Benjamin Harris; Broker, C.S.S.

Posts Tagged ‘Buying’

When you prepare an offer to purchase a home, you already know the seller’s asking price, but what price are you going to offer and how do you come up with that figure?

Determining your offer price is a three-step process. First, your agent looks at recent sales of similar properties to come up with a price range. Then, your agent analyzes additional data, such as the condition of the home, improvements made to the property, current market conditions, and the circumstances of the seller. This will help you settle on a price you think would be fair to pay for the home. Finally, depending on your negotiating style, you adjust your “fair” price and come up with what you want to put in your offer.

Comparable Sales:

The first step in determining the price you are willing to offer is for your agent to look at the recent sales of similar homes. These are called “comparable sales.” Comparable sales are recent sales of homes that compare closely to the one you are looking to purchase. Specifically, your agent needs to compare prices of homes that are similar in square footage, number of bedrooms and bathrooms, garage space, lot size, and type of construction.

If the home you are interested in is part of a tract of homes, then you will most likely find some exact model matches to compare against one another.

There are three main sources of information on comparable sales, all of which are easily accessed by a real estate agent. It is somewhat more difficult for the general public to access this data, and in some cases impossible. Two of the most obvious information sources are the public record and the Multiple Listing Service.

Comparable Sales in the Public Record:

The most accessible source of information on comparable sales is the public record. When someone buys a home the property is deeded from the seller to the buyer. In most circumstances, this deed is recorded at the local county recorder’s office. They combine sales data with information already known about the property so they can assess property taxes correctly.

Provided there have been no additions to the property, the information available from the public record is usually correct regarding sales price, square footage, and numbers of rooms. This makes it easy to use the public record as a source of data for comparable sale information.

One problem with the public record is that it tends to run at least six to eight weeks behind. Add another four to six weeks for the typical escrow period and you can see the data is not current. The most current information is the most valuable.

Comparable Sales in the Multiple Listing Service:

Most of the public is aware that the Multiple Listing Service is a private resource where Realtors list properties available for sale. Recently, the public has been able to access some of that information on such sites as Realtor.com, PensacolaMLS.com, and others.

Once a property is sold and the transaction has closed, the selling price is posted to the listing in the Multiple Listing Service. Over time, it has become a huge database on past sales, containing much more information on individual homes than can be gleaned from the public record. This information is only available to real estate agents who are members of the local Multiple Listing Service.

Your agent will provide you with this data to help determine your offer price.

Comparable Sales – Pending Transactions:

The most valuable information would be the most current, of course. A sale last week has more validity in helping you determine a purchase price than a sale from six months ago. The problem is that there is no actual record of the sales price until the transaction is completed. The information is not available in the public record because no deed has yet been recorded.

Neither is the information available in the Multiple Listing Service. Once a property is under contract, it becomes a “pending sale”. Purchase price is not posted until it becomes a “closed sale.” This protects the seller in case the transaction falls apart and the property is placed back on the market. It would give an unfair advantage to future potential buyers if they already knew what price the seller had been willing to accept in the past.

Other Factors Influencing Your Offer Price:

Gathering and analyzing information from comparable sales helps to establish the range of prices you should consider when making an offer to buy a home. More weight should be given to the most recent sales, but even so, your agent will need to do a bit more analysis before setting upon a recommended price for you to offer. That is because there is a  need to consider the condition of the property, improvements, the current market, and the circumstances behind the seller’s decision to sell.

How Property Condition Affects Your Offer:

Since you have toured the property you are interested in, you should know how it compares to the general neighborhood. All you have to do is put the home in one of three categories – average, above average, or below average.

When evaluating a home’s condition, there are a number of things you should consider. Structural condition is most important – items such as walls, ceilings, floors, doors and windows. Then paint, carpets, and floor coverings. Pay special attention to bathrooms and bedrooms and whether the plumbing and electricity work efficiently. Look at the fixtures, such as light switches, doorknobs, and drawer handles. The front and back yards should be in reasonably good shape.

The missing ingredient will be information on the condition of the homes from your agent’s comparable sales list. Provided you chose the right agent to represent you, they will have actually visited most of those homes and be able to provide key insights.

How Home Improvements Affect Your Offer Price:

Even when comparing exact model matches within a tract of homes, you should note whether the previous owners have made any substantial improvements. Cosmetic changes should be largely ignored, but major improvements should be taken into account. Most important would be room additions, especially bedrooms and bathrooms. Other items, like expensive floor tile or swimming pools should be taken into account, too, but should be discounted. A pool that costs $20,000 to install does not normally add $20,000 in value to the home. Rely on your agent to give you guidance in this area.

How Market Conditions Affect Your Offer Price:

A hot market is a “seller’s market.” During a seller’s market, properties can sell within a few days of being listed and there are often multiple offers. Sometimes homes even sell above the asking price. Though most buyer’s want to get a “deal” on a home, reducing your offer by even a few thousand dollars could mean that someone else will get the home you desire.

A slow market is a “buyer’s market. During a buyer’s market properties may languish on the market for some time and offers may be few and far between. Prices may even decline temporarily. Such a market would allow you to be more flexible in offering a lower price for the home. Even if your offered price is too low, the seller is likely to make some sort of counter-offer and you can begin negotiations in earnest.

More often than not, the market is simply “steady,” or in transition. When a market is steady, no real rules apply on whether you should make an offer on the high end of your range or the low end. You could find yourself in a situation with multiple offers on your desired house, or where no one has made an offer in weeks.

Transition markets are more difficult to define. If the economy slows unexpectedly, as it did in the early 1990′s and again in 2007-2008, people who buy on the high end of a seller’s market (like the late eighties and again in 2003-2005) could find their home loses value for several years. So far, no one has proven reliable in predicting when markets change or how good or bad the real estate market will become.

How Seller Motivation Affects Your Offer Price:

Truthfully, it is rather rare that a seller’s motivation will dramatically affect the price of a home, but it is often possible to save a few thousand dollars. The most common “motivated seller” is someone who has already bought his or her next home or is relocating to a new area. They will be under pressure to sell the home quickly or face the prospect of making two mortgage payments at the same time. Since that can drain a bank account quickly, most sellers want to avoid such a situation and may be willing to give up a few thousand dollars to avoid the possibility.

There are also family crises that can motivate a seller to make a quick deal. However, when you see a real estate ad that mentions “divorce,” “motivated seller,” “relocation,” or something to that affect, beware. Although the facts may be true, that does not necessarily mean the seller is motivated to make a quick and costly sale. Most likely, the ad is more designed to generate phone calls and leads rather than sell the home.

However, there are times when a seller is truly distressed, willing to make a quick sale and sacrifice thousands of dollars. With the seller’s permission, the listing agent will post this information along with the listing in the Multiple Listing Service. They may also inform other agents during office and association marketing sessions or by flyers sent to other real estate offices. Provided this information has been made generally available to Realtors, your agent should know when a seller is truly motivated and when it is just “puff” designed to elicit interest in a property.
The exception is when an agent is selling a home they have listed themselves or selling a home that was listed by another agent from their own company. In such a situation, the agent may be acting as an agent for the seller, or as a “transaction broker,” providing limited representation to both you and the seller. In such a situation, they cannot legally provide you with information that would give you an advantage over the seller.

The Final Decision on Your Offer Price:

Comparable sales information helps you to determine a base price range for a particular home. Adding in the various factors like property condition, improvements, market conditions, and seller motivation help determine whether a “fair” price would be at the upper limit of that range or the lower limit. Perhaps you will feel a fair price is outside of that price range.

The “fair” price should be approximately what you are willing to agree on at the end of negotiations with the seller. The price you put in your offer to begin negotiations is totally up to you and depends on your negotiating style. Most buyers start off somewhat lower than the price they eventually want to pay.

Although your agent may provide advice and guidance, you are the one who makes the decision. The price you put in the offer is totally up to you.

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Congratulations on the purchase of your new home! Now that you have taken ownership of the property you will need to have your local services such as electricity, cable, and phone set up. Also, you should already be aware of the expenses that are typically associated with owning a home. Neighborhood Association fees, landscaping costs, and annual taxes should be budgeted for throughout the year to keep from getting into a financial bind.

As your agent, I can save you time and money by helping you coordinate the set-up of these local services. I already know who the local vendors are for such services as water and electricity, as well as others, so I can help provide you with a list of contacts.

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Closing is where ownership of the home is legally transferred from the seller to the buyer. It is a formal meeting in which most parties involved in the buying/selling process will attend. Closing procedures are usually held at the title company’s office or lawyer’s office. Your closing officer coordinates the document signing and the collection and disbursement of funds.

In order for the closing to go smoothly, each party involved should bring the necessary documentation and be prepared to pay any related fees (closing costs). There may be more than one form of acceptable payment for your closing costs so ask the closing officer which form of payment will be required and to whom it should be paid.

Sellers sometimes pay for a portion or all of the closing costs, depending on local market conditions, terms of the purchase contract, and the seller’s cash and timing considerations. Any such concessions should be acknowledged in writing. Most lenders will allow a credit from the seller to the buyer for the non-recurring closing costs. However, they usually won’t allow a credit that reduces the amount of the buyer’s down payment or any of the buyer’s recurring costs, such as expenses for fire insurance premiums, Private Mortgage Insurance (PMI), or property taxes.

As your agent, I can save you time and money by being present at the closing, reading the documents on your behalf and answering any questions or helping to resolve any issues that may come up. I will also be available to manage any last minute or unexpected details that come up.

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As the closing date draws near you will need to be in contact with the escrow company or closing attorney and your lender to make sure that all the necessary documents are being prepared. You will also need to confirm that the documents will be delivered to the correct location so they can be reviewed and that they will be ready on the appropriate date. At this point, you should find out what form of payment you will need to bring to the closing for any unpaid fees. Make sure that your payment is made out to the appropriate party.

As your agent, I can save you time and money by coordinating the necessary documentation with your closing officer. I will work with the closing officer as your agent to insure thoroughness, accuracy, and timeliness. Making sure that each document is ready and available will enable you to have a quick, easy closing.

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After your offer has been accepted, the property will need a thorough examination. Working with your lender, you may need to have a formal appraisal and a survey done for the property designated in the contract. A property inspection, a foundation inspection, and an environmental inspection may also need to be completed to make sure that the property is up to the standards set forth in your written agreement. If there are issues or inconsistencies brought to light during this time, it may delay or even nullify the contract depending on the contingencies set forth in the contract. Having these procedures done in a timely and professional manner is a must. Investigate each vendor to make sure that they are reputable and have a clean operational history.

Homeowner insurance is another very important item that will need to be taken care of at this point. Insurance experts recommend that you obtain insurance equal to the full replacement value of the home. Unless you have insurance coverage on the home, the closing cannot proceed.

As your agent, I can save you time and money by supervising the coordination of all necessary vendors and serving as your advocate when working with each vendor. I will make sure that the vendors have access to the property at the appropriate times to perform their procedures and oversee the execution of those procedures on your behalf. My experience in this area will be invaluable in making sure that everything is completed on time and in a professional and legal manner.

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Once your offer is made there may need to be some negotiating in order to reach an agreement. Keep in mind that almost everything is negotiable when you are buying a house. This can give you a great deal of leverage in the buying process, that is, if you have adequate information and you use it in an appropriate manner. Some of the things that you may have to negotiate on are:

• The price
• Financing
• Closing costs
• Repairs that need to be done
• Appliances and fixtures
• Landscaping
• Painting
• Occupancy time frame

The key to successful negotiating is keeping in mind that the end result must make both you, the buyer, and the seller happy. Otherwise, negative feelings will persist throughout the remainder of the process and someone may walk away feeling that they were not treated fairly.

As your agent, I can save you time and money by representing your best interests and negotiating on your behalf. I have the knowledge and expertise necessary to make sure that your offer is accepted at the best price and terms possible for you.

Again, as your agent, I can save you time and money by making sure that your contract meets all the legal requirements according to local and national guidelines. I will be able to expertly advise you on how to create an offer that will have the best chance of being accepted. Also, I will ensure your financial position as the buyer by including any necessary contingencies which would protect you if a particular requirement is not met.

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Now that you have found the home you would like to purchase, it’s time to make an offer. Taking into account the recent sales of homes in that neighborhood which are similar in size, quality, conveniences, and amenities, what are you willing to pay for the home?

Make sure that you have everything down in written form… no verbal agreements. Present the seller with a written document detailing what needs to be done by both parties to execute the transaction. The contract should protect the best interests of all parties involved and should be comprehensive in nature. Once it is accepted by the seller, it may be too late to make any changes, so make sure review your offer thoroughly before submitting it. The contract, though not limited to this list, should include the following:

• A legal description of the property
• The offering price
• The down payment
• Financing arrangements
• A list of fees and who will pay them
• Amount of the deposit
• Inspection rights and possible repair allowances
• The method of conveying the title and who will handle the closing
• A list of appliances and furnishings which will stay with the home
• The settlement date
• Any relevant contingencies

Remember that the legalities of this phase are very important. If you have any questions or concerns, they need to be addressed right away. After all, no one has ever said at their closing, “I wish I had asked fewer questions.”

As your agent, I can save you time and money by making sure that your contract meets all the legal requirements according to local and national guidelines. I will be able to expertly advise you on how to create an offer that will have the best chance of being accepted. Also, I will ensure your financial position as the buyer by including any necessary contingencies which would protect you if a particular requirement is not met.

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There are a few ways to go about doing this. You can access local publications highlighting available real estate in the area, you can contact local Neighborhood Associations, visit the local Chamber of Commerce, look on the Internet, and you can even drive through neighborhoods that you feel would meet your needs. Driving around a particular area looking for a home that is for sale is good because you can actually see the house, but it can be very time consuming and very “hit or miss.”

As your agent, I can save you time and money by keeping you up-to-date on available properties that possibly meet your criteria and I will screen these properties for you. You can eliminate the haphazard searching through papers and the Internet and let the listings come to you through me. Then, when you find one that you like, I will arrange for you to walk through the property when it is convenient for you.

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Now that you have your list of needs and wants and you know how much you can afford to spend, it’s time to look at some houses! Well, not just yet. Step back for a moment and consider the larger picture. People don’t just buy a house, they buy the neighborhood the house is in. Think about that…if you found the perfect house but it was in a neighborhood that was not to your liking, would you make an offer on it? Most likely the answer would be, “No.”

So, you will need to make another list of what type of neighborhood you want to live in. You will most likely want to consider things like how living in the neighborhood will effect your drive time to and from work, what amenities are offered (swimming pool, tennis courts, park, etc.), and, if you have children who are attending school or soon will be, what school district you will be in and how close the schools are. You may even want to make two lists just like you did with your home criteria.

As your agent, I can save you time and money by taking the information from your list of needs and wants for your home, your preapproval, and your list of needs and wants for the neighborhood and incorporating them into a broad search profile which will then be narrowed down to specific areas dictated by the market in which you will be looking. My experience in the local market will be an invaluable resource during this step.

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Now that you have your list of features you want in your new home, you are ready to start looking! Well, not just yet. You are going to need to know in what price range to look. There are two ways to go about this. You can get prequalified or preapproved for a mortgage. Either way you will need to contact a mortgage company. If you are unsure of a mortgage company to use, I can help with a referral.

There are some key differences between prequalification and preapproval for a loan that you need to be aware of. Loan prequalification is a simple process. It takes into account very basic information regarding your financial status and gives you an amount for which you may qualify. This can be done strictly on a verbal level or electronically over the Internet. The prequalified amount is based solely on the information you provide. In most markets, prequalified buyers usually hold little clout compared to preapproved buyers due to the fact that the information given during the prequalification process is not thoroughly investigated and therefore may be unreliable. Where a preapproved buyer is actually approved for a loan of a certain amount, a prequalified buyer is only told that they might be approved for a certain amount.

Preapproval is a much more involved process. The lender will take all pertinent information regarding your finances and perform an extensive check on your current financial status. This will ultimately give you the exact amount that you will be eligible for (depending on what type of loan you decide to go with). Being preapproved lets the seller know that you have gone through an extensive financial background check and there should be no unexpected obstacles to buying the home. You can see how being preapproved would be more attractive to a seller than just being prequalified.

The type of mortgage you apply for will depend on many factors, but the majority of that decision will be based on your ability to pay a monthly installment. If you can only afford a $1000 dollar a month payment, you are not going to go out and buy a $250,000 home, unless you have a large sum of money set aside to make a sizable down payment!

Once you have determined what you can afford, the next step is to choose a mortgage plan. There are many different mortgages out there, so take some time and explore all of the possible plans for which you qualify. You could save yourself thousands of dollars in the long run!

Your agent can save you time and money by being your professional guide through the entire loan process. They will be able to counsel you on the advantages and disadvantages of certain types of loans and help you understand the “real” cost of a mortgage.

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