Will your real estate transaction run smoothly to completion, or will it creak along and wobble like a badly greased wheel? A good offer to purchase, also called a purchase agreement, can make all the difference.
Unfortunately, many new agents don’t advise their buyers adequately, and as a result, many transactions never get off the ground. On the other hand, the agents who have mastered the art of the purchase agreement are those who help their buyers understand a few simple rules. Understanding these rules means you’ll have a much better chance of getting the house you really want at terms you’re happy with.
You should always expect there to be other buyers competing with you. This is true even in a "down market", when you’d expect that buyers would be able to take full advantage of desperate sellers. A buyer’s market doesn’t mean competition disappears. In a buyer’s market, the homes that are priced the lowest still attract multiple offers, while the more expensive homes just sit there. So unless you’re that rare buyer who picks out a home starting at a higher price because it’s exactly what you want, you should expect that there will be other buyers competing against you.
Understand where the price is now.
Before you write your offer, your Realtor® should "run the comps" for you. "The comps" are agent slang for a CMA, or Comparative Market Analysis. This is simply a printout of nearby homes that have sold recently that are similar in age, size, configuration, etc. Remember what we said above about expecting competition? Well, the comps show you whether to expect a lot of competition or just a little. This in turn should be the basis for your price. $10,000 below full price may not be enough discount if the home is overpriced to begin with. On the other hand, going $10,000 over full price may sound like something you’d never consider doing because it’s stupid; it turns out to be not so stupid if the value of the home is $80,000 below market and you can end up moving in with $70,000 in equity.
A purchase agreement is not a referendum on the market.
Real estate agents and newspapers love to publish market update articles, because they’re statistical generalizations that are easy to write. However, when you’re writing an offer on a home, you’re not there to make a statement on the market. Chances are good that the seller and their agent have "run the comps", so they know what they’re offering. The market may be terrible, but the home may be a fantastic bargain! Or the market may be so hot that you’re chasing after an overpriced turkey. Yes, you should have an idea about the forest, but your purchase agreement should zero in on a single tree.
Days on market may or may not matter.
Finding out how long a home has been on the market is a good idea, but you also need to find out if anything has changed in that time. For example, I once worked on an offer on a home that had been on the market for a year. Three weeks earlier, however, the tenant had left, the ugly pink paint was replaced with a neutral color, and the sunscreens on the windows were removed. As a result, my buyers, who were expecting no competition based on the days on market, were surprised to find that theirs was one of two offers on the property. (Yes, they did get the house, by the way!). A much more common example of the same thing is the home that’s been on the market six months and was just reduced $50,000 last week. The right way to think of this house is not as a $400,000 six-month house, but as a $350,000 one week house.
Weak terms need a stronger price.
The classic example of a buyer with terrific terms getting a better price is the cash buyer who negotiates more of a discount because the seller knows he can close. The flip side of this coin is that if you’re coming in with 100% financing based on a down payment assistance program, be prepared to offer the seller more in the way of price.
What’s most important? Avoid kitchen sink offers.
Before you write an offer, you should understand what’s most important to you and craft your offer accordingly. The best offers are written by buyers who understand that there’s another party involved in the transaction. and that an offer is a give and take process. The worst offers are the "kitchen sink offers", so named because they throw in everything but the kitchen sink (and sometimes that, too!). This is the offer that takes 20% off the asking price, where the buyer has no cash, and asks the seller to repair the back fence, trim the trees, and replace the carpet. Oh, yes, did we mention, we want a 120 day escrow! If you think about it, this rule is a variation of rule #5. If you’re negotiating hard on price, be gentle with the seller on terms. Pick your battles well, and you’ll win every time!