Negotiating

There are literally hundreds of points that you can negotiate in a real estate transaction, and it is important to feel confident about negotiating with potential sellers, or there may be a danger that a seller will talk you into agreeing to terms in a contract that are not in your best interest.

There are many potential points that can protect and enhance your purchase, including financing and home inspection contingencies. Most purchase contracts, even if they are standard documents, contain boilerplate language that may not fit your situation and may in fact be unfavorable to you. Your agent will explain the language, so that you can make an educated decision in order to make the best possible purchase decision.

Contingencies

There are two types of contingencies found in most transactions-a financing contingency, which makes the purchase conditional on the buyers' ability to obtain a loan from a lender, and an inspection contingency, which allows the buyers to have professionals inspect the property to determine potential property issues prior to entering a binding contract to purchase. You could forfeit your Earnest Money deposit under certain circumstances, such as by terminating a purchase without legal reasons provided for in the contract. In order to protect your position, your agent will make certain that the purchase contract contains provisions which protect your purchase interests including a clear and marketable title, having the seller agree to maintain the property in its present condition until closing and making any agreed-upon repairs to the property.

Furnishings

Deciding what stays and what goes is usually up for negotiation. If sellers want to take fixed items out of a house, they must specify so in the sales agreement. Appliances that are not built in such as washer, dryer, refrigerator, portable dishwasher, portable microwave, and freestanding stove are all negotiable, as is anything else not permanently attached to the property.

Comparative Market Analysis

Also called a CMA, a Comparative Market Analysis is an estimate of market value performed by a real estate agent or broker. A comparative market analysis takes into account aspects of the home you're looking at, including size, features, and annual costs associated with each home, as well as any repairs and improvements on the home. You may also receive a list of recently sold, comparable homes in the neighborhood, and a list of comparable homes currently for sale.

Earnest Money Deposit

This is a deposit paid by the prospective buyer of real property as evidence of the good faith intention to complete the transaction. The amount earmarked for earnest money usually does not exceed five percent of the purchase price and it serves as a source of payment of damages to the seller if the buyer defaults. The amount and the form of earnest money may also play into the negotiation strategy your agent employs. Once the offer is mutually accepted, the earnest money is held in trust by either the selling broker or the escrow company. Earnest money is credited toward the buyer's purchase price at closing. If closing fails to occur, the defaulting party may lose any claim they have to the earnest money deposit.

Contract Preparation

The Contract of Sale otherwise known as the Purchase and Sale Agreement is a legal document which binds the buyer to a set purchase price and binds the seller to convey the title. The contract also services as the initial directions to the escrow company to begin processing the transaction. When your agent prepares your Purchase and Sale Agreement, make sure you are perfectly clear about the following details:

Who is paying the various expenses of the sale, including closing costs?

Sellers customarily pay for the real estate commission, standard title insurance, one-half of the escrow fee and their portion of the year's taxes and assessments. Buyers customarily pay for one half of the escrow fees, their portion of the year's taxes and assessments and their loan fees. Occasionally sellers and buyers decide to share the expenses of buying and selling. This must be negotiated during the purchase offer time and often depends on local real estate market conditions, other terms of the purchase contract, the seller's cash and timing considerations.

Seller concessions, as they are known in real estate jargon, for at least part of the closing costs, are more common in a buyer's market than in a seller's market. These concessions typically occur during the offer- counteroffer-acceptance cycle. On rare occasion a seller will make further concessions during the closing time period. Any concession after the purchase contract is mutually agreed upon must be in writing and agreed to by all parties.

Some lenders will allow a credit from the seller to the buyer for the buyer's nonrecurring closing costs. But they usually won't allow a credit that reduces the amount of the buyer's down payment, or that includes any of the buyer's recurring closing costs, which include such expenses as fire insurance premiums, interest on the buyer's new loan, property mortgage insurance and property taxes. Lenders' policies vary on how large a credit for nonrecurring costs they'll allow.

What is the actual closing date?

The closing date is the date in which the net proceeds are available to the seller and the title has been recorded. It is set in the original purchase agreement by agreement between the buyer and seller. It is always nice to set a closing date that leaves you enough time to prepare to move in, and which doesn't cost you unnecessary money. The date of closing can affect your closing costs (make sure to ask your lender for a good faith estimate).

What is the date of occupancy?

Many times the seller will request to remain in the property after closing, in part to assure that closing actually occurs without the seller having moved from the property. If that is the case, the seller actually becomes the tenant of the buyer after closing, so proper documentation is needed.

Home Warranty

Home warranties are becoming more of a standard in home buying and home selling transactions. The home seller may have already purchased a home warranty. If not, you should consider buying a policy yourself at closing. Home warranties will cover the cost for repairs or replacement to most mechanical systems or most major built-in appliances for one year from the date of closing.

A professional building inspection will bring to light problems or repairs that are recommended to be made on the home. In the event that the inspection recommends one or more major repairs, the buyer and seller enter into re-negotiations on how the repairs are to be addressed. Your agent is skilled at helping you achieve your goals during this stressful phase

Appraisal

An appraisal is an opinion of a property's monetary value usually completed at the request of the lender and for the lender's benefit. Appraisers consider numerous factors such as square footage, construction quality, design, floor plan, amenities, energy efficiency, lot size, topography, view and landscaping. Other issues taken into account are neighborhood quality and a property's proximity to transportation, shopping and schools.

Title / Escrow

The final stage of a closing occurs with the transfer of title from one party to another. The commitment for title insurance is normally ordered at the listing stage and the policy of title insurance is sent to the buyer by escrow after closing has occurred.

Escrow

Escrow is the third party which transfers the money and documents (including title and deed) from the buying and selling parties. The escrow company prepares documents, draws up the closing statements, obtains necessary signatures, records documents and receives and disburses funds.

Insurance

Now that you've found a home to purchase, you want to protect your investment with insurance. Most buyers get a comprehensive homeowner's insurance policy, which provides coverage for fire damage, water damage, personal possessions, personal liability, vandalism, theft, and loss of use of the house. If you are financing your home purchase, your lender will require you to buy at least basic hazard insurance which will pay to rebuild your home even if the cost to rebuild exceeds your policy limit. Older homes and other types of property may not be eligible for this type of insurance, so it's best to talk to your representative fully about insurance options.

You can also opt to purchase cash value coverage or straight replacement cost coverage which is less expensive, but only covers the costs to rebuild your house if it's destroyed.

After the Closing

Once you've bought your home, make sure to keep your papers in order and know your rights as a homebuyer.

Tax Breaks

Of course, one of the best parts about buying a home is the tax break you receive from the government.

What's Deductible?

Interest on your mortgage

Property Taxes (but water or sewer assessment may not be)

Some Closing Costs (including home inspections, appraisals or loan application fees)

Loan points (deductible in the year that you pay them; in a refinance, the points are written off in increments over the term of the loan)

What Is Not Deductible?

Home improvement Expenses

Homeowner and Co-op dues

Insurance Expenses

For free publications from the Internal Revenue Service, call 1-800-TAX-FORM and ask for the following publications:

521 "Moving Expenses"

534 "Depreciation"

541 "Tax Information on Partnerships"

551 "Basis of Assets"

555 "Federal Tax Information on Community Property"

590 "Individual Retirement Arrangements"

908 "Bankruptcy and Other Debt Cancellation"

936 "Home Mortgage Interest Deduction"

Make a File

File all closing and settlement papers, including escrow papers, title report and your purchase and sale agreement. Also file your loan documents, inspection reports and insurance information.                                                                                                                            

There are many potential points that can protect and enhance your purchase, including financing and home inspection contingencies. Most purchase contracts, even if they are standard documents, contain boilerplate language that may not fit your situation and may in fact be unfavorable to you. Your agent will explain the language, so that you can make an educated decision in order to make the best possible purchase decision.

When you find a home you like, you can make an offer by submitting a valid sales contract which provides the details of your offer. Keep in mind the following points:

• The sales contract must be accompanied by an earnest money deposit. If the sale goes through, this deposit will go toward the expenses you pay at closing. If the contract is accepted by the seller and you do not follow through with the transaction, you will forfeit your deposit.
• You may place contingencies in the contract that allow you to get out of the agreement in case you cannot get affordable financing or sell your current home.
• You may have an option period which provides you an opportunity to have the property inspected. If the inspection turns up problems, you may want to withdraw your offer or renegotiate the sales contract. This decision must be made during the option period. If you do nothing, the sale will proceed.
• If market conditions favor sellers (numerous quick sales, rising prices), you will probably have to offer an amount close to the asking price for the home. Otherwise, another buyer may outbid you. If, however, conditions favor buyers (homes stay on the market a long time, prices flat or falling), you may want to offer something much lower than the asking price and negotiate aggressively.
• Some sellers stand firm on price because they need a certain amount of money to pay off the old mortgage or they want to feel the home was a good investment. You may be able to make a good deal by conceding price and getting the seller to pay most of the closing costs, making extra repairs or including furniture or other items not normally sold with the home.
• Your original offer might not be accepted because the seller does not accept every detail. The seller may come back with a counter-offer with modifications of your offer (most often with a higher price). You may then want to provide another counteroffer. This procedure may go on until one party rejects or accepts the offer.
• The sales contract is signed by both seller and buyer. A closing is set for sometime in the future. In the meantime, you will need to arrange financing and complete all inspections of the home.

It is important for anyone planning to purchase a home to understand the difference between a buyer's agent and the listing agent. Most people don't really understand what this means to them when they are purchasing a home.
 
The last thing you want to do is walk into an open house and start chatting with the listing agent about how much you can afford and how much you want to buy the house. That agent owes his or her loyalty to the seller - and only the seller! If you're negotiating with a pro, you ought to have a pro in your corner too!

Many buyers initially resist when presented with the option of retaining a buyer's agent; however, this hesitation  has more to do with a lack of understanding of the role of a buyer's agent than not wanting representation.

Before the advent of the buyer agency, all real estate agents were considered agents of the seller because the seller paid the commission. This was true even when an agent had been working with the buyer and was responsible for writing and presenting the offer. That meant that if the agent knew information about the seller which could help the buyer in formulating their offer, the agent was not allowed to share it with the buyer. The agent working with the buyer might know that the seller is under great pressure to sell due to a relocation, a difficult divorce or financial pressures. Prior to buyer agency, the agent showing the property to the buyer could not share this information with the buyer.

At the same time if the buyer shared information with the agent that would be advantageous for the seller to know, the agent working with the buyer had a responsibility to share this information with the seller. This never set well with me and I was very relieved when the law of agency was redefined and buyer agency became the rule rather than the exception.

But as a whole Realtors have not done a very good job in explaining this to their clients. We are bound by law to disclose our agency responsibilities but I think it makes most agents feel uncomfortable to discuss this with their clients. I try very hard to make sure my clients thoroughly understand our agency agreement and what my duties are in representing them.

When I represent a buyer it is my objective to see that my client has all the information they need to make an informed decision about the property they are purchasing. I can access county records, mls history of sales and I often get quite a bit of information from the listing agent about the seller's motivation and urgency to sell. I discuss all information with the buyer so that we can make an offer that is likely to be accepted by the seller.

If the listing agent is doing their job in representing the seller, they cannot share this information with you as it would be detrimental to the interest of the seller, their client.

Most buyers are unaware that if the listing agent shows you a home and you confide the price you are willing to pay or any information which would be advantageous for the seller to know, the listing agent has a responsibility to use that information to the seller's advantage. Although a listing agent may disclose their agency to a buyer, most will not explain this responsibility they have as the seller's agent.

By law the listing agent cannot represent the buyer!

1. Find a real estate agent that's compatible and on the same page you are. Home buying is not only a financial commitment, but also an emotional one. It's important that the Realtor you choose is both capable and a good fit with your personality.

2. Remember, there's no "perfect" time to buy, any more than there's a perfect time to sell. If you find a home now, don't make the mistake of waiting for the perfect interest rate or the perfect seller’s. Market changes don't usually occur fast enough to make that much difference in price, and a good home won't stay on the market long.

3. Accept that no house is ever perfect. Focus on the things that are most important to you and let the minor ones go.

4. Don't ask for too many opinions. It's natural to want reassurance for such a big decision, but too much input can be overwhelming and make it much harder to make a decision.

5. Don't try to be a killer negotiator. Negotiation is definitely a part of the real estate process, but trying to "win" by getting making a low ball offer is likely to lose you the home you love in a hot market.

6. Remember your home doesn't exist in a vacuum. Don't get so caught up in the physical aspects of the house itself, room size, gourmet kitchen, that you forget important issues such as amenities, traffic, noise level, etc., that have a big impact on what it's like to live in your new home.

7. Don't wait until you've found a home and made an offer to get pre- approved for a mortgage, and figure out a schedule for moving. An offer contingent on a lot of unresolved issues will make your offer much less attractive to sellers.

8. Don’t forget to consider maintenance and repair costs in your post-home buying budget. Even a new home will have some costs. Don't leave yourself short and let your home deteriorate.

9. Expect a little buyer's remorse, it is inevitable and will probably pass. Buying a home, especially for the first time, is a big commitment, but it also brings big benefits.

10. Select a home first because you love it; then think about appreciation. While a home  is a great investment, it’s most important role is as a comfortable, safe place to live.