Making an Offer & Negotiating
Some people enjoy the challenge of negotiating the purchase price of a home while others do not. If you are one of those who don't, you'll be happy to know the realtor will handle all negotiations. Here are some things to keep in mind.
Most sellers anticipate a low initial offer and add a 5% "cushion" to the sale price right from the beginning.
The offer includes: the price, amount of down payment, legal description of the property, the amount of earnest money, list of items the seller has offered to leave behind that you would like to keep, length of time the offer is valid, proposed closing and occupancy dates, and the stipulation that your obligation to buy is contingent upon the successful negotiation of the contract.
To help you decide what your offer should be, review the prices of similar homes for sale in the area. Negotiating items other than selling price may include property the seller offers to leave behind (appliances, gardening equipment, etc.), the amount of earnest money, and possession date.
The seller will accept your offer, reject it, or (most likely) make a counter offer. This process takes place until the buyer and seller come to a price they can both agree on. If the negotiations go on too long however, hard feelings may arise and bring the process to an end.
What the Offer Includes
An offer is a document proposing a certain purchase price under specified terms and is presented to the seller by the realtor. Preparing an offer provides a good opportunity for you to talk to your realtor about why you want to offer a particular price. Along with the offer you will provide earnest money, which indicates to the seller you are serious about purchasing their home. There is no particular sum required and your realtor will be glad to advise you on customary amounts. The amount of earnest money you pay will be applied to your down payment. The check needs to be made out to the real estate agent and will be deposited in the escrow account. If the seller doesn't accept the offer, the money is returned to you. If the seller accepts and you back out later, you forfeit the money.
At a minimum the offer should contain the following:
- Complete legal description of the property
- Amount of earnest money
- Offering price
- Size of down payment and how the house will be financed
- List of items the seller offered to leave with the house that you would like to keep
- Proposed occupancy and closing dates
- Length of time offer is valid (normally five days)
- Stipulation that your obligation to buy is contingent upon the successful negotiation of the contract, satisfactory inspection reports, and approval for financing
Counter Offer and Negotiating
Once your offer has been presented, the seller will accept it, reject it, or make a counter offer. If a counter offer is made, don't feel pressured to make a decision right away. The realtor may insist you act quickly because "other buyers are waiting." This is a common sales ploy and may or may not be true. Whatever the case, the decision to purchase a new home is too important to rush. Any changes made to your original offer by the seller constitute a completely new offer. This is not binding until you accept it in writing by initialing any changes made on the original offer.
At this time you have the same three choices you had the first time around: accept, reject, or make another offer. If you make another offer, you might be asked to increase the amount of earnest money held in escrow. The same items contained in the first offer need to be included in this one as well.
This process can take place again and again until you and the seller arrive at an agreement you can both live with.