It’s the biggest purchase you will ever make. And it involves more confusing paperwork and legalese than most people ever encounter.
Part of the confusion arises from what buyers want vs. what sellers will accept. Buyers want the best house at the lowest price, and sellers want the highest price for their palace. The more creative buyers and sellers are willing to be in the negotiation process, the more likely both will walk away satisfied.
“When buying or selling real property, you should keep in mind that there are, in most cases, no fixed rules as to who should pay for what,” states author and attorney Mark Warda in his book “How to Negotiate Real Estate Contracts.”
“Unless there is a specific law on the subject, you are free to make or accept any offer that suits you.”
First-time buyers who prefer to do their own haggling will find that books like Warda’s will guide them through the process.
But Warda asserts that hiring a real-estate broker can save money and time — if you choose the right one. “An experienced broker will know what items in the contract can be negotiated and how to negotiate them.”
Sellers routinely hire brokers to market their property, and it’s becoming more common for buyers to have their own brokers too. Buyers who are uncomfortable with the negotiating process can hire a buyer’s broker, a real-estate agent who represents only buyers. Typically, a buyer’s broker splits the commission with the seller’s broker.
Some brokers insist on using their own contract forms, Warda warns, so review any preset forms closely to make sure all the clauses are in your favor.
If you’ve priced your house competitively, you’ll likely get close to what you ask — maybe more if the housing market in your region is tight like it is in the Bay Area. From the seller’s standpoint, the shorter the escrow, the better. Not only will the transaction be settled sooner, but it’s less likely to fall through.
All contracts have a settlement date, but Warda says it’s also a smart idea to put time limits on the buyer’s contingencies. The buyer should have definite, though reasonable, deadlines for having the home inspected or putting together financing. Sellers also should beware of contracts that can hold them liable after the sale. Be sure to disclose all defects and agree on who will repair them.
The home-inspection contingency is common in all contracts, and some buyers use it as an opportunity to abandon the deal. Kiplinger’s Personal Finance magazine’s editors say sellers can “pre-empt this stage of the negotiations by having your own professional inspection done before the sale.” If your asking price takes any defects into consideration, make sure buyers know it.
Once you’ve struck a deal, the buyer may ask to move in early. Ask the buyer to pay per-diem rent to offset your mortgage expenses, and request a deposit to cover damages. Warda warns, however, that there are potential hazards when buyers move in before escrow has closed. Sometimes they discover defects and want to break the deal. On rare occasions, the sale falls apart and it’s hard to evict the one-time buyers who are now your tenants.
As a buyer, you have to be prepared to negotiate.
“Sellers who offer properties for sale usually do not offer bargains, and those who do find buyers immediately,” says Warda.
Remember, there’s more to a real-estate deal than price alone, and there are plenty of ways to work with a seller who won’t budge on the asking price.
For example, you can ask the seller to hold the financing at a below-market rate; the savings on interest and points may make up the difference between what you can pay and what the seller demands. Or you can ask the seller to sweeten the deal by including appliances, furniture or maybe additional property.
Some sellers will enter into a lease-option agreement, which is really helpful for buyers who haven’t cobbled together enough cash for the down payment. Lease-option agreements usually last one to two years. The potential buyers pay rent on the property at slightly above-market rates, part of which is credited toward the down payment. Potential buyers also make a small deposit, which they forfeit if they choose not to exercise their option to buy.
There are some basic clauses found in every real-estate contract. The contract should identify all parties involved — buyers should ensure that all owners of the property sign off on the deal — include a description of the property, make clear the terms of payment, include the down payment, and have the buyer’s offer and seller’s acceptance.
There are plenty of recommended clauses, too, such as specifying the closing date and place, engineering reports, environmental conditions, inspection terms and title evidence.
When it’s time to close the deal, examine all documents closely. If anything doesn’t seem right, demand an explanation. Once you’re satisfied, sign off and consider it a done deal.