The first step is to submit an Offer to Purchase or Purchase and Sale Agreement, depending on the custom in your area. Both documents require that you make decisions and provide information to the seller about what you're offering to bring to the table and what you expect from them.
Important details include:
· Purchase price – this is the amount of money you are offering to buy the home. It could be more, less or exactly the same as the asking price, depending on the market forces and how well the house fits your ideal scenario.
· Amount of earnest money – this is how much money you'll be sending with the offer as an initial deposit - and how much you stand to lose if you walk away from the purchase for no reason.
· Home inspection contingency and amount –
Sidebar: What is a contingency? When you are making an offer on a home, you'll usually want to make sure that if everything isn’t as you expect, you can cancel the purchase and get your deposit money back. These conditions are called contingencies and you can think of them as an “unless” so I’ll definitely buy your house unless…
There should always be a dollar amount and an expiration date associated with a home inspection contingency. Let’s say you want a $5,000 home inspection contingency. That means that if you have a home inspection and find more than $5,000 worth of problems, you can cancel the sale and get back all of your deposit money – as long as you notify the seller or seller's agent in writing before the expiration date that was in the initial offer.
This doesn’t mean that if you find a problem that will cost say $1,000 to fix, that you can’t ask the seller to fix it or give you a credit. The home inspection often bring everyone back to the negotiation table. It is always the seller’s option whether or not to do these things so if they say yes to your request, remember to be grateful. If you wouldn't consider buying the house unless this thing is addressed, be prepared to walk away. The seller is at least as emotional about selling his home as you are about buying it.
Other types of contingencies work the same way: if this thing happens – or doesn’t happen, like if you have to sell you own home first – then the deal is off, you get all of your money back and you’re back to square one.
· Cash or a mortgage – If you're getting a loan to purchase this property, you will normally have a contingency saying that if you don’t get the loan, the deal is off. You may not find out if there’s a problem with your financing until about a week before the scheduled closing date.
· If a mortgage, amount of the down payment
· Closing date – when do you want to take possession of the home?
· Other contingencies – things like the presence of insects, radon gas, lead paint, you selling your home, or even something like: my brother has to see the house and give it the thumbs-up - anything that if it doesn't happen, you don't want to buy should be written up as a contingency. Just remember that the more contingencies, the weaker the offer will seem to the seller. We'll talk next week about multiple offers and how your strategy will differ.
· Letter – It has become common practice for the buyer to write a ‘love letter’ to the seller telling the seller all of the things they love about the home and why the seller should definitely choose their offer over others. I have seen this really work for buyers but it’s a two-edged sword. Many sellers have an emotional connection to the home they’re selling – they may have raised a family there or done extensive renovation – and so they naturally want to pass the home along to someone who will love it as they have. That said, there are often details in offers and certainly in love letters that could reveal details about you that invoke unconscious bias or outright discrimination. If, as the buyer, you decide to write a love letters, please be aware of the potential they have to influence the seller's decision for both negative and positive reasons.
Once you've signed and submitted the offer, along with your earnest money deposit, pre-approval letter or proof of funds, and love letter if applicable, one of three things will happen: the seller will accept your offer, the seller will refuse your offer or the seller will give you a counteroffer. For example, the asking price is $350,000. You offer $320,000. Seller gives you a counteroffer of $340,000. If yours is the only offer there can be several rounds of offer/counteroffer. One thing to note: each counteroffer negates the previous offer. That means that if the seller offers $320k and you say no, she can't turn around and accept the $350k offer unless you agree. This protects you from potentially having several properties under agreement at the same time.
When interviewing potential real estate agents to help sell your home, be sure to ask if they’ve taken any courses in negotiation and how comfortable they are negotiating on your behalf. Have the agent get an idea of the seller's dream offer and, if possible, include those elements in your offer. For example, having a quick closing date with no contingencies may be more important than the selling price. Sometimes the seller will want to complete the sale but rent the house back from you for a period of time. If you are currently renting perhaps you could accommodate that kind of scenario. Communication is key to finding the sweet spot that works best for everyone.
Once you’ve negotiated the final offer, the seller will sign that offer to show his acceptance. You will submit a check for the earnest money. The check is held in the listing broker’s (the broker that the seller's agent works for) escrow account. Now the work really begins. You should schedule your home inspection asap and let your mortgage officer know that you've had an accepted offer. You should also start interviewing attorneys.
Selling your home is one of the top three most stressful life events. Be sure you choose an agent with a lot of experience who can gently guide you through the process and help you every step of the way.
Start this series at the beginning.
Up next: Navigating multiple offers
Please note: some aspects of this step of the home selling process are specific to Massachusetts, for example the use of offers, but all sellers should find valuable information.
