By: Rick Davis
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Things to Consider When Making an Offer to Buy an FSBO Home
You often hear the phrase “everything’s negotiable” and that is especially true when buying or selling a residence.
Although the majority of the conversation is devoted to the purchase price for the property, there are many other considerations that can help increase the value to either the buyer or seller without changing the purchase price. This post will discuss some of the considerations and some of the default terms included in residential contracts.
Earnest Deposit: An earnest deposit is the amount of money the buyer pays to a title company or real estate attorney when signing the contract. Earnest money is used to show that the buyer is serious and to impose some risk to the buyer if they walk away without a valid reason. Although sellers may have the option to sue for additional damages if a buyer does not purchase a home as contemplated by the contract, it is usually easier just to keep the deposit. Therefore, it is to the sellers benefit to have a higher deposit and the buyers benefit for a smaller deposit. It is common for an earnest deposit to be $1,000 for a residential sales transaction, but as is the theme of this article, it is completely negotiable.
Financing: The majority of homes are purchased using a mortgage obtained from a bank, credit union, or mortgage broker. However, this is not the only way to finance a purchase. If you have the money to pay of the home in cash, the closing can be much quicker and the seller will often agree to a lower price because they do not have the risk you won’t be approved for a mortgage on the property. Additionally, a buyer may ask the seller to finance all or part of the purchase through a loan or “contract-for-deed” transaction. (For a quick discussion of some the issues that can arrise in a contract-for-deed transaction, see the post Contract for Deed Horror Stories). If you are considering one of these seller-financing options, I strongly recommend the use of an experienced real estate attorney.
As-Is or Inspections: The majority of homes are sold after the completion of inspections of the property and the buyer approving the condition of the property. However, in an “As-Is” purchase the buyer agreed to take ownership of the home without any inspections and in its current conditions. It is more common for a real estate investor to purchase a home “As-Is” than it is for a buyer looking for a new primary residence. With that being said, buyers who are handy and have the skills to assess the condition of the property on own, can save a significant amount of money when purchasing a home “As-Is” as the seller does not have to worry about passing inspections. I recommend, however, that buyers who don’t have experience with construction or home remodeling, don’t purchase a home “As-Is” unless they are prepared for the possibility of unexpected expenses after taking over possession of the property.
Timing Considerations: How much time is provided for inspections? When must the buyer receive a commitment from the lender? When will the purchase be finalized? These are all questions that can be considered when making a purchase offer. If you won’t be moving to town for two months, you might want to offer a later closing date. If your lease runs up on your apartment in two weeks, you may want to consider a quick closing. Generally speaking, a seller will perfer a shorter period to closing, but various factors such as her housing situation may cause the seller to have different preferences.
Home Warranty: It is becoming more and more common for sellers to offer to purchase a home warranty. A home warranty is a contract with a company to repair items within the home if they break during the contracted time period. These warranties may cover only the major components (such as electrical, plumbing, heating and air conditioning) or they may cover everything including repairs to household appliances. It is common for a policy to have a “trip charge” for service requests and/or a deductible. In addition to requesting a home warranty, a buyer can make specific requests with regards to the scope of coverage, deductibles, or other costs related to the warranty.
Closing Costs: This is becoming less common in the improving real estate market, but if a buyer has limited cash available for a down payment, they may request the seller pay all or part of their closing costs. Lenders will often place limits on what a seller can and can not pay and it is often best to think of seller paid closing costs not as being paid by the seller but rather as being added onto your mortgage. This is because more so than any other item, seller-paid closing costs tend to lead to a dollar to dollar increase in the price the seller is willing to accept for the property. The default terms with regards to closing costs in this area are that the buyer will paid all costs related to inspections, appraisals and costs related to obtaining a mortgage (including any lender title insurance policies). The seller will generally pay for costs related to the owner’s title insurance policy, absent a separate agreement between the parties.
Furniture/Household Items: When touring the home did you love the kitchen table or the large sectional they had in the basement? Was there refrigerator in the bar in the basement or a neon sign that would look good in your man cave? Although not commonly considered, a buyer can ask the seller to include these items in the purchase. On the other side of the coin, if the seller has a love for that stove and wants to take it their new home, they can ask that item be excluded. It is important that buyers and sellers ensure they are on the same page about exactly what is and isn’t included in the sale. There is nothing worse than purchasing a home because of its large and well-kept rose bushes in the front yard, only to find the seller had removed them just before closing.
Improvements: Did you love the home but hate the green bathroom? Do you think the flooring needs to be replaced in the kitchen? Although it is most common for a buyer to purchase a home and make improvements after taking over possession, a buyer can ask the seller to make these improvements prior to closing. Much like the discussion of seller paid closing costs above, these requests will often lead to an increase in the overall price the seller will accept for selling the property, but can allow the homeowner to have a finished home prior to moving in. Where this situation arises most commonly is when there is an issue with the home that may prevent it from passing inspections required by the lender. In these instances, a buyer may as the seller to make the improvements as opposed to doing it themselves as they will be unable to purchase the home at all with at the improvements.