Buying a home is a complex process and the typical home buying guides are written by anonymous sources with no way of knowing the expertise of the author. RateGravity is committed to providing you with accurate information that covers the most important topics and doing so in a transparent way.
Today, we post the second part (read part 1 here) of our conversation with Eileen Kim, a leading real estate agent at Advise Realty in Boston. In this article, Eileen answers questions related to making and negotiating an offer.
RateGravity: You have seen a lot of transactions over the years. What are the key questions a buyer needs to ask of the seller, or seller’s agent before making an offer?
Eileen: You should ask, and a good seller’s agent should be able to answer, the following:
Seller Motivations and Inclusions
· Why and when is the seller moving?
· What is included as part of the sale, i.e. parking, appliances, fixtures, electronics etc.
· What is the age of the home and the roof, heating/cooling systems and appliances?
· Are there any issues with the home; pests, water damage, roof leaks
· Have there been any major renovations to the property? If so, when and who performed the work?
There’s a quirk in Massachusetts law that doesn’t require homeowners to disclose issues with the property unless you ask them directly, so make sure you do so and ask for the responses in writing in case there any issues post-purchase.
Condos and Properties with Owner Associations
Condos are unique in that the common expenses are shared by more than one unit owner. Funds are typically paid to the association, which may be managed by the unit owners or by a professional management association. If you’re purchasing a condo you will want to ask:
1) How much money does the condo have in “reserves”?
2) What does the condo fee cover? Heat, water, sewer, common area maintenance, landscaping?
3) Are there any upcoming special assessments for large expenditures such as replacing a roof or sewer main for example?
RateGravity: So if your client has gotten comfortable with their due diligence on the property and wants to move forward with an offer, walk us through the process.
Eileen: If we’ve gotten comfortable with our preliminary review of the property, we start to work on crafting the offer. This is a multifactor process and it should start with a Comparative Market Analysis (CMA) which helps us determine the fair market value of the property. I prepare this analysis using data on recently sold properties in the area (using comparable metrics like price per square foot, # bedrooms, total square footage, location etc.). Then we make adjustments to help arrive at a reasonable offer price. These adjustments are driven by factors such as length of time on the market, which could indicate an inflated asking price or suboptimal location, or things like property condition and stability of the neighborhood or building in the case of a condo. But often the single largest factor is the strength of the market. In overly strong or weak markets, the mismatch of buyers and sellers can determine what offer price will get a deal done.
RateGravity: In a normal market what are the primary components of the offer?
Eileen: Well not surprisingly, the biggest one is the offer price. It needs to be a number that my buyer is comfortable with both from an affordability standpoint, but since it is typically the largest purchase of their life we want to make sure they are going into it with as much information and protection and possible. To that end, we typically include contingencies to the offer that are designed to protect the buyer.
The most important are the inspection contingency and financing contingency. The inspection contingency allows a buyer to back out of the offer and get any deposits returned to them if the property doesn’t pass a thorough inspection by an independent property inspector. Similarly, the mortgage or financing contingency allows the buyer to back out of the deal if they are not approved for financing by a particular date.
Along with an offer we include an initial $1,000 that indicates to the seller that this is a legitimate offer and if the offer is accepted, the deposit is held in escrow and will be used as a credit against the purchase price at the closing. The final components of the offer include a closing date, how long your offer is good for, and a target date to complete the purchase & sale agreement.
RateGravity: Do you have any advice on strengthening the offer in the eyes of the sellers?
Eileen: Absolutely. There are a number of things that can make an offer appear more favorable in the eyes of the seller. Offering to close quickly, providing a strong pre-approval letter along with the offer and showing the capacity to put a sizeable down payment can only help. In competitive markets I have also seen waiver of financing and inspection contingencies, however I do not recommend waiver of those because it can make it difficult if not impossible for the buyer to back out of the transaction and puts their earnest money deposit at risk.
RateGravity: What is the earnest money deposit?
Eileen: In Massachusetts the earnest money deposit consists of the initial $1,000 deposit made with your offer and another deposit made at execution of the purchase and sale agreement equal to 5% of the home purchase price (less your initial $1,000). If the purchase is ultimately successful, the earnest money is credited as part of the down payment on your home.
RateGravity: Anything we didn’t cover?
Eileen: I think we covered the most important topics. I know that purchasing a home can be a taxing and stressful process, but make sure you rely on your agent. We are paid to walk you through the process and make sure you have a great experience and end up with the home of your dream.