When You're Ready to Buy
Once you've found a dream home you can afford, your agent will contact the seller's agent, who may require “earnest money” — 1 to 6 percent of the value of the home in a check or cash — and a contract that indicates the exact amount of your bid and any contingencies. Make sure that the contract gives you a few days to withdraw your bid in case you change your mind. Your “earnest money” will be returned if the deal doesn't go through — usually because you are unable to get the mortgage loan you expected — as long as this is specified in the contract.
Your agent will assist you in offering a realistic bid based on recent sales of homes in the area, one that is adjusted downward from the asking price for extra work required on the home, and upward for special features, like extra bathrooms or a pool. The exact location of the home will be a big determinant of its value, especially in cities where two blocks can mean a price difference of 5 percent or more.
In a “buyer's market,” when many homes are for sale and buyers are scarce, your agent will adjust your bid downward accordingly. In a “seller's market,” you will benefit from being preapproved and bidding high for the house you really want (and can afford).
The seller may accept your first offer, but typically he will counteroffer, asking for a higher price and/or negotiating the terms — for instance, asking that he be allowed to remain in the home for two months. Negotiations usually go back and forth a few times and will likely take a few days.
On your end, your agent can and should include some basic contingencies, as follows:
Financing: To safeguard yourself, you want the purchase “contingent upon the buyer's ability to acquire full financing at a reasonable cost.” Preapproval can virtually eliminate the need for this contingency and thus helps you snag the house you really want in a competitive market.
Inspections: This contingency is generally reflected with language reading something like “Sale will be contingent upon buyer's inspection of . . . .” Spend the money for competent home inspectors to look for water, termite, and other damage to the home. Also inspect appliances, heating, air-conditioning, and electrical systems. Even if it costs $1,000, your house is a huge investment and you need to be sure you're not buying one that will quickly become a money drain. You can find local home inspectors through the American Society of Home Inspectors online.
Closing inspection: “Buyer will inspect the property and house just prior to closing.” It's within your rights to request a closing-day inspection that allows you to walk around the property and through the home, making sure that the seller is providing the property in “as-promised” condition before the sale finally closes.
One important part of the contract is a written statement that provides full disclosure on the condition of the house — detailing past problems that have been fixed, as well as any issues that have not yet been addressed. In many cases, a seller's failure to offer full disclosure means you have recourse to make them pay for fixing problems after the fact. If you've hired inspectors and studied the full disclosure statement, you will know what you're getting and will be able to judge whether or not it's a good deal.
Alert
If the owner is selling the house without an agent, and you choose not to use an agent, it's prudent to hire a real estate lawyer to make sure that all the paperwork and closing issues are well thought through and wrapped up properly. You can find a real estate lawyer by contacting your local bar association.
Keep in mind that the costs associated with buying a home — points on your loan, appraisal fees, title fees, up to six months of local real estate tax your lender may require prepaid, inspection fees, document fees, property title transfer fees, and other charges — usually add 3 to 5 percent to the total cost of the home. Your real estate lawyer or lender will be able to give you an estimate of the closing costs you will be required to pay before you submit your offer.
You will also need homeowner's insurance, which lenders usually require to cover your home, personal property, and landscaping from theft, fires, hurricanes, and other calamities. Homeowner's insurance costs vary based on your home's location, but policies usually cost 0.5 to 1 percent of the value of your home every year — in other words, $500 to $1,000 for every $100,000 of home value insured. If absolutely necessary, you could lower costs by increasing your deductible, which is the amount you are required to pay toward repairs before the insurer pays a claim.
