STEP 4. Writing An Offer
THE ART OF MAKING AN OFFER
To write a practical contract on a home you covet can be difficult. Why? Because we’re trying to blend deep personal emotions and sound business principles at the same time.
That’s the reason we work so closely with our buyers to ensure that, regardless of how much they want a property, they don’t lose sight of negotiating the most value for the most acceptable price.
First question: Will this be a “home” or an “investment”? A "home" is where you plan to live for five years or more while covering all the family’s needs and expenses along the way. At or near the top of your list are commuting, schools, and proximity to all necessities and conveniences.
If this purchase is an investment, you’re looking at the numbers, paint colors, custom features, and any touches that make the property more appealing. Personal preferences do not matter. You’re evaluating where the property ranks in the local real estate market and its potential return in the future.
In today’s market of historically low inventory, sellers are in the driver’s seat. We work very hard to negotiate the best deal possible for the buyers, but it’s not uncommon to pay over the asking price, even the appraisal, to obtain your “dream home.”
At Georgia Move, we provide you with comparables on every showing. When you express interest in a property, we run the numbers. We scour numerous locations, square footage, and prices while also evaluating age, upgrades, and unique factors, among other considerations. We then provide you with a high and low estimate for your property of interest.
From there, the next steps are yours. Should we write the offer in the range we submitted to you? Higher than that range? Lower? We’ll also familiarize you with the market in your preferred area and the likelihood of multiple offers.
Although many agents focus solely on price when writing a contract, we know from our experience that anything can be negotiated (among them: new roofs, water heaters, HVAC systems, and more).
CHANGES IN THE MARKET
One of our tasks as your buyer's agent is to help educate you on the current market and trends we are starting to see. One of these trends includes specific "tips" or "suggestions" from listing agents and their sellers. When you first start looking at homes, some of these "suggestions" might seem strict or over reaching; in some cases we can't agree more, however if you find yourself making an offer a home that has multiple offers you might need to enact one or more of these strategies to win the property. To best show what we are seeing, we have pulled an example of a letter we have received from agents. These letters are found in the agent-only section of the MLS. We have not changed any of the wording in the letter, but we have blocked out any private information and changed the real estate firms' names.
UNDERSTANDING CLOSING COSTS
Closing costs are non-recurring expenses paid just once as a result of purchasing property with or securing a loan. When buying a property with a mortgage, typical closing cost ranges from 2-4% of the purchase price.
When purchasing a property with cash, closing costs typically run from $1,500 to $2,500, depending on the price of the property.
Most closing costs are the responsibility of the buyer. However, sellers can help pay some of these costs. The buyer’s type of loan determines the maximum contribution the sellers can pay.
For buyers obtaining a conventional loan for a primary or secondary home, sellers can contribute up to 3% for a 10% downpayment, up to 6% for 10-25% downpayment, and up to 9% when the buyer’s downpayment is 25% or more.
If the buyer is purchasing an investment property with a conventional loan, the sellers can contribute up to 2% of the purchase price.
FHA and USDA buyers can request sellers to contribute up to 6% of the purchase price. If a buyer is a veteran and decides to use his or her VA benefits, a seller can contribute up to 4% of the purchase price.
Should the buyers choose, they can request the seller contribute to closing when making an offer. In some situations, sellers will decide to pay additional closing costs rather than the costs for repairs discovered during the due diligence period.
WHEN YOU PAY IN CASH
There is no limit to what sellers can contribute when the buyer pays closing costs in cash. Sections typically paid by buyers as part of their closing costs are the Georgia property transfer tax, title and tax-record searches, preparing the limited warranty deed, and attorney closing fees. They may also pay the extra costs and expenses of closing the transaction in addition to these fees.
PRORATED CLOSING COSTS
These prorated costs include property taxes and HOA (Homeowners Association fees), solid waste (trash), and government and utility fees that cannot be terminated at the date of closing. The closing attorney is responsible for prorating all these fees.
When the property taxes are based on an estimated tax bill or tax bill under appeal, the buyer and seller will, upon resolution of the tax bill or request, make the necessary financial adjustments between themselves to prorate the tax bill correctly. In the event tax savings are resulting from a tax appeal, third-party professional costs to handle the request may be deducted from the savings for that tax year before re-prorating. Any pending tax appeal for the year in which the property is sold will be assigned to the buyer at closing.
EARNEST MONEY
Earnest money is the payment a home buyer presents the home seller to confirm that he or she is serious about purchasing the home.
While there is no standard amount of earnest money, we suggest 2-3% of the sale price of the home. However, the exact amount can vary, depending upon each situation. Our Georgia Move Realty agent works directly with you to help determine the precise amount of earnest money you should put down.
The time your earnest money payment is due is specified in your sales contract. In most cases, it is due concurrently with, or shortly after, the contract is signed by the buyer and seller.
The funds are typically held by the closing attorney, which means if you pay your earnest money by check you will make the check out to the closing attorney's firm. If you are unable to pay by check, you can always wire the funds to the attorney's office.
EARNEST MONEY & TERMINATING A CONTRACT
In most cases, and unless stated otherwise in the contract, your earnest money will be refunded if you terminate the contract during the due diligence period. A return can also occur if you did not qualify for a loan during the financing contingency period.
EARNEST MONEY & PURCHASING A HOME
In most cases, the homebuyer receives credit for an earnest money deposit at the time of closing toward the purchase price of your new home.
UNDERSTANDING YOUR CONTINGENCIES
Even though you're under contract, it doesn't necessarily mean we are done negotiating. Based on the terms of your contract, there might be several occasions in which you can cancel or renegotiate the terms of your contract. Each one of these occasions is known as a contingency. All contingencies on the purchase contract must be released in writing or they remain in effect. Until each is removed, you can still cancel the transaction with little to no monetary penalty.
Common contingencies you will find in most contracts are:
Due diligence
Financing
Appraisal
Sale of a property
DUE DILIGENCE
The due diligence contingency is the most flexible of all the contingencies. It is during this time that you may terminate the contract for any reason. This is why it is important that you do your inspections, survey, and research about the home, neighborhood, Homeowners Association
(HOA), and surrounding area before the end of the deadline. We have an in-depth guide on our website to help cover all your bases when performing your due diligence
APPRAISAL CONTIGENCY
This contingency allows you or the lender to have the property evaluated by an independent third party to create a market value of the property. If you are receiving a loan on the property, then the lender will indirectly choose the appraiser.
When the appraiser hired, they typically receive a copy of the sale contract, it is not uncommon for the appraised value to be the same as the purchase price. If the appraisal comes in above value, then good news, you have built in equity, in most every case you will not be required to pay the increased value.
If an appraisal comes in low, some lenders will allow you to appeal the appraisal, however in our experience few appeals result in the appraiser changing their evaluation or the bank ordering a new appraisal.
If the final value is lower than the purchase price agreed upon, you may ask the sellers to reduce the purchase price. If the seller refuses to reduce the price to the appraised amount then you may walk away from the deal and receive your earnest money back. If you are still waiting to purchase the property you may negotiate a new price the seller is willing to accept or pay the original agreed upon price for the property. If you decided to move forward your lender will require you to pay the difference between the appraised value and appraised value in cash and those funds used to pay the difference will not be applied to your down payment.
On rare occasions the appraisal is delayed and does not arrive back to you or your lender until after the contingencies has ended. If this is the case, you will not have a legal way to exit the contract if the appraisal comes in low and your agent has no way of extending the appraisal contingency after your due diligence period has ended.
FINANCING CONTINGENCY
The financing contingency is a time frame in which you are able to qualify for your loan reducing your financial risk. This time frame can be tight for most lenders so it is very important that you turn in all requested documents as quickly as possible. If you are denied a loan by the lender listed in the contract before the end of your contingency you can then request your earnest money back. In order for your earnest money to be returned, your lender will have to provide an official loan denial letter within 7 days of the termination. The reason for the denial cannot be because you didn't turn your paperwork in on time nor that you don't have sufficient funds to close.
If the due diligence period has ended and your lender hasn’t been able to approve or deny you for your loan before the financing contingency has expired, your agent will NOT be able to extend the contingency time period nor will you be able to terminate your contract and receive your earnest money back. This is why it is important to work with a responsive lender who can keep to deadlines. Our team typically finds experienced local lenders do this best and not those lenders part of a large national bank nor mortgage broker. Regardless of which lender you choice to use, it is important to get all documentation requested to your lender as soon as it is possible.
Even after you have received approval from your lender, that approval is typically conditional. Your lender will keep requiring you to turn in additional paperwork until the day of closing. It isn’t until you are at the closing table with keys in hand will you know the deal is done. While this might make you nervous, don't be, we’ve never had a buyer not close on their home after they have been approved for the loan as long as they used a local lender, turned in all the paperwork requested, kept their job and not open any large lines of credit before closing (such as an auto loan).
SALE OR RENT OF PROPERTY
This contingency allows you to sell or rent another property you own by a specified date. If you are unable to sell or rent your other property by that date you reserve the right to terminate the contract on your new home you are purchasing and receive your earnest money back. If you request these contingencies it is not uncommon for many sellers to require a “kick out clause” to be added to the contract.
A “kick out clause” allows the seller to continue to market their property for sale. If another buyer makes an offer on the subject property then the seller can come back to you the original buyer and ask you to remove your “sale or rent of another property". You will then have to decide if you want to move forward with the purchase of your new home, if you go this route you will have to remove the contingency and close on the subject property or be in default of the contract. Or you may keep the “sale or rent of property contingency” in place. If you keep the contingency, then the seller can decide to accept the other buyer's offer and return your earnest money to you or the seller can decide to continue to work with you.
SPECIAL STIPULATIONS
While the four most common sale contingencies can be found as exhibits to the contract, a buyer or seller may create additional contingency that fit their unique needs. Typically any additional contingency will be written up in the special stipulation section of the contract.