The buzzer’s gone off. Somewhere in the back of your mind bells are ringing. Lights are flashing. You’ve just realized this is the place for you, the home you want to buy. What words could possibly express your feelings now that the long search is over?
Try these: “I want to make an offer.”
The final installment of this series on how to shop for a home is aimed at the home-seeker who, having uttered those fateful words, now sits with an agent writing a bid.
While price is always a concern, area real estate agents interviewed say the success of an offer (even the final price) also hinges on a host of other variables in the offer. So, in addition to how much you want to offer for the property you’ll need to address the following concerns:
– Inclusions–or what stays and what doesn’t;
– Closing and possession dates–when you’ll actually get the keys and move in;
– The amount of earnest money the buyer will put down;
– And the buyer’s ability to satisfy the contract’s contingencies, including how the purchase will be financed–the interest rate and type of loan.
When you’re ready to make an offer, just let your agent know. He or she will have form contracts that can be altered to include your terms. The normal process is that you, the buyer, sit down with your agent and you fill out the contract together, then you sign it. Such contracts very often include an attorney approval provision, so there’s still time to seek legal advice before everything is sealed.
Want the chandelier?
The price of most things depends on what’s included and housing stock is no exception. You’ll find the portion of the contract detailing what is or isn’t part of the sale second only to the description of the property at the top of the form. According to Dianna Lehnen, an agent with Prudential Preferred Properties in Naperville, “Anything that’s attached to the home legally needs to stay, unless the seller has said it’s excluded.”
Yes, says Merle Kirsner-Styer of Kahn Realty in Highland Park: “Pay close attention to what you want to include. Some things that are attached may not be part of the sale.” Marissa Manos of Baird & Warner’s City North office in Chicago agrees: “Usually exclusions are on the listing sheet. If you see something that seems special and you’re not sure (that it’s included), you can put it into the contract. If it’s something so drop-dead wonderful, I would put it in.”
Let’s say the listing sheet said the crystal chandelier in the dining room is excluded–in other words the seller intends to take it with him. But now you’ve decided you’d like to have it. Sometimes the seller will throw in extras if the buyer will agree to an earlier closing date or is willing to wait to take possession until the seller is ready to go. As Lehnen points out: “Closing date is as important as price. A family that can’t move out for 60 days might sell for less to have the option to stay.”
“Sure, that’s a good negotiating tool,” says Manos. “If the sellers have to stay an extra month because their child is in school, then the buyer might say, `My lease is up. I have to put my things in storage. You give it to me for $2,000 less, and I’ll close when it’s convenient for you.’ For the most part, though, people have schedules to meet. Setting the closing date is give-and-take. It’s what will work best for both parties.”
Kirsner-Styer offers this advice to buyers: “Figure out what’s comfortable for you. Do you want to close and have time to paint before you move in? A date is money. If you have to go somewhere else to live (between when your lease is up and when you take possession), that costs money. If you have to put your things in storage, that costs money, too. Those additional sums are translated into the purchase price.” But Kirsner-Styer believes that buyers have to accommodate sellers on the possession date. “You try to give the seller every single thing he wants except the money.”
The bottom line
Ah, the money–the root of all offers. No other blank space on the real estate contract offers more room for second guessing than the line on which buyers write their initial bid. Should they offer an amount that’s 8 percent less than the asking price? Ten percent? Should they try to lowball? While the agents weren’t necessarily opposed to playing the percentages, citing that homes in the area sold, on the average, for between 94 and 97 percent of list price, they offered good reasons to reconsider before making a lowball offer.
As Manos put it: “When sellers price their homes with a lot of room for negotiating, that’s what happens. But, if it’s priced fairly, a lowball offer is just insulting, and it circumvents the negotiations. “You might get a counteroffer that’s higher than if you made a reasonable bid,” she goes on. “It’s human nature to say, `Someone’s playing a game, and I’m going to play back.’ Most people think, on both ends, that there are going to be counteroffers.”
Bob Parris of Coldwell Banker in Evanston was equally wary: “Don’t try to steal the property. It’s not going to happen. You’ll just upset someone and hurt the negotiations later. Instead, determine the most you would be willing to pay as well as what you would ideally like to pay and make a reasonable offer based on those two figures.”
Kirsner-Styer points out another risk attached to making a lowball offer: “I tell my buyers, `You have looked at a hundred houses and you know this is a value. There are other people out there–tons of people–in your price range. You can’t take the chance of wasting time to have another offer come in; and for the seller to take that other offer because that person didn’t come in quite as low as you.’ “
A show of good faith
As a show of good faith, buyers send along a check with their offer. Typically in the Chicago area, this “earnest money” is $1,000. If and when your offer is accepted, the check will be deposited in an escrow account until closing. You’ll be expected to increase this down payment to an agreed-upon amount–usually 10 percent of the purchase price–within a certain number of days. Some agents, and Parris is among them, believe that buyers improve their chances by writing a check for more than a thousand to accompany their initial offer.
The other agents didn’t share Parris’ point of view. According to Kirsner-Styer, putting down a larger amount to show how earnest you are with the contract may impress sellers and it may not. “It’s the next one–the total amount that’s going to be put down–that’s the impressive part. If you want to do it all upfront, so be it.”
Manos agrees. “It (the total down payment) has to be enough to satisfy the seller that the buyer isn’t going to walk away from the deal.”
Before there can be any deal, other things have to be satisfied as well–the contract’s contingencies. Buyers and sellers, their attorneys and even the property itself get into the act: The buyer must be able to get a mortgage commitment for the necessary amount at an acceptable rate of interest; the lawyers for both sides usually must approve the contract; and the buyer must be satisfied with the results of a professional inspection of the property.
The agents all stressed the degree of protection these contingencies afford the buyer. “If you don’t have a mortgage contingency that meets the guidelines for your budget,” Manos says, “then the seller has the option of getting you a mortgage at whatever rate he can obtain. You still wouldn’t qualify if you don’t make enough money, but you may have your own agenda, a certain amount goes in your 401K plan each month or whatever. So, you may have to specify that you want a particular kind of adjustable-rate mortgage. The seller may be able to get you a 30-year, fixed mortgage, but your payment will be an extra $200 a month. There goes your 401K contribution.”
A closer look
Lehnen points out the purpose of a professional home inspection isn’t just to reveal the property’s flaws: “The inspector will walk the roof, check the plumbing, heating and electrical systems and examine the structural condition of the property. The inspection is a wonderful opportunity to learn about the house,” she continues. “The buyers can be there. They learn how to change the filters on the furnace and the humidifier.”
Why bother with a lawyer? Manos had this to say: “The attorney’s approval is structured for both parties. Today, real estate contracts are so straightforward that unless there’s a really unusual thing that you want inserted, there’s rarely anything of substance that gets added. But it’s still protection.”
Parris concurs. “Buyers are making a grave mistake if they don’t have a lawyer review the contract, and they don’t hire a professional to inspect the condition of the property.”
