Making an Offer to Buy a Home & Protecting Your Legal Interests
In determining how much to offer for a house, you will want to consider the state of the market, sale prices for comparable houses, and the position of the seller, as well as your own position. You will want to avoid making an offer that is so low that it is rejected outright, but you also do not want to pay an excessive price for the house.
If the house has been on the market for a long time, or if the market favors buyers, the seller may be open to selling it for a lower price than the asking price. You may want to start by offering a lower amount than what you are willing to pay, with the expectation that the seller probably will make a counteroffer, and then you can reach a compromise. By contrast, if you are in a seller’s market, you may need to decide whether and by how much you are willing to overpay. You also will want to find ways to make your offer stand out from the competition. This may involve submitting an offer with fewer contingencies than others.
When the Seller Might Accept a Lower Price
As noted above, a seller may be more flexible if they have not been able to sell the house for a long time. In some cases, a seller may have made an offer on a new home that is contingent on selling this home, which may make them more eager to get rid of it. You can also investigate the history of the listing to determine whether the seller has dropped the price or changed real estate agents before, which probably indicates a lack of patience. If the seller no longer lives in the house or has never lived in it, they may place little value on it. Events in the seller’s personal life may also give them incentives to sell efficiently, such as a job transfer that requires them to leave the area or a change to their family status that requires a larger or smaller home.
Learn About the Seller
An offer may be more enticing if it includes terms tailored to the seller’s unique situation. For example, a seller on a time crunch to move to another state for their job may value the ability to store their belongings in the home’s garage until sometime after the closing.
Contingencies in the Offer
Contingencies are conditions that need to be satisfied before the purchase of a home can be finalized. Either side can introduce contingencies into the agreement, and certain types of contingencies are standard. The purchase agreement will outline not only each contingency but also the date by which each contingency must be satisfied. All of them must be satisfied before closing, or the deal will need to be renegotiated or be abandoned.
Some common examples of contingencies include getting financing for the deal and having an appraisal of the house to confirm that its value matches the amount that you have agreed to pay for it. The financing contingency involves submitting a loan application by a certain date, and it can specify the amount of the loan as well as the interest rate that you need, which should be realistic. Another standard contingency is having the home undergo an inspection and possibly specialized inspections, with an option to renegotiate the deal or back out of it if the inspection produces unsatisfactory results. Shortly before the closing, you should conduct one last walkthrough of the house. Passing this inspection is also a standard contingency, as is getting homeowners’ insurance for any hazards that may arise.
Other contingencies may include getting an attorney involved to review the contract on your behalf, as well as getting an attorney or title officer to investigate the title history of the property. (You also will need to purchase title insurance.) In some states, which do not require seller disclosures by law, you may need to make seller disclosures a contingency.
An escalation clause is a promise to exceed any higher offer by a certain dollar amount, up to a specified cap. Buyers who include an escalation clause may want to add an expiration date to their offer and research whether the laws in their state allow them to ask for proof that a competing offer exists. However, an escalation clause risks that the seller, now knowing how much the offeror is willing to pay, makes a counteroffer for the amount of the cap.
Special Issues for Jointly Owned Properties
People who are considering buying property in a co-op or common interest development will want to look at the documents governing the management of the organization. These include the master deeds, bylaws, and CC&Rs of the common interest development, or the proprietary lease of the co-op. You will need to make sure that you can live within the rules and requirements, or be able to back out of the deal if this is impossible. Purchasing property in a co-op also requires the approval of the co-op’s board of directors. This is usually based on whether the new owner can keep up with maintenance payments.