You’ve found the house! Now it’s contract time. This part comes with a bit of stress. In order to keep that to a minimum, your Real Estate agent will be your go-between during the negotiations. You tell me what you’re thinking about the property and I relay the information to the seller’s agent. In this way you get to keep the seller at arm’s length and things will be much easier for everyone involved.
There are several parts to the contract and you should make sure your agent explains everything to you to your satisfaction. If you don’t understand any part of the process you should ask questions. The agent does this every day. You don’t. Make sure you are satisfied with the information you are given.
In the contract you are going to do more than just tell the seller what you want to pay for the property. You will tell him how you intend to pay for it. This is where your preapproval letter comes in. You will include this with the offer. It will show the seller you’ve talked to a lender who is willing to work with you to buy the house. You will tell him how much earnest money you are willing to pay up front with the contract. The amount of this earnest check can vary widely but I usually suggest that it equal 1% of the price of the house. This is another way you show the seller your offer is serious.
You will also tell the seller when you want to close the deal. Generally this is a date from four to six weeks out. The lender will need the time to get all of the paperwork for the loan done. There is also a place in the contract for you to ask for “extras” such as the refrigerator or the hot tub. Or maybe you want to be sure that the seller doesn’t leave the jungle gym in the back yard when he moves. There’s a place for that as well.
One of the important parts of the offer is the section on Treatments, Replacements, and Repairs (TRR for short). This is the section that gives you at least ten calendar days to inspect the property for any major defects. During this specified time you should schedule a reputable inspection company to check everything out from top to bottom. A basic inspection will cover the roof and attic; foundation and structural; electrical, mechanical, and plumbing (or EMP); and a termite inspection. Do not skip this part. You will pay around $500.00 but it is money well spent. If you’re getting a loan the lender will require the termite inspection anyway. In the TRR portion of the contract you will ask the seller to promise to repair any defects you find up to a specified dollar amount. After that, if there are still things that need to be repaired or replaced you can negotiate those items with the seller. Or if you find a major hidden defect you weren’t expecting you can cancel the contract and your earnest money will be returned to you.
Of course the biggest decision you’ll make is determining what you want to offer the seller for the property. This is where you’ll find the Real Estate agent to be very helpful. I can research the immediate area around the address and see what other comparable properties are selling for. This is a good starting point. I’ll also be able to see how long the property has been on the market and whether the seller has lowered the price since it was first listed. If the seller will allow his agent to tell me, I’ll check for current activity on the house to see if you have any buyer competition. And I’ll factor in any work that might need to be done on the house, such as new carpet or appliances that will be needed after you move in. Your offer will then be made based on all of these variables.
Finally, about the offer, everyone wants to feel like they got a good deal on their home purchase. Just remember that everyone is different, just as every house is different. What you value in a home may mean very little to someone else. If you love the house then be happy when you make a fair deal with the seller to purchase it. And be aware that at today’s market interest rates you’re saving a truckload of money on the loan. Just a few years from now after the rates have gone up you’ll be sitting in your castle smiling at your low payment.
As we discussed earlier, there is a four to six week period between the time the contract is accepted and the day you close on the property. We’ll talk about what happens during that time in the next installment of “What Do I Do Now?”
If you’re thinking about buying a home, I can help you. Call me today at 918-809-5199 and we’ll get started!
Next: What do I do now? part 5 – Closing the Deal