The moment has come. You have found the perfect home, but there are also three other offers. Then, the listing agent says they are expecting several others. Under pressure to put together a strong offer, you have some decisions to make about what to include in the contract. If you are not already aware of what these contract terms mean and what your position is, it could cost time in working through the offer details and add unnecessary stress to your situation.
Here is where Rob Alcorn can help. Rob is always trying to find ways to demystify and educate his clients on the home buying process and this glossary of key sales contract termst is INVALUABLE!
Note: Though price point is the primary factor when negotiating a contract to buy a home, there are several other key elements that also need to be considered in order to craft the most compelling offer. This article is designed to explain your options and help you determine the best choices to make. Ultimately when you deliver an offer that gives the seller peace of mind and security, they are more likely to work with you on the price.
Sales Price
The offer price is ultimately your choice based on an amount that you are comfortable with paying. We will review similar listings and historical home sales to create a comparable market analysis (CMA). This data-driven approach will ensure that you are positioned to win and get the most value for your money. When competing with other offers, it’s often necessary to go above the sales price. A helpful way to land on your maximum price point is to ask yourself: “What amount would I be comfortable with in a losing bid if the winning bid were $1 higher?”
Escalation
If a bidding war is likely, we can explore adding an escalation clause that would permit us to go up in price to present a more compelling offer. In such a situation, you will decide the maximum amount above the listing price that you are willing to pay, and we will incrementally escalate the next best offer price during the negotiation. The main benefit with this approach is that the price is increased only if there is another offer placed that is higher than yours.
Earnest Money Deposit
The earnest money deposit (EMD) goes into an escrow account at the title company until settlement, at which time it is credited back to you and can be used towards your down payment or refunded. The EMD is required to make any contract binding. The market average in the DMV is 3-5%; however, the larger the EMD the more security the seller has that you will move forward to settlement. In our experience, this is an easy and free way to leverage having liquidity to give you an advantage during the negotiation.
Financing
Adding a financing contingency to your contract does cause many sellers to pause, which can make or break an offer. We will work with your lender to get you fully approved, with all of your documents and credit reviewed prior to submitting an offer. If you need to add a financing contingency because of your personal circumstances, the shorter the contingency the more compelling your offer will be.
Often, larger banks need more time to work through a loan approval because they work with several third-party vendors throughout the lending process. This can be detrimental to the offer because the seller is looking for the most concrete one. Extended contingencies can make them very nervous. Additionally, the lack of speed can be extremely stressful for the purchaser as we work through the waiting game of approval. This is why we recommend using our preferred local lenders. If you do not have a financing contingency and cannot qualify for the loan, your deposit is at risk, so make sure you discuss your options with your lender and your agent as you navigate this decision.
Appraisal Contingency
If the appraisal comes in lower than the sales price, the purchaser would pay the difference between the appraised value and the contract price. An appraisal contingency gives you the right to negotiate with the seller to potentially pay a part of or all of the difference. If you add this contingency and another buyer does not, the seller will likely favor the certainty associated with the other buyer's contract over yours. Make sure to discuss the impact of a deficit in the appraised value with your lender and agent.
Settlement Date
We will find out what time frame is preferred by the seller before submitting an offer. We will want to do everything in our power to ensure you are getting a timeframe that works for you, and the seller is also pleased with the closing time frame. A 21- to 30-day close is what we see most in this market, although every seller is different so time frames can be anywhere from 15-90 days.
Post-settlement Occupancy
Sometimes, a seller will request a rent back. This can be a very compelling tactic that sets your offer apart. The reason it can be very compelling is because if the seller needs to purchase another home after the closing they can have a window where they have the proceeds from the sale to purchase their next home without the stress and concern that something may go wrong.
Home Inspection
There are several different ways to handle the home inspection. There are many strategic options to consider. The range is from adding a contingency to the offer for a select number of days. In our market, the buyer is able to back out of the contract for any reason, so even when nothing is wrong with the house, it still gives the seller an uneasy feeling until all contingencies are lifted. In our experience, if another offer is written where the buyer does not add the home inspection contingency or does an informational inspection but accepts the home in AS/IS condition, the seller will almost always counter that offer or accept it first.
Radon & Lead-Based Paint
For all homes built before 1978, we go with the assumption that lead-based paint (LBP) is present – and it can easily be treated with a painting technique to protect the walls. As long as children and pets will not be chewing the walls, there should not be too much concern. Again, we assume it is there and act accordingly. If you are highly sensitive to LBP we will focus your search on homes built after 1978. Radon testing is inexpensive, and if it is present and needs to be remedied it is usually inexpensive to fix. Including this as a contingency will depend on your comfort level and if we are competing. In our experience, some clients do like to test for it – although only a small handful make the contract contingent on it.
Home Warranty
The home warranty covers all appliances and major systems for the first year. The cost can vary depending on coverage and will be rolled into your closing costs. I strongly suggest purchasing this warranty for the added peace of mind.
Love Letter
We know it sounds corny, but trust me, it works. Write a personalized letter to the seller telling them why you were drawn to their home and how you can see yourself living there for years to come. Attach a picture of the family and include it with the offer.
Take the next step
Are you ready to schedule your free consultation? Head over to the Contact page to call or write Rob Alcorn and setup a time to get started.
