8 STEPS TO BUYING YOUR FIRST HOME
Make an Offer
You've spent the past month viewing many marvelous homes, and you've finally found the one for you. It's time to make an offer! As fun as the viewing process was, it's time to get serious now and put your business cap on. There are three basic components to to an offer; Price, terms, and contingencies.
The price you offer for the home does not have to be what the seller is asking for, but it should reflect the market value of the home. Your agent will do market research and guide you in this process, but the price you offer is your decision alone.
There are six basic categories that terms fall under;
1) Schedule - This is a schedule of events that happens, and that both buyer and seller must abide by, before closing date.
2) Conveyance - A list of items that will stay in the house when the sellers leave.
3) Closing costs - Generally buyer's will pay their own closing costs, but if you would like the sellers to cover these costs, or if you want them included in the sale price, you will need to write it into the contract.
4) Commission - The commission fee for both your agent and the seller's agent must be written into the contract. It is standard for the seller to pay the commission fees, not the buyer.
5) Home warranty - This covers repairs or replacements for major appliances and systems. You may ask the seller to pay for this.
6) Earnest money - This protects the seller in the event you back out of the offer. It also shows how serious, or earnest, you are about the purchase.
Once your offer is agreed to and signed by the sellers it becomes a binding contract known as a Purchase and Sale Agreement. However, there are still ways for a buyer to back out of a deal without losing their earnest money. By adding contingencies to your offer, you are protecting yourself against unfavorable circumstances that may arise and which would cause you to change your mind about purchasing the home. There are many, many contingencies that may be added to an offer, but I will go over the most common.
1) Inspection contingency - The buyer is given 10 days to perform an inspection on the house with a licensed inspection company. Once the results are received the buyer will have 3 days to either:
- Accept the report and continue with the home purchase,
- Ask for repairs to be made at the seller's expense and continue with the home purchase, or
- Reject the report and back out of the home purchase.
The buyer can back out of the purchase in this 3 day time period for ANY REASON. There does not have to be anything wrong with the home in the report, and the buyer does not have to give a reason for backing out. However, once the buyer has agreed to the report as is, or agreed to repairs being made at the seller's expense, the contingency is removed and the buyer can no longer back out of the deal.
2) Financial contingency - This makes the offer contingent on the buyer's financing coming through. If for any reason financing is denied, the buyer may walk away from the deal.
3) Title contingency - This makes the sale of the home contingent on the house having a clean title. A title search will be done and if there are any liens (money owed) or if the seller does not have the right to sell the home, the buyer can once again walk away from the deal.
As I mentioned before, there are many different contingencies which can be added, but adding too many can hurt your chances of a seller accepting your offer. Too many contingencies may make the seller feel you are not serious about the home purchase, because you are giving yourself too many ways out. Discuss with your agent which contingencies you should use to give your offer the best chances of being accepted, while still keeping you, the buyer, protected.
You may be thinking "I have no idea how to write a contract like this!" Well don't worry, you don't have to. In fact, unless you're a lawyer, you aren't allowed to. Your agent will use a legal contract pre-drafted by a lawyer and simply fill in the correct information on the spaces provided. Your agent should explain each and every section of the contract with you, and if at any point you do not understand you should speak up and ask that it be explained again.
Once the offer is complete it will be sent to the seller's agent, who will in turn present it to the seller for consideration. Legally all offers MUST be presented to the seller, their agent can not choose to ignore your offer. There will be a time limit in which the seller must reply to the offer, usually 3 days. If the buyer changes their mind within that time period and BEFORE a response from the seller is received, the buyer can retract the offer.
The seller will likely respond to the offer in one of three ways;
1. They can accept your offer as is and sign it, making it a binding purchase and sale agreement.
2. They can make changes to the offer, such as a different price or removal of contingency, and send it back to the buyer. The buyer can then either agree to the new terms and sign it, making it a binding purchase and sale agreement, or they can make changes themselves and send it back to the sellers. The offer can go back and forth indefinitely until both parties agree on the terms, or a party chooses to walk away.
3) They can do nothing. If the seller does not wish to accept the offer, or make a counter offer, they can simply do nothing and the offer will expire. They do not need to contact the buyer.
The last thing I would like to touch on are personal notes. I have many buyers who ask me if they can include a personal note to the seller explaining who they are and why they would be the best choice for the home. Notes can always be included, but whether or not they help the offer will depend on the situation. Here are some scenarios in which a note may help an offer:
- The home in question will be getting multiple offers and the buyer would like to stand out from the rest.
- The home has been owned by one family for many decades.
- The buyer is making a fairly low offer on the home.
Agents have differing opinions on this matter, some believe notes always help, some believe they never help, and some believe it depends on the situation. Ask your agent for their advice, but remember they can't deny you if you strongly wish to include a note. One more thing you should know regarding notes is that the seller's agent is NOT required to present the note to the seller with the offer UNLESS the inclusion of the note is part of the offer.