of Disclosures
- Review
Understanding Disclosures. You and your Professional One agent will critically review the
Seller's Disclosure Statement and
the Lead Based Paint Disclosure Statement
to identify any unusual factors that you may need to consider before making your offer. Michigan
State law requires that you review this information BEFORE you make an offer on any property. Remember,
the general rule of thumb is that sellers will never allow concessions for anything they've disclosed
on their Seller's Disclosure Statement. So, if the seller has already disclosed that the roof is 20
years old, you need to factor this into the price you want to offer up front. If you attempt to come
back later and request a lower price to reflect the aged roof, 95% of the time you will receive
a negative reaction from the seller. Base your offer price on what you see on the disclosures.
- Determination of Price to be Offered/Review of Comparables - Your Professional
One agent will run searches to give you the information you will need to make an intelligent, informed
decision with regard to the price you intend to offer. Every situation is unique, and there is no
"magic formula" for preparing such comps. In a "normal" offer scenario (e.g., a residence in an
established neighborhood with a number of comparable sales in the last year), the typical parameters
to use are as follows:
- Legal description (in lay terms, this is the name of the subdivision).
- Status date (we typically only look at sales that have occurred within the last 12 months,
unless we need to look at older sales if there are not enough "newer" sales).
- Square footage (we typically establish a "range" of sizes to include in our comp searches;
as an example, if the subject property is 2,400 square feet, start by selecting a minimum square
footage of 2,200 and a maximum square footage of 2,600; adjust the range to obtain a representative
number of properties).
- When reviewing the search summaries that your Professional One agent will provide, focus
on the following information (which appears at the bottom of the last page of each search):
- Average sales price for the sub/area.
- High sales price for the sub/area.
- Average sales-price-per-square-foot for the sub/area.
- High sales-price-per-square-foot for the sub/area.
- Again, there is no magic formula to be used here. Our job is to provide you with the intellectual
ammunition to make a good decision.
- Having said that, here are a few "big picture" thoughts to keep in mind when deciding what price
you want to offer for your home:
- On a "mega-scale," the gap between average list price and average sales price is 3%
(that is, the typical seller sells their home for 97% of the list price.)
- The first rule of successful negotiating is this: do not insult the seller. Purchasers sometimes
attempt to "steal" houses by offering insultingly low prices. Usually, this strategy fails miserably.
We've seen many instances where sellers will simply refuse to negotiate with buyers that try to
"low ball" an offer. Do not use this approach unless you truly do not care if you obtain the home
(and, if you truly don't care if you obtain the home, we would suggest that you simply continue
looking until you do find a home that you desire).
- There are no hard-and-fast rules on what constitutes a "low ball" offer, but assuming a home is
reasonably priced, offering 10% less than list price is generally received quite negatively by the
typical home seller.
- Selection of Contract to be Used - You have two basic choices, as follows:
- Buyer's contract: This is the default contract we use when we work with buyers
(assuming we are representing you "buyer's agents," which we do the vast majority of the time).
This contract includes special provisions which are designed to protect you, the purchaser. As
logic would have it, some agents and sellers find some of these provisions
objectionable Typically,
such objections are not "deal killers" and can be worked around. Your Professional One agent will
review the contract with you in detail. Review the standard
Buyer's Contract.
- Seller's contract: It is extremely rare for a Professional One agent to use this
type of contract when working with buyers. The only circumstances in which we sometimes use this
contract are as follows:
- When we are working as "dual agents" (which happens whenever you are attempting to buy a
Professional One listing).
- When we know or believe that we are competing with other offers on the same listing (the logic
here is that we are increasing your chances of "winning" by reducing a seller's potential objections
to our offer).
Review the standard Seller's Contract.
- Preparation of Offer/Completion of Contract - Once you've completed your review
of the comparables, reviewed the disclosures and selected your contract, you're ready to move on to
the final stage of this process, the preparation of the actual contract detailing what you want to offer to the seller of the property. While there are a myriad of details which your
Professional One agent will explain and review with you, the key things to be noted/decided are as
follows:
- Items to be included and excluded (end of Provision 1) - Make sure you list
all items of personal property to be included and excluded from the sale (refrigerator, stove,
window treatments, etc.).
- Type of Financing (Provision 2) - This section includes all of the common
financing techniques you can use to purchase a home. The most common choice is "New Mortgage."
The second most common choice is "Cash Sale." During your preapproval process, make sure to have
a detailed conversation with your lender about how you intend to finance the purchase of your
home. Assuming you are going to obtain a new mortgage, as most people do, note the following:
- Any offer with a down payment of 20% or more is generally considered a "good" or "strong"
offer.
- Any offer with less than 20% down is considered an "average" or (as the down payment decreases),
a "weak offer."
- To explain the logic of these points is a rather lengthy proposition; in a nutshell, it has to
do with the likelihood of there being an appraisal problem later in the transaction.
- You will need to formally apply for your mortgage within five days of offer acceptance, and you
will need to actually obtain mortgage approval within 30 days (these are more or less industry-accepted
standards).
- Occupancy and possession (Provision 3) - Generally speaking, this - occupancy
and possession - is one of the most critical and most misunderstood aspects of real estate contract
and real estate in general. People consistently have misunderstandings over this, so SLOW DOWN
and make sure that you fully understand every aspect of this issue. As you will note, you have two
options within this area: immediate occupancy (which means that you can take possession immediately
after closing), or deferred occupancy (which means that you will take possession at some point after
the closing). Key things to note under each scenario:
- Immediate possession - Self explanatory; you get possession of the property as soon as you close.
- Deferred closing - When the seller desires to stay in the home subsequent to the closing, the
following issues need to be addressed:
- The number of days that you have agreed to allow the seller to live in the residence subsequent
to the closing. Typically, the seller indicates their preference with regard to this issue on the
listing itself (in the data field entitled "POS", which means "possession"). Typical seller preferences
are "10 DAC" (10 days after closing), "IMM" (immediate), NEGO ("negotiable"), etc.
- WORD OF CAUTION: The seller has the legal right to vacate the property at ANY
TIME within the agreed upon period; that is, even if the contract says that the seller can stay 30
days, and even if the seller specifically says that they intend to stay for 30 days, the reality is
that the seller can move out at any time during the 30 day period: the day of closing, six days after
closing, 22 days after closing, or any other number of days between zero and 30.
- The "per diem rate" that the seller agrees to pay to you for the right to stay in the house
after the closing (this is the daily rent that the seller will be paying). The typical "short hand"
that we insert here is the often-confusing acronym "1/30NMP+I+T." This stands for "1/30 of the
New Mortgage Payment plus Insurance plus Taxes." In other words, the seller is being asked to pay
you your exact cost of owning the particular property.
- The amount of your deposit (Provision 4) - The most typical rule of thumb is
that you should provide a deposit of 3% of your offer price. The check should be made payable to
"Professional One Real Estate." Also, understand that this check is actually going to be deposited
(in case you need to transfer funds, etc.); state law requires that we deposit your check within 48
hours of offer acceptance.
- Closing timeframe (Provision 10) - This is another area where you need to slow
down and focus on the issue being addressed: the closing timeframe. In this provision, the main thing
to determine is when you would like to close. This seems simple, but there are often factors
that complicate the matter (e.g., when you are closing on the sale of your current home, if
applicable, out-of-country travel plans, etc.). Also, people often confuse the "closing date"
with the "occupancy/possession" date. The possession timeframe (if there is one) BEGINS at the date
of closing. When it comes to possession, people tend to think in terms of "days from right now"
instead of "days from the date of closing." Beware of this common mistake. It can cause MAJOR
problems later in your transaction.
- Inspection (Provision 14) - This is one of the more significant aspects of
this contract. In a nutshell, this provision says that you can get out of the deal for ANY REASON
WHATSOEVER with regard to the inspection results. For the most part, any experienced listing agent
will not object to this provision. Also, please note the following with respect to inspections in general:
- We recommend to that you have a primary inspection AND a
radon test.
- WORD OF CAUTION: The primary purpose of an inspection is to investigate whether
the property in question is free of material defects and or conditions that potentially affect
habitability. It is NOT intended to be used as leverage to renegotiate the price you intend to pay
for the home. EVERY home has a laundry list of issues and problems, even new construction!
- Signatures and Initials - At this point, all that's left to do is
the following:
- Sign and initial the contract.
- Sign the Seller's Disclosure Statement.
- Sign the Lead Based Paint Disclosure Statement.
- Write your deposit check made payable to "Professional One Real Estate."
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