First Time Homebuyer Series – Part 6: Making and Negotiating an Offer

In our First Time Home Buyer Series, we made our budget, got prequalified, looked for a house, checked out some foreclosures and short sales, and now I’m hoping you found the right house! All you have to do now is buy it!

 

It would be nice if there was a magic formula for how to negotiate the best price on a house. Unfortunately, every situation is different, which makes every negotiation different. Sometimes we have to come in quickly at full price to snatch up a deal. Other times, we will start really low and do our best to work the seller down from their asking price. One of my most important jobs is to guide you through this process based on the situation.

 

Instead of covering negotiating techniques in this post, I’ll go over the important aspects of the offer so that you’ll know what to expect. When we make an offer, we not only offer a price, but also an array of other terms. Your real estate agent will explain these terms and make sure you understand your options and rights per the contract.

 

Offer Terms:

 

Price – of course, price is first! There’s a saying in real estate that it’s not about the price unless it is about the price. This is often the most difficult term upon which to reach an agreement!

 

Seller Paid Closing Costs – In Georgia, all the closing costs are he responsibility of the buyer. That means that in addition to your down payment, you have to pay these additional closing costs on the day of closing. The costs include items such as attorney’s fees, loan fees, home owners insurance, intangible and transfer taxes, setting up your escrow account, and more. Buyers often ask the seller to pay some or all of these costs so that they do not need as much cash on the day of closing. This essentially allows the buyer to finance the closing costs in their loan. Sellers usually don’t mind to do this because it does not effect their net proceeds. For example, for the seller, a $325,000 purchase price with the seller paying $5,000 in closing is the same as a $320,000 purchase price with the seller paying no closing costs. For the buyer, this means they need $5,000 less dollars because their loan will be for $5,000 more.

 

Earnest Money – This is a deposit that shows good faith that you will purchase the home. When you buy the house, it becomes part of your down payment. If you terminate the contract for some reason, it can either go back to you, or it could go to the seller as damages for termination without a contractual cause. Of course, if you terminate the contract based on a valid contingency, then you will get the earnest money back. Another important job for your agent is to make sure you know your rights in the contract pertaining to the earnest money.

 

Closing Date – This is the day on which you will be a home owner! There are advantages and disadvantages to doing the closing at different times of the month, and you have to consider your personal situation. Typically, the closing will take place 30 to 45 days from the when we make the offer.

 

Closing Attorney In Georgia, all closings take place at an attorney’s office. The buyer has the right to select their attorney. Usually your real estate agent will have a relationship with a good attorney. However, if you buy a short sale or foreclosure, the bank often requires you to close at an attorney they select. Don’t worry too much about that. The attorney represents your lender in the transaction, and you can always have a different attorney examine the title and documents for you.

 

Due Diligence Period – This is the length of time you have to do your inspections and make sure you want to move forward with the house. The main point of this period is for us to do inspections. We will also have a second negotiation with the seller to try to get them to repair problem items. However, it’s honestly a free look, and you can terminate the contract for any reason. You also get your earnest money back if you cancel during this time. We will examine this period in detail in our next post.

 

Contingencies – These are other provisions in the contract that protect the buyer. They require something to happen in order for the buyer to be required to move forward with the purchase. The most common contingencies are for the buyer’s financing to be approved and for the property to appraise for the purchase price. However, you could also have a contingency for the sale of an existing home, a certain inspection, the bank accepting a short sale, etc. Contingencies usually have time limits associated with them. For example, the buyer may have 21 days for their lender to perform an appraisal and confirm that the value of the home is equal to or greater than the purchase price.

 

Special Stipulations – In this section of the contract we can ask for anything. Maybe you can luck into that new car you’ve been eying! Seriously, you do see a variety of items in this section, but not usually a new car! Some common stipulations for first time home buyers are a home warranty, any appliances not originally included having the house cleaned prior to move in, leaving some furniture, for the seller to provide a survey, etc. This is free form, so it’s up to you!

 

 

Process

It’s hard to generalize the offer process because negotiations can go so differently. In general, the buyer makes an offer and the seller can accept, reject, or counter. Typically, they counter. The buyer then has the same options – accept, reject, or counter. Often, they will counter again. Once the buyer and seller agree and all the signatures are on the contract, the contract is said to be “binding”. When you hear people say that a house is “under contract”, this is what they mean. The buyer and seller have agreed to sell the property, and they are in the period between that agreement and closing. We will talk more about that period in our next post.

Justin Landis
Keller Williams Realty Peachtree Road
404-803-0471
justin.landis@kw.com

 

One Response to “First Time Homebuyer Series – Part 6: Making and Negotiating an Offer”

  1. Dan.Eliot says:

    Owning a home has many benefits. When you make a mortgage payment, you are building equity. And that's an investment. Owning a home also qualifies you for tax breaks that assist you in dealing with your new financial responsibilities- like insurance, real estate taxes, and upkeep- which can be substantial. But given the freedom, stability, and security of owning your own home, they are worth it.

    first time homebuyer