SURE Sales Group Ep. 3 – Elements of an Offer

There are a lot of elements to carefully consider when making an offer to buy a piece of real estate.  Buying real estate is unlike buying any other product or service.  It is normally the largest purchase people make in their lifetime.   It is one of the only products that banks are happy to loan consumers hundreds of thousands of dollars to buy.     There are technical based aspects and nuanced based aspects to make an offer on a property.   Here are the main elements:

•  Purchase Price
  • Technical – This is the price the buyer is offering to pay for the property.
  • Nuance – The purchase price can easily be manipulated in conjunction with other elements to achieve a win win situation for the buyer and seller.   Example: A buyer can raise his purchase price by $10,000 and ask  the seller for a $10,000 concession towards the buyers closing costs.   This allows the buyers out of pocket expense at settlement to be reduced by $10,000, however the buyer will have to pay $10,000 more for the house.  The result is the buyers loan goes up by $10,000 but the cash required from the buyer goes down by $10,000.  The buyer gets to keep $10,000 in his bank account in exchange or a $50/month higher monthly payment and the sellers net take home proceeds do not change!
• Closing Costs
  • Technical – all of the costs associated with achieving a successful transfer of property.  Normally the total closing costs for a property are around 3.5%.  Closings Costs consists of 2 separate categories.
    • Pre-Paid Items: Pre Paid Items are items that lenders want the borrower to “pre-pay” in order for the lender to fulfill the loan.  Pre Paid Items normally consist of 3 to 12 months of property taxes up front (this can be a significant figure depending on number of months of pre payment required and the current tax bill on the property).  The other main item lenders want “pre paid” are home owners insurance.
    • The actual “closing costs” – The other items that contribute to the Closing Costs are – State & Locality transfer and recordation fees & Title fees. (See HERE for complete breakdowns in Maryland).  In baltimore city the total transfer and recordation fees are 3% (split equally between the buyer and seller  1.5% each).   Title fees are associated with ensuring the property is free and clear of any liens or defects and is able to be properly transferred from the current owner to the new owner.
  • Nuance – Although the closings costs are assumed to be paid by the buyer since they are costs associated with getting the loan & transferring title, it is common for a buyer to ask a seller to pay for their closing costs.  The amount of “closing costs contribution” a buyer can get depends on the type of loan the buyer is getting and the amount of down payment the buyer is putting down on the home.
    • You must know how much your closing costs will be so you know exactly how much you can ask for.  Theres nothing worse than negotiating for $15,000 towards closing costs when you only need $13,500 to pay for all closing costs.
    • Do not be afraid to increase your sales price in order to receive closing costs help.  Depending on current interest rates, every thousand dollars you increase your purchase price only impacts your monthly payment $5-$7/month while hardly effecting your down payment.
    • Although the rule of thumb is to have buyer and seller split the “transfer & recordation” fees, this is negotiable
• Contingencies – Specific protections within a contract that must be satisfied in order to move forward with an enforceable contract.   Theres not a whole lot of technical vs nuance here.  How you handle the results in an effort make both sides happy however is another ball of wax.   Here are the basics:
  • Home Inspection – Buyers usually want to have a home inspected prior to taking next steps to close on the home.   The normal timeframe for a home inspection contingency is 10-15 days (completely negotiable).
  • Financing – When the property is being financed with a mortgage loan, there should always be a financing contingency in place.   If the buyers are unable to get the loan – they can exercise their financing contingency and remove obligation from the contract.  A major factor in an offer is what type of financing is the buyer getting, the most common forms are conventional loans, FHA loans, and VA loans.  Each has different rules and regulations.
    • Part of every financing contingency is the appraisal contingency.  The lender sends out a 3rd party appraiser to determine the value on the house.  The bank or mortgage broker needs to make sure the asset (home) they are going to lend money on is worth the price you have agreed to pay!
      • What happens if the house does not appraise for the purchase price?  What happens if the home appraises for way more than the purchase price? – Call ME – I’ll explain – lots of variables in this situation.
  • Other Contingencies – Home Inspection and Financing are the most common contingencies, but there are many, many more.   Essentially the buyer can say before I do X, I want to make sure Y happens.   Fill in the blanks.    Example:   Before I order my home inspection (X) I want the seller to replace the roof (Y).   It can be anything – EVERYTHING is negotiable.
    • See attached “Property Inspections Addendum” – there are spaces for 7 types of inspections, the 7th being “additional inspections” – for whatever a buyer may want inspected.
• Settlement Date
  • Technical – The date “closing” or “settlement” occurs.  Those words mean the same thing.  Its the day the buyer and seller formally sign all of the documents, $ changes hands, and the title to the property is transferred from the seller to the buyer.
  • Nuance – It is an art to investigate and find what dates are optimal for the buyers and what dates are optimal for the sellers.   In the video above I describe how there can be major implications on the rest of the terms if one party can get what they want in terms of settlement date.   Entering into a negotiation and discovering where one party is flexible and the other is not can give one party a distinct advantage.  Thus, it is very important to understand where YOUR flexibilities lie and try to use them to your advantage.  This concept applies throughout the “offer elements” but is most prevalent in the settlement date category.
• Earnest Money Deposit (EMD)
  • Technical – This is the amount of money that the buyer agrees to put in an escrow account, in good faith, at the beginning of the contract.   It shows that you have liquid funds and are willing to participate in the contract terms.
  • Nuance – The buyer likes this number to be low, and the seller wants this number to be high.  The $ goes towards the buyers down payment at closing, so there isnt any risk – unless there is a breach of contract.  When a buyer puts up a larger than normal (1%) deposit up, it is often looked upon favorably by the seller.   All else being equal, a seller would normally accept an offer with a significantly higher deposit!

There are many more factors that go into the offer and negotiation process of a home.  The video and bullet points above give a minor overview.   For any questions – reach out to us on ANY platform(Facebook, LinkedIN, Instagram, Twitter) or through your preferred communication channel (Call, Text, Email) , and we will get back to you shorty.

RESIDENTIAL CONTRACT OF SALE

PROPERTY INSPECTIONS ADDENDUM

SELLER CONTRIBUTION ADDENDUM – CLOSING COST

FIRST TIME HOME BUYER ADDENDUM – TRANSFER & RECORDATION FEES

CONVENTIONAL FINANCING ADDENDUM

FHA FINANCING ADDENDUM