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Thursday, February 27, 2014

I’ve found a house that I really like and I’d like to make an offer. What do I need to know?


Part 4 of a ten part series of post on the real estate process.  I’m ready to make an offer. What happens now?
Answer - If you have settled upon a house that you think you would like to make an offer upon, inform your doesn’t quite happen the way it portrayed on television on shows like House Hunters and The Property Brothers. There’s a little more to it that you see on TV. It also takes a little more time than they portray.
agent. This is where your Realtor does some of his/her most critical work. It

It might be a mistake to eagerly head back to the Realtor’s office after seeing the house that you want and trying to do all of the necessary work on the fly, so that you can make an immediate offer. It can be (and has been) done, but doing so in such haste can also lead to mistakes or costly errors. If you try to do that, figure on a good hour or two at the office.  After the showing of the house that you want to bid upon have a good discussion with your Realtor at the house or back at the office; so that he/she can go over all of the things that you can accomplish at that point and help you make a list of things that may need to be quickly done by you or by him.

If he/she hasn’t already done so, they will do a quick Comparative Market Analysis (CMA) on the property and come up with a fair offer price. The agent will also procure the Seller’s Disclosure Statement for you to review, if you have not already seen it, and let you look at the disclosures that the seller is making about the house. Sellers are required to truthfully list disclosure about anything that might materially affect the value of the house, such as known water damage or flooding, any known insect infestation that required remediation, any mold problems that required remediation and information in many other categories. There is also a section in the Sellers Disclosure that asks him/her to state the condition of the house and the major systems in the house, such as the furnace and water heater. The Seller's Disclosure is a legal document, which provides the buyer legal remedies (including a complete refund on the deal) if it is proven later that the seller made false statements on the Seller’s Disclosures document.

Your Realtor will also check to see if there is a Home Owner Association (HOA) and ask to see the Master Deed and By-Laws. For information on what to look for in the HOA By-Laws, check out this Realty Times article on HOA CC & R’s. Don’t worry if you can’t get this done before making the offer. You will usually be given time after the offer is accepted to review the Master Deed and By-Laws in detail. Ask your agent to make sure that there are provisions for that review in the offer and for you to back out if they turn out to be onerous.

Hopefully by now both you and your Realtor know how you are planning to finance the purchase – Conventional, FHA, VA, USDA or other. That will influence which Addendums might need to be added to the Purchase Agreement (PA). The agent will also need a copy of the Mortgage Pre-Approval letter that you
have from your mortgage person, if you haven’t already given them one. If you didn’t do so already, go over with your agent all of the things  on the MLS sheet while at the showing; so that you and the agent will know what appliances are offered with the property, in case you want to ask for others that might not be offered , That will need to be on the PA, too. The agent will know from the MLS sheet whether the property is on a well and septic system (possibly another Addendum covering well and septic inspections); whether the seller has offered a Home Warranty or not (something else that needs to be specified on the PA); whether the seller has asked for occupancy after closing or not; and other factors that he will need to know, in order to properly fill out the Purchase Agreement. He/she may ask you about those issues, explain the options that are available to you and ask how you want them handled. The agent will also need to know how quickly you would like to try to get into the property, although the process timeline is dictated as much by the mortgage process as anything these days. He will also ask you want kind of deadline for a response you wish to put in the PA.

If you haven't already done so, you should think about or research the other neighborhood factors that may still influence you - location of nearest shopping and eating facilities, location (and reputation) of the nearest schools, location of churches, and any other factors that could cause you to reconsider the area. This homework should be done with all possible haste, since you don't want to lose the house that you want just because you took too long to make up your mind(s). Use Goggle Local to help find most of this information.
That all sounds like a lot of things that need to get done; but, you and your agent should be able to get all of those things done at the showing, at the meeting right after the showing, or easily within a day.

Next your Realtor should sit with you and go over the Purchase Agreement form with you. He may have it on paper or just use the electronic documents that he intends to send you for your electronic signatures.  He/she should explain all of the paragraphs on the form and get the necessary information from you in order to fill out your offer for the property. He/she will also go over any Addendums that will accompany the Offer and suggested wording on them. He will need your input on choices that might be on the Addendums.
There will come a moment during this process of filling out the Purchase Agreement when you will need to make a final decision on an offer price. Obviously you will have discussed this with your Realtor and with your mortgage agent. Your Realtor will tell you what his/her research says the current market value is for the property. Your mortgage agent will tell you what you can afford and what help you might need in the form of Seller Concessions to help pay for your closing costs.

In pre-Recession days well-priced homes would sell on average for 97% of asking price. That went out the window during the Great recession and buyers started low-baling and offering only around 90% of asking price and asking for Seller Concessions on every deal. Those days are over, too. In the current tight-inventory market (a Seller’s Market) offers are again at or sometimes above asking and bidding wars between buyers for good houses are not uncommon. Certainly, it is not the time to low-ball; especially if you will need a Seller’s Concessions to help with closing costs. In the current market environment, asking for Seller’s Concessions can be a deal killer, especially iof you’ve also discounted the asking price a little. My best advice here is to listen to your Realtor’s advice.

Your Realtor will make sure that all the proper fields are filled in correctly on the Purchase Agreement and any Addendum and have you sign and initial the forms in the proper places or mark them for later electronic
signatures. He/she will also make sure that you have signed and dated the Real Estate Agency form, the Seller's Disclosure form, the seller's Lead-Based Paint form and any other forms that need to accompany the Offer. If you’re using paper copies, he will and make a copy of all of the documents that you have signed. In most cases these days the Realtor will either use an electronically signed document for you and the seller(s) to sign or scan in the paper document and use email to transmit it. The old days of hand delivering paper document or even using FAXs is pretty much over. Apps like DocuSign and other electronic signature apps are making the process largely paperless.

Whether it’s on paper or electronic, it is still your responsibility to read through the Purchase Agreement (or Offer to Purchase Real Esate) thoroughly and ask questions about anything that you don’t understand. THIS IS A CONTRACT! It is a contract between you and the seller. The agents involved in the sale are not parties to the contract nor are they liable for the provisions of the contract. Read it carefully before you sign. Your agent should point out that you have the right of the contract to a review by a lawyer.

Your agent will also have you make out a check for what is called "Earnest Money Deposit (EMD)"; which will be held in the buyer agent’s company escrow account and applied against the sale at the time of closing. The earnest money is also what you are putting at risk to get the seller to accept your offer and take his/her house off the market. If you change your mind about buying the house after the seller has accepted your offer, you could lose the earnest money to the seller depending upon the circumstances that lead you to make that mind change. In the time before the great real estate bubble burst and before the Great Recession an EMD of 3% was normal; then it dropped down to $500 or $1,000 during the time of high distressed property sales. It is headed back to the traditional 3% level; so don’t be surprised if the Realtor asks for a check for 3% of the sale price. In Michigan the brokers are required to deposit that check within 48 hours of receipt, so make sure that the money is in the account.

There are still several things to come in the process that could impact the sale price and drive it down some – the appraisal and the home inspection. Your goal at this point should be to get a signed agreement with the seller and then go from there. That will be the next installment in this series – OK, I signed the contract and gave my EMD; what comes next?

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