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Offers and Negotiation
 BUYER'S TIP:
keep your ooohs and aaahs to yourself when you look at a house with the sellers present. Be friendly and cooperative but don't weaken your bargaining position.
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Even the experts will tell you that they have "seen it all" when it comes to real estate transactions and the negotiation process. We all know that it is a business transaction but there is no escaping the possibility of a seller's strong emotional attachment to the property or a buyer who has fallen in love with a property. What's to Negotiate?  The price you pay, when you move in and what comes with the house are the basic negotiable items. If you need closing costs included, you can ask for them. You can renegotiate after a home inspection for repairs to be done, a price reduction or a monetary credit to cover the cost of the repairs. If you expected the home to be in good working order and the furnace is ready to die, it is not unreasonable to renegotiate the price or ask for a replacement.Take a good look at the Listing Sheet to see what comes with the sale (e.g., appliances, window treatments). Negotiation and market knowledge are the key skills you want in a real estate agent. This is the time for your agent to earn the commission for their services, if the agent is providing buyer representation services. Use the "comparable sales" data that they can provide for you but keep in mind that "comps" can be manipulated.
Negotiating New Construction In a new construction sale, the base price is usually not negotiable unless a buyer backed out of a sale or the subdivision isn't selling well. The place for negotiating is on the optional upgrades. When you visit a model home, make sure you know how many of the lovely features you look at are optional. Buying a newly built home without going through the "builders specs" for the house is like buying a car without finding out whether is has air conditioning or a sunroof. Imagine the disappointment you will feel if the features you want in a home increase the price by $10,000. It's a lot of work to get everything figured out before the offer but it is time well spent.
BUYER'S TIP:
Don't let your offer get 'shopped' by providing too long a period of time for the seller to respond, particularly in a hot seller's mnarket. Most buyers don;t realize that any agreement on price or terms is not valid until it is IN WRITING. Even if the seller verbally agrees to the buyer's written offer, the seller could get a higher offer and would be under no obligation to honor the first offer. In a hot seller's market, give the seller a short time to respond and get everything in writing as quickly as possible. |
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What Should I Offer?How much to offer depends on comparable sales of similar homes and the overall condition of the marketplace (buyer's market vs. seller's market). What kind of contingencies and escape clauses to use is also dependent on these factors. The real estate professionals have access to most of the information you will need but there is some homework you can do on your own. A trip to the Registry of Deeds can give you access to public records of home sales. A town or city hall will have tax records (ask for a copy of the "field card") for a nominal sum. Market Conditions Watch the newspapers for articles about the housing market. In a strong buyer's and seller's market, there should be articles about home sales. Watch yard signs.... how long do they stay in front of homes? What are friends, coworkers and families saying about their experiences with home sales? What is the "inventory" like...are there lots of houses for sale or too few for the demand? Seller's Motivation Find out the seller's motivation by asking the Listing Agent or your own agent. A good buyer's agent will do all he or she can to find out this critical piece of information. Look for clues when you preview the home. Divorce, new job, retiring, down sizing? More than one homebuyer has guessed on the possibility of a divorce by noticing the contents of the bedroom closet. What Impacts Value? Even armed with comparable sales data, you need to think about the house and how it stacks up to the other houses on the marketplace. You can bet that a good Listing Agent will keep the seller informed of the competing homes on the marketplace and some sellers will even check out their competition. Does this home stand out from the rest because of the way it was maintained or because of recent improvements that would attract other competing buyers? It is the best house in the neighborhood so its value will be pulled down by the other homes? Or the worst one? Its value will be increased by the higher priced homes in the neighborhood. Can you make a low ball offer (generally less than 10% lower than the asking price)? Of course, and agents are required to present low offers to sellers even if they tell you they won't fly. But homebuyers who totally ignore the sellers' emotions haven't had the experience of a seller saying "no" because they were insulted by a low ball offer or because they like another buyer better. If there lots of houses to choose from, go for it. Looking Good as a Buyer If there are slim pickings in an intense seller's market, homebuyers need to have all their ducks in a row. This means being pre approved for a mortgage, putting as few contingencies into the offer as possible, and, when competing against other buyers, putting your best foot forward to win the house from the competition. You can ask the agent to present certain information for you or include a letter explaining why you would like to live in the home or neighborhood. You can kiss your negotiation strength good-bye if you do this but in a fast market some homebuyers feel lucky just to even get the house when there are multiple offers. Understand Seller Contingencies Suppose you find the perfect home but find out it is offered "contingent upon the sellers buying another house or finding suitable housing"? What does this mean and should you buy a house with these conditions? If you are in desperate need of housing, this is not the way to go. Even buyers who are willing to accept a contingency arrangement because of their current housing (e.g., tenant at will or living with parents), will want some protection against unrealistic sellers. A clause which gives sellers a specific period of time (e.g., 30 days) to find another home is an option that allows you to get back in the market without losing too much time. You might want to also put into your offer that if they don't sell their house to you that they will pay the fees you incurred in the process. Keep in mind that a seller who puts their home for sale with such a contingency may just be "testing the market" so be prepared to do some more shopping. Statute of Frauds  The first and most important thing to know about real estate transactions is that verbal contracts are not binding. IT MUST BE IN WRITING to be enforceable. You must include an offer and acceptance statement. A real estate contract requires mutual consent between the buyer and the seller before a contract can exist. The contract cannot violate the law and their must be consideration. Consideration means something of value has to be offered from the buyer in exchange for something of value. Usually the buyer offers money in return for the surrender of title to the home. The offer is a complicated legal document and you must make sure you understand all of the clauses in it before you sign it. Don't let an agent gloss over any items as "standard" when you may be on the hook for money that you put down as earnest money. Getting deposits back is the number one complaint filed at the Massachusetts Board of Registration, so don't take the process lightly. The basic information items in an offer are:
- address or description of the property
- consideration (price you are offering to pay)
- date through which offer is valid
- date of closing (on or before....)
- contingencies (mortgage financing, home inspection, attorney approval, etc.)
Other names for an offer include contract to purchase, offer to purchase, purchase offer, and they come in all shapes and sizes. You will usually see some mention of a deposit (good faith) or earnest money, so called because the buyer has "earnest" intentions to buy the property. Never use cash and always make the check out to an attorney, real estate agency or a title company. Don't confuse the earnest money with a down payment, which comes later. If there are no competing buyers you may be able to get away with offering $500 instead of the more usual $1,000. Case law has established that offers are legally binding in Massachusetts. Offer forms vary from Board to Board within the Realtor association, so read the form carefully, it may be different from the last one you signed.Purchase and Sale Agreement
The more formal contract follows the initial offer, depending on the type of property and local customs. The "purchase and sale" agreement will have a lengthy legal description of the property, exclusions, fixtures, rights of buyers and sellers, and brokerage fees. An attorney's advice before you sign the contract is particularly valuable to first time homebuyers. Get the names of experienced lawyers from friends, family, coworkers, and real estate professionals. Use an attorney who specializes in real estate, if possible. If you are using a buyer's agent to assist in your home search, find out if their agency works with attorneys on a regular basis who have a good track record with their previous clients. Or, better yet, have they negotiated for discounted fees for their clients? Attorneys working with buyer agents are part of the buyer's team and know they can count on the real estate agent to be looking out for the buyer's best interest in the negotiations and settlement. Don't be shy about determining the attorney's fees for services and what services will be provided. The best attorneys are educators as well and will take the time to make sure you understand the complicated parts of your transaction. |
