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Negotiating the Price

Negotiating the purchase

Deciding how much to offer when buying a home 

In deciding how much you should offer when buying a home, there are a number of factors you should consider. 

Market value of the house for sale 

Based on sales of houses in the same area your looking in, how does the asking price of the house you’ve chosen compare with other?  

You can request this information through your real estate agent.  They will prepare a “comparative market analysis” (CMA) about the property.  This report reviews prices between comparable homes currently for sale, under contract, or just sold. 

Condition of the house

When buying a home, make sure you are aware of any major problems in the house, before making an offer.  The house should have been inspected, especially if it is not a new home.  Make sure that if there are any major problems, you have a clear idea of the repair costs. 

Circumstances surrounding the sale

Before making an offer, try to see if the owners are anxious to sell.  You may be in a good negotiating position if the sellers already have a contract on another house, and are depending on the sale of their house.  It would be to your advantage knowing how long the house has been on the market, and if the price has been already been reduced. 

Financing terms

When buying a home there are two sides to an offer, the price of the house, and the financing terms.  For some, the terms maybe more important than the price.  If the seller is offering attractive financing terms, such as paying for the title search, the home inspection, and other closing costs, the buyer might be more inclined to agree to the asking price. 

Submitting the offer 

To make an offer, submit a signed offer with a given price under specified terms to the real estate agent.  If your price reflects any flaws you encountered during the inspection, be sure to explain this in detail to the realtor.  Real estate agents are required by law to deliver your offer to the seller. 

Earnest money deposit

Earnest money deposit is money put down to demonstrate your seriousness about buying a home. 

It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price (though the amount can vary with local customs and conditions). 

If your offer is accepted, the earnest money becomes part of your down payment or closing costs. 

If the offer is rejected, your money is returned to you. 

If you back out of a deal, you may forfeit the entire amount.  

What the offer includes

The offer to purchase should include at least the following: 

  • a complete legal description of the property

  • the amount of earnest money accompanying the offer;

  • the price you are offering;

  • the size of your down payment and how the remainder of the purchase will be financed (including the maximum interest rate you are willing to pay);

  • any items of personal property that the owner has said will stay with the house or that you want to be included;

  • a proposed closing date and occupancy date;

  • the length of time the offer is valid (three to five days); and

  • the satisfaction of certain specific contingencies. 

Negotiating the final purchase price

The seller may respond to your offer in one of three ways: by accepting it, by rejecting it, or by making a counteroffer.  Always take your time in considering a counteroffer. 

Negotiating the final purchase price is usually accomplished in much the same way.  You may be expected to put a larger deposit down once the seller has signed your offer to buy.  You need not tie up the entire amount of your down payment at this point. 

Terms of contract 

There are many different “contingencies” that may be included in the contract in addition to the basic terms of the sale.  These conditions must be met for the contract to go into effect.  The following are some common contingencies that can be added to a contract. 

Financing contingency

The contract should state the buying price, the amount of down payment, the total amount, and the financing terms you will accept—as well as how long you have to find the agreed-upon financing. This is why being pre approved for a mortgage is to your benefit.  Get pre approved for a mortgage now. 

It will also state the amount of deposit being held in escrow, and which closing costs are to be paid by the buyer and which are to be paid by the seller. 

This contingency makes clear that if you don’t get the money you need at the terms you have specified, the deal is off and your deposit will be refunded.  

Inspection contingencies

You may want to specify that certain inspections are completed before the sales contract takes effect. 

Professional home inspections.  Your contract should be contingent on a satisfactory report by a professional home inspector.  If major problems with the structure or systems of the house are uncovered, you have the right not to go ahead with the purchase or to renegotiate the terms of the purchase.  

Termites.  It is standard practice to require the seller to pay for a termite inspection and to provide a written certification stating that the property is free of termite infestation and that any damage from past infestation has been repaired. 

Environmental hazards to investigate

Radon.  A lot of homebuyers want the house tested for radon.  Radon is a odorless gas that can seep into the house and cause major health problems.

For more information about radon in your area, you can call your state or county public health department. 

Lead-based paint.  If the house you are buying was built before 1950, it is almost certain that lead based paint was used.  If the house was built between 1950 and 1978, there is a chance that lead based paint was used.  This is an serious issue and should be investigated.  Even low levels of exposure to lead can have very serious intelligence, health, and behavioral consequences.  Young children, infants, and pregnant women are especially vulnerable. 

If the house was built prior to 1978, before the sales contract can be finalized, the real estate agent must provide you with information discussing the hazards of lead and if there is any lead based paint in the home.  You are also allowed ten days to have a certified inspector inspect the home for lead based paint hazards. 

For more information contact the federal lead information hotline at 800-LEADFYI 

Asbestos.  According to EPA, homes constructed during the past 20 years probably do not contain asbestos products.  You may hire a qualified professional to inspect the home.  A professional knows where to look for asbestos, how to take proper samples, and what corrective actions will be most effective.   

Hazardous waste sites.  Testing for hazardous waste involves skills and technology not available to the average homeowner or home remodeling contractor.  The EPA has identified more than 30,000 potentially contaminated waste sites nationwide.  Contact the nearest regional office of the EPA for information on the location and status of local hazardous waste sites. 

Appraisal contingency

When applying for a loan, the mortgage lender will require a professional appraisal of the market value of the property.  The appraised value of the house determines how large a mortgage the lender will be willing to give you.  If the appraised value is lower than the agreed-upon purchase price, this contingency gives you the right to withdraw your offer. 

Repair work.  You may want to specify that the sellers are responsible for ensuring that the plumbing, heating, mechanical and electrical systems are in working order at closing.  

Without this clause, you agree to accept the house “as is”.  Provide for a walk-through inspection of the house on the day of closing or several days before to make sure if all conditions in the contract have been satisfied. 

Personal property.  List in the contract everything that the owner is supposed to leave behind. Don’t rely on the seller’s verbal agreement that specific fixtures, and appliances are included in the sale. 

Closing and occupancy date.  You may also want to include a clause that the sellers must pay you rent on a daily basis in the event they haven’t moved out by the agreed-upon date.

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