Housing...Inside and Out

October 20, 2000
Negotiating The Price For Your Home

You have found the house you want! Now what do you do?

If you have done your homework, you will be familiar with the location, know whether the floor plan will work for your family, and have a list of repairs or improvements that may need to be made. Now you should be able to determine how much you are willing to offer for the house. You need to set a limit and stick with it.

The purchase process begins when you complete a form called an "offer to purchase." The offer to purchase lists things like the price you are willing to pay and other conditions of the sale. The offer to purchase is presented to the seller by your real estate agent.

Take this form very seriously because its conditions are legally binding! You can withdraw your offer only if the seller has not already signed it. If the seller accepts your conditions and signs the offer to purchase, the form becomes a sales contract. You cannot change any of the conditions of the sales contract without additional negotiations and possibly loss of money.

Standard forms make the process of preparing an offer easy and almost risk free. The standard form provides much of the legal language your offer should contain and identifies many of the items you will want to include. However, you must make many important decisions. If you have questions, consult a real estate attorney. It is easier and safer to consult an attorney while you are completing the offer to purchase than to try to correct mistakes after the sales contract has been drawn up and accepted.

NEGOTIATING POINTS:

Purchase Price

The value of every house is assessed by local governments for tax purposes. This assessed value can give you an idea of the market value of the house you are considering. Consider the cost of necessary repairs. You can use these to justify offering a lower price. A seller with a house that has been on the market for a long time may be willing to accept a lower price. If houses are not selling in a community, the seller may be more willing to compromise in order to sell. Sellers generally set asking prices so that they have room to negotiate. Your offering price opens these negotiations.

Contingency Clauses

Contingency clauses (sometimes called "jump out" contingencies) can protect you from possible problems or events. Listed below are three of the many contingency clauses. The more experienced your real estate attorney or agent, the greater protection he or she can build into the offer to purchase.

The subject-to-financing clause allows you to safely make an offer to purchase before you know what financing terms you can obtain. If you cannot secure the loan, mortgage terms, and maximum interest rate you are willing to pay, you can legally withdraw your offer.

The subject-to-inspection clause allows you to modify your offer to purchase if you are not pleased with the results of a professional inspection of the home. Two out of five houses for sale have at least one serious defect that could cost at least $500 to repair. The inspection may be of the entire house or just a part, such as a septic system. You will probably be required to arrange for and to pay for the inspection, but if repairs are needed the costs can be covered when the offer is modified.

A house sale contingency clause permits trade-up home buyers time to sell their present house to finance a new one. Many sellers object to this qualification, but when real estate is moving slowly and the seller needs to get a commitment from a buyer, it is sometimes accepted.

The following six clauses are usually included in standardized offer-to-purchase forms.

  • The property is not subject to any public improvements, such as major highway construction, that will significantly reduce the property's value.
  • The property is not subject to any administrative or legal orders to correct faults, such as building inspector ordering changes in an out-of-date plumbing system.
  • The owner is not aware that the property has mechanical or structural defects, such as a faulty air conditioning system or leaky roof.
  • The seller guarantees the property is not in a flood plain.
  • The seller agrees to repair any property damage that occurs between the date of the accepted offer and date of sale.
  • The seller guarantees that the property title is free and clear of any title defects that have not already been mentioned by providing a warranty deed. A warranty deed does not guarantee the soundness of the structure or mechanical systems.


Written by Dr. Francis Graham (Retired)

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