HOME BUYERS FAIR : Consumer Protection : Winning Negotiation Game With Seller : Closing the deal: Getting what you want in a purchase contract takes planning, finesse--and keeping your cool.
When you finally find the house you want, your work is far from over: your next task is reaching a binding agreement with the seller.
The process resembles a tennis game. The homeowner made the first serve, a public offer to sell the property at a given price. Now the ball is in your court.
Depending on local custom, a broker or attorney will usually help draw up a written purchase offer detailing the terms under which you propose to buy.
By law, all real estate contracts must be in writing in order to be enforceable. You cannot hold the seller to any oral agreement.
The written contract is what counts. If the sellers promise to leave the refrigerator, make sure the contract mentions it, or you could be out of luck.
Purchase Price
Before you begin and before emotions take over, settle in your mind the top price you really would invest in the house.
Should you expect to pay full asking price, or is there a formula for the amount of bargaining built in by the sellers? The answer is simple:
It all depends.
Homeowners who hate haggling may have listed their house at rock-bottom price. Others may add a 5%, 10% or even 15% cushion to what they’d really take.
If a house has been on the market a long time (more than four months), the buying public has voted that it isn’t worth the asking price. Don’t offer that amount.
On the other hand, don’t fool around if you’ve stumbled onto a hot listing--one that has just come on the market and is uniquely appealing or underpriced.
Comparables
When you house-hunt intensively in a given area, you quickly become an expert on homes that fall within your price range. You can recognize a bargain when it comes on the market. You can also spot overpriced property.
In an unfamiliar area, ask your agent for sale prices of “comparables.” These are similar homes in the neighborhood that have recently changed hands; they’ll give you something to judge by.
What the homeowners paid three years ago for the place is not relevant. The eventual selling price is set by the operation of supply and demand--by competition on the open market.
If the sellers have to wait around while you market your present home, they’ll be less inclined to drop their price. The same applies if they must come up with a cash payment of points to your lender. (A point is 1% of the loan charged as a fee.) By the same token, a clean offer with no contingencies is worth a price concession.
Contingencies
After price, the next big item in the contract is how you will finance your purchase. If you are going to assume a present loan, or place your mortgage with the sellers themselves, these terms are detailed.
If you must obtain outside financing, the details of your proposed mortgage are spelled out, along with a statement that the contract is “contingent upon” or “subject to” your obtaining the loan. If you cannot find the financing you stipulated, you couldn’t be required to go through with the purchase. The contract should state that in such a case your deposit would be returned.
There may be other contingencies that must be satisfied before you will buy. You may need to sell your present home, or receive a satisfactory (to you) engineer’s report. Insert these conditions in the contract.
The sellers will be nervous about contingent offers. They will be taking their house off the market on your behalf, without any guarantee the sale will go through.
Personal Property
It is essential to specify all the items on the property such as carpeting, fireplace equipment, the satellite dish, drapes and so on about which there may be disputes as to whether or not they stay. The rules are complicated, and it’s best to head off trouble by writing into the contract phrases such as “wood stove is to remain” or “seller may remove dining room chandelier.”
It’s a good idea to stipulate that you will have the right to inspect the premises just before closing. You want to make sure the sellers left the refrigerator or removed the piles of magazines in the attic.
The contract should also state a target date and either a place for transfer of title or the escrow company that will handle the transfer. Choose a date that will allow for processing of your mortgage application (the realty agent will offer guidance on this) and all the other paper work that will have to be done.
What if the date comes and goes? You still have a binding contract. If a certain deadline is absolutely essential, you can use the powerful legal phrase “time is of the essence.” But this is strong medicine. Don’t do it without consulting your agent or a lawyer.
Your offer should have a time limit, and it should be a short one. A day or two is enough time for the sellers to consider your proposal. If you give them more time, they may be tempted to stall until after they see what next Sunday’s open house might bring, or use your offer as an auction goad to bid up another prospective buyer. If the sellers are out of town, they should be available by phone to answer your offer by telegram or fax with a confirming letter to follow.
Earnest Money
An offer to buy is usually accompanied by a substantial deposit, variously known as a “binder” or “earnest money.” This sum proves to the sellers that you mean business.
It also serves as a source of damages if you later back out for no good reason. The deposit is usually held by a broker or attorney. Avoid giving it directly to the seller.
This earnest money, of course, counts toward the sum you’ll need at closing. The contract should clearly state under what circumstances it may be returned.
Final Jitters
If this is your first home-buying experience, you’ll feel shaky when the time comes to sign the offer. You should receive an immediate duplicate of everything you sign; if it isn’t offered, ask for it.
You may want to have your offer reviewed by a lawyer before you sign it, especially if you aren’t using the services of a knowledgeable realtor.
Unfortunately, many sales are made after office hours and on weekends, and you may risk losing the right house by delay.
To solve this problem, you can write above your signature “subject to the approval in form of my attorney.” This means you reserve for your lawyer the right to object later to any provisions that don’t protect your interests. The lawyer can even disapprove the whole contract.
The Tennis Game
Prompt presentation of all offers is one of the broker’s primary legal responsibilities. The tennis game is on, and the next move is the sellers’. The response can be yes (acceptance), no (rejection) or maybe (counteroffer).
If it’s yes, the seller accepts all your terms, and you have a binding contract.
If it’s no, the homeowners cannot later change their minds and get your offer back (unless you agree). Rather than a rejection, a good negotiator will bring you a counteroffer:
“We accept all terms and conditions except that purchase price shall be $10,000 more and we’ll throw in the window air conditioner.”
The seller is now bound by the counteroffer, which probably contains a time limit, while you are free to consider its terms. You may want to counter the counteroffer, perhaps split the difference.
Too many volleys, though, result in hard feelings and often kill the deal.
Instead of working together toward what is legally known as a meeting of the minds, buyer and seller start to see the negotiation as a war. They lose sight of their original goals.
Before you start, make up your mind that you will not lose the house you really want over the last thousand dollars. When you cannot make any further concessions, include some face-saving gesture: “We can’t go any higher, but we’ll move the closing date for their convenience.”
Make your first offer, certainly your second one, close to the top price you’d really pay. The idea is to tempt the sellers to wrap up the deal, even if it isn’t quite what they had in mind. The game ends when one side accepts unconditionally the other’s last offer.
If your proposal is accepted, you will have a binding legal contract. Don’t fool around with a purchase offer unless you really want to buy the property. It should be a thrill when you finally receive the notification of acceptance that is the final legal requirement to make a contract binding:
“Congratulations! They said yes. You’ve just bought a house.”
AVERAGE SETTLEMENT FEE
The average settlement or closing fee on the sale of a $160,000 single-family house.
Northern Southern California California Independent Escrow companies $464 $792 Tile companies $351 $635 Real Estate Brokers $400 $624 Lending Institutions $425 $729
SOURCE: Ernst & Young study for California Department of Real Estate, Dec. 1988.
