What to Look for During Your Showings – During our showings, I’ll do my best to bring you a full list of the ages of the mechanicals, appliances, windows, and roof of the home to give you an idea as to when recent improvements have been made. Also, I will check in with listing agents to see if there are any offers on the table and if there’s an offer deadline. I’ll go over any applicable disclosures with you, such as the lead, radon, and real property disclosures, to ensure there are no known defects or problems with the property. If you’re interested in submitting an offer, it’s important you’ve emailed me a pre-qualification that’s no more than 90 days old. Also, I believe it’s best to email the Sellers a pre-qualification for the maximum amount you’re pre-qualified for. 

In a competitive, Seller market where there are multiple offers, it’s best to lead with your best foot forward, showing a Seller you’re more than qualified to purchase their property which gives Sellers some reassurance your financing is less likely to fall through. Also, in the event of a multiple-offer situation, many Buyers tend to increase their original offers, submitting their highest and best to Sellers. Having a maximum pre-qualification from the beginning will put less stress on your Mortgage Broker to send us updated pre-qualifications for a higher amount within a short window of time.

When it comes to discussing the terms of your offer, I will email you comparative properties sold within the last 12 months to give you a crystal clear understanding of what properties in the neighborhood have sold for.

The Three Rounds of Negotiations – Most financed real estate transactions are made up of three rounds of negotiation. The first round of negotiation in most real estate transactions consists of an offer made on a multi-board contract for purchase with relevant terms including your purchase price, any Seller concessions requested, earnest money offered, financing type, down payment and interest rate percentages, closing date, inspection, and attorney review period, mortgage contingency date, tax proration percentage, whether or not your purchase is contingent upon the sale or close of another property, whether you agree to purchase as-is, request a home warranty, termite inspection or well and septic inspection from Sellers, option for the Sellers to leaseback, appraisal gap agreements, as well as several other more unusual requests. While these terms can seem complicated for Buyers, I’ll make sure to fully guide you through the process and answer every question you have. I will go over each of these terms in greater detail.

When writing up an offer in a competitive, Seller market there are a few terms we can alter for our offer to stand out above all others, especially for less desirable financing types to Sellers like FHA or VA loans. If we know we’re involved in a multiple-offer situation, one of the best ways to win is by writing an escalation clause into our offer. This is the best way to win without blindly overspending. These types of offers include a specific offer amount with an addendum announcing we will beat any viable offer by a certain buffer amount up to a maximum purchase price. This is the best way to win while putting a limit on your offer amount. Another useful strategy to win a property you anticipate will be receiving multiple offers and subsequently will be going well above the asking price is by writing an expiration date into your offer. This generally works best when an offer is submitted to Sellers between Monday and Thursday of the week the property is listed. The intention here is to avoid weekend showings when the most Buyer activity is likely to occur and to convince a Seller to sign a contract with you before a multiple-offer situation arises. Convincing a Seller to accept your offer with a deadline is best done by incentivizing them with an offer above their asking price. Ultimately, this will most likely still save you money if the weekends brought forth another 10-25 offers on the property. 

During less competitive markets, Buyers have a better chance to win offers including Seller concessions. These funds can be used for the Buyer’s closing costs or simply be used as cash to furnish the property post-purchase. Earnest money is included in every real estate offer and is generally anywhere between 1% – 10% of the home’s purchase price and is to be delivered between 2 and 3 business days in the form of a cashier’s check or money order. These funds are usually held in an escrow account by either the Buyer or Seller’s real estate office, an attorney affiliated with the transaction, or the title company. Ultimately, the earnest money is applied toward a Buyer’s down payment amount at closing. In the event a Buyer chooses to cancel their real estate contract within the attorney review and inspection period, their earnest money will be refunded, however, if a Buyer breaks the terms of the contract and cancels after the attorney review and inspection period expires, they may risk losing their earnest money due to a breach of contract. The mortgage contingency date is the timeframe it takes a Homebuyer to secure a mortgage loan for a home. If the loan cannot be secured, the Buyer can walk away without legal repercussions and have their earnest money deposit returned. I have never represented a buyer who has lost their earnest money due to negligence, so you’ll be in great hands.

When there’s some anticipation of interest rates rising, and you know you’ll be purchasing a property, it’s a good idea to ask your mortgage professional to lock your interest rate to avoid paying a higher rate before closing. Locking an interest rate usually requires a rate lock extension payment if a closing date occurs past a certain date, so it’s important to lock your rate once you have reasonable certainty about when you’ll be closing on your purchase. While my preferred lender can close in as little as 10 days, conventional offers for purchase with Mortgage Bankers at banks or credit unions generally take around 30 days, while FHA and VA offers are 45 days on average. The standard attorney review and inspection contingency is five business days (not including Saturdays or Sundays), however, this period can be altered upon writing an offer. Generally speaking, property taxes are raised by roughly 5% annually. Because taxes are paid in arrears, we can assume they will be roughly 5% higher than the previous year’s tax bill. At the closing table, Sellers usually credit Buyers between 100%-110% of the current year’s tax amount to account for this increase.

In competitive, Seller markets, it is unlikely that a Seller will accept an offer made by a Buyer with a home sales contingency, which means that the Buyer has yet to receive a purchase contract on the current home they are required to close on before purchasing something new. If you plan on purchasing a property, yet have to close on your current home to close on a new one, it is much more likely to have a Seller accept your offer with a home close contingency, which means the home you have to close on before purchasing a new home is already under contract with a Buyer but has yet to close. The Seller of your new property is agreeing to take a risk with your offer, even though it is contingent on another party’s real estate transaction. In ultra-competitive markets where properties receive multiple offers, it is unlikely a Seller will accept an offer with a home sale or home close contingency, however, there are some strategies you can use to win in these types of scenarios. Buyers can even offer Sellers the option to lease back their home for an agreed-upon rental amount, which can certainly sway a Seller’s decision if their moving time frame doesn’t quite align with the market average of 30-45 days.

In less competitive Buyer’s markets, sometimes Buyers request Home Warranties paid for by Sellers. These policies cost between $400 – $1000 and generally last between 12 to 18 months after closing and warrant a range of things inside the home for that period, including appliances, mechanicals, plumbing, electrical and other fixtures within the home. Here is a home warranty partner company I recommend: America’s Preferred Home Warranty

The second round of negotiations in most real estate transactions comes after a Buyer conducts their inspections on the property. Inspections you may want to conduct during this period include a professional home inspection, radon, sewer, well, and septic inspections, termite, roof, mold, and asbestos inspections, or anything else you’re concerned about before closing. Most professional home inspections are between $300 – $700 and generally include a home inspection report of between 50 and 200 pages, including every flaw the inspector could find with the property. Once this report is received, Buyers have the option to request Sellers fix these issues, issue a credit for the issues, or a combination of repairs and credits. This is the second round of negotiations. As-Is transactions are considered more competitive offers because they essentially in theory eliminate this round of negotiations.

Additionally, if you plan on having anyone sleep in a basement space, radon inspections are encouraged. If results come back too high, Buyers can request the Sellers install a radon remediation system. I find that most Sellers will agree to this because alternatively they’ll be required by law to disclose high radon levels to any future Buyers within their radon disclosure. If the building has older pipes, you may want to have a plumber do a sewer scope to ensure there are no problematic clogs. If a home inspector finds what appears to be mold, you can hire a mold remediation expert to test the area to determine whether it is in fact mold, and request the Sellers pay for remediation before closing. While these inspections are generally conducted within 5 business days of an accepted contract, extensions are usually granted and agreed upon by real estate attorneys. If there are any terms in the real estate contract that the Buyer or Seller requests be changed, this is best done during this 5 business day attorney review window. An amendment is sent out between attorneys and is signed by both Buyer and Seller’s attorneys to conclude this second round of negotiations.

The third round of negotiations in most real estate transactions is brought forth after the results of the property appraisal. A representative from the financial institution is sent to evaluate what they determine the free market value of the property is, usually based on comparative properties in the neighborhood. If the appraiser determines that the property is worth more than the contract price, it can be assumed that the purchaser has instant equity in the property. If the property appraises for the contract price, there is no problem, and no third round of negotiations, however, if a property appraises for less than the contract price, there is a problem that can be remedied in one of three ways. In less competitive Buyer markets, the Seller may agree to reduce the contract price to the appraised amount. In more competitive, Seller markets with multiple offers, the Seller may request that the Buyer brings the difference between the contract price and appraised amount to closing in the form of extra cash at closing. Lastly, the Buyer and Seller can negotiate this gap between the contract and appraisal amounts, each making concessions to pay for the difference.

When it comes to financing types, cash is king, conventional is 2nd best, followed by VA and FHA loans. Cash offers don’t require appraisals and are considered more competitive offers because this third round of negotiations is never an issue. During ultra-competitive markets, Buyers will sometimes agree to appraisal gap agreements. Appraisal gap agreements are a great way to convince a Seller to agree to your offer with less ideal financing or less favorable contingencies, guaranteeing the Seller a certain amount above what the property appraises at, in the event of an appraisal issue, which gives a Seller more confidence in your ability to close the transactions.

Please give me a call with any questions about real estate contracts or associated terminology. I’d love to help you better understand how to win in a competitive real estate market.