The Contract Offer: What Price to Start With

by David Fialk

When a decision is made to make an offer to purchase a home, be sure to go back and take a second look. It is so much easier changing your mind about a home before a contract offer is made than after a contract offer is accepted and signed by the seller. This second appointment would be a perfect time to bring along others who may have an impact on a buying decision, such as parents, friend, contractor, etc.

Go through the home a second time and look beyond the owner’s décor, whether it was the home just previewed, the first one seen earlier in the day or the one previewed last week. Why? There are many reasons, but most importantly is seeing if the second look creates the same good feeling as the first, and then taking a closer look to see if there are aspects of the home missed during the first preview which may alter the decision to submit a contract offer.

So what is the right price to start with?

That depends on a number of things, such as the risk of losing the home to another buyer, how close to market value the seller’s asking price is and what is the maximum price willing to be paid for the home. As mentioned earlier, there is no cardinal rule that there must be some fixed amount that a seller will negotiate from their asking price.

Even though the current market is considered a buyer’s market, there are many properties on the market for sale where the listing price is at, or very near market value, and where price negotiation will not be as great as other properties on the market that are priced well above market value.
In fact, don’t be surprised to find that there are multiple offers being submitted and negotiated. This does occur, more often than most buyers imagine, and it happens when a seller prices their home to sell and sets a very attractive list price to attract buyers and sell fast.

When negotiating a real estate purchase offer, the seller wants to sell at the highest price and the buyer wants to buy at the lowest price! The reality is that a home will sell for what is worth, whether a seller is looking to get more or a buyer wants to pay less. Contract negotiation is all about getting agreement.

Often overlooked by home buyers at this point in the home buying process is the experience and value of their REALTOR in the contract negotiating process. In preparing to make a contract offer, a buyer needs to obtain as much information as possible, and much of that information will be provided by their buyer agent.

This is the point in time when buyers need to have trust in their REALTOR when asking for recommendations and guidance. The truth of the matter is that this is the point in time when the buyer must know and believe that their agent’s concerns are for them, and not for themselves!
An experienced buyer’s agent should prepare, provide and review a market analysis of the home and provide the history of the listing with their client when preparing a contract offer. In addition, a buyer should also a obtain a sellers disclosure if one is available and obtain additional background information about the home, such as the sellers desired closing time frame, if any offers were previously submitted or if a contract offer is currently being negotiated. This is information buyers should have when preparing to make a contract offer. Information like this is invaluable when deciding what price to offer and how to negotiate when submitting a contract offer.

So how does a buyer start negotiating to purchase a home?

That depends on the home. There are homes on the market for sale that are simply over priced, some slightly over priced, and then there are those listings that are priced to sell. There are home sellers who are pricing their home at three year ago price levels and will sell only if they get their price, there are sellers who must sell within a certain time frame and there are sellers who just have to sell.

In contract negotiations, one size does not fit all.

While there are many homes on the market, only one buyer gets to own the home in contract negotiations. A home buyer needs to decide how much they want a specific home and at what price!

Published: July 6, 2009
Copyright © 2009. Realty Times ®. All Rights Reserved.

Dear Homeowner

by Rita Bradley

Reprinted by Permission of Realty Times

Dear Homeowner,

I was very sorry to hear about the possible foreclosure of your home. I'm sure this is a very unpleasant time for you.

I'm sure none of it is your fault. Your friends and neighbors were on their way to becoming millionaires, on paper at least, from owning real estate. You'd have to have been crazy not to take advantage of such an easy money making scheme. The friendly loan officer (that called you one night while you were eating dinner) said that real estate would NEVER go down in value! And banks really wanted to lend you the money. They visited the mortgage broker offices every week offering fabulous programs for their clients. And the fact that your job pays just a bit more than minimum wage was a simple obstacle to overcome. You just got a “stated” loan and stated that you had enough income to afford the house of your dreams. I understand, really I do.

Did you have to get that second cash-out refinance though? You'd already bought a new car, a motorcycle and furniture for the house. You'd already taken the family on an amazing vacation in Hawaii. Well okay, it was YOUR house and you had equity right? Or did you?

Do you remember when I came to appraise your home? Do you remember telling me that you wouldn't pay for the appraisal unless my appraisal made your loan work? Did you know it's illegal to pressure an appraiser like that? Do you recall telephoning my office and threatening to report me to the state appraisal board because my appraised value was “short”? That's okay, your loan officer found a new, “good” appraiser, a new appraisal was done and you got your money. By the way, not that you'd care, but your loan officer never called me again because my appraisal almost killed his deal and I lost another source of work. This happened a lot during the real estate boom. My family's cars are old, our furniture threadbare and there hasn't been a vacation in a long time because I didn't inflate appraisal values.

I'm not a whiner. I would have just faded into the woodwork on this topic but lately I've been hearing about how appraisers caused this mess and how homeowners should be helped to stay in their homes even if they can't afford them. I'm hearing that my tax dollars and those of my children and grandchildren are going to be used to help people like you who lived way above their means and are now crying fowl. It hurts to think that after all the fun you had with the bank's money and with no prospect of making good on the legal contract you signed to pay it back, that you can't just take your lumps and rent for awhile. It would be the honorable thing to do.

I was just trying to protect you that day we met, from borrowing more money than your home was worth. I hope you can appreciate that now. For the future, may I make a couple of suggestions? You might want to take a look at your household income and figure out how much you can afford a month for housing. Most financial experts recommend putting no more than 1/3 of your income into housing costs (including utilities). This leaves money for other expenses and even savings. Savings are another important component of smart money management. Having an emergency fund decreases reliance on credit cards when the car needs new tires or other unexpected things come up. This is not a good time to run up your credit cards. I would also recommend reading over any document you sign. Just because some of the print is small doesn't mean it doesn't apply to you. And finally, with all due respect, could you stop blaming appraisers for your poor decisions? You'll continue to have the same disastrous outcomes in your life until you come to terms with your past mistakes and learn from them.
Sincerely,

Your Former Appraiser

Rita Bradley is a freelance writer, online appraisal marketer and former real estate appraiser.
Published: March 26, 2009
Use of this article without permission is a violation of federal copyright laws.