Jon Coile, chairman of Rockville-based multiple-listing service MRIS, writes occasional commentary on the Washington area housing market.
This year, many people in the real estate industry are anticipating that the spring market will be especially robust. Many buyers want to take advantage of the current rates before further increases are announced. The stock market has been very volatile and that encourages people to move their money to hard assets such as real estate. Rents have been rising, giving tenants pause to consider their long-term options. That all leads us to believe that there’s going to be a lot of competition for homes.
How do you write a contract so that yours is the one that gets accepted? The goal is to find out what’s important to the seller and accommodate as much of what they want as possible, so that on the places that you’re not aligned, they have fewer terms to object to. If you ask for too many concessions on too many fronts, the seller is likely to throw up their hands and say no. So try to keep it simple.
Price is obviously a key part of any offer, but it’s not the only term to consider. Here are some other things to keep in mind:
• Settlement date: Whether you’re asking to close in a short period of time or further in the future makes no substantive difference. When negotiating it only matters which is more desirable for the seller. If they are building a new house and need several months before they can vacate, keep that in mind. Or they may have a pressing need to get out quickly, and a faster closing may be more desirable to them. Your agent can ask their agent what their preferred time frame is before you draft your offer.
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• Closing help: You may need help covering the costs of things like transfer taxes, title insurance and lender’s fees. If you’re low on cash, go ahead and ask for the seller to cover some or all of these costs, but then be prepared to pay asking price or close to it. Your offer is not as strong if you’re asking for help with closing costs and a price reduction. Remember: Pigs get fat, but hogs get slaughtered. Don’t be so greedy that you put yourself out of the running.
• Inclusions: Let’s say the home has a beautiful heirloom light fixture in the dining room that’s specifically been excluded from the sale. As much as you may want that specific chandelier, it’s best to let those sorts of things go rather than upsetting the seller. Be careful not to rock the boat by asking for too much.
• A personal letter: You might consider writing the sellers a letter telling them how much you want their home and how much it would mean to raise your family there. There is an undeniable emotional factor in a home sale that sometimes defies being quantified. I’ve seen offers accepted for less than competing bids because the sellers simply feel good about the buyers, and a letter can help. On the flip side, I’ve seen letters trying to justify a low asking price by ticking off all the maintenance that needs to be done and how much it will cost. That strategy almost always backfires. No one wants to be told their house is a dump and that you’re doing them a favor taking it off their hands.
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• Escalation clause: If there are multiple bids on a home, the seller may lay out all the contracts and see who’s offering the most. An escalation clause can be effective in making certain that it’s you. It might say something like, “I’ll pay $400,000 or $1,000 higher than any offer up to $420,000.” Let your agent guide you as to whether an escalation clause makes sense and if so, how to find the precise number you’re comfortable escalating up to.
• Earnest money: This deposit is a way of showing how serious you are about buying the home. You want to put down at least 1 percent of the price of the house, if not more. I like to say that when it comes to deposits, bigger is always better. It shows you have the funds to move forward and that you’re not playing around.
• Financing: In the old days, house hunters would get “prequalified,” meaning they’d talk to a loan officer who would issue a letter saying, “Yeah, you qualify for a loan.” We’ve now moved beyond that. Many people looking for houses have already been pre-approved by an actual underwriter by providing pay stubs and bank statements. If you have that kind of verification, yours is a much stronger offer than one coming from someone with just a letter from a loan officer. Remember: Pre-approved, not just pre-qualified. Huge difference.
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• Inspections: There are a variety of inspections that can be performed on a home, some of which can point out the need for lengthy and/or costly repairs. Some may be required by the lender, but some are at the buyer’s discretion. It’s always a good idea to get a home inspection. Just like a car, systems in a house wear out and need replacing at various points in the home’s life. The home inspector is going to go through and check if you’re close to the end of usable life on any of the systems.
Keep in mind that they’re never going to walk through a house and say, “Everything’s perfect!” They’re going to find things. That’s what they’re paid to do. I recommend that you go into the inspection with the attitude that you are using it only to find out if there are major systems in the house about to blow up, for which you might not be financially prepared. I never recommend using an inspection to come up with a laundry list of little things to be fixed.
If you do find things that you feel you absolutely must have repaired, never ask the seller to fix anything; their goal is to get out as quickly and cheaply as possible, so they may cut corners. Instead, ask for money at settlement to cover the repair so you can have it done to your standards.
When you are writing an offer, try and keep it simple so you win in the end and get to buy your dream home.