Keep in mind
If you are buying an existing house rather than a new house, a home inspection by a professional should be one of the contingencies in your sales contract.
In deciding how much you should offer, there are a number of factors you should consider:
Market value of the house
How does the asking price compare to the fair market value of the house, based on recent sales of comparables in the area? You will need to obtain a comparative market analysis (CMA) on the property. This is a written report that reviews prices of 1. comparable homes that are currently on the market, 2. that are currently under contract, and 3. that have closed (sold) in the past several months. Remember, the market value of the house will be more than the appraised value for property tax purposes. We can help you determine the fair market value of the home.
Condition of the house
Before making an offer on a house you should be fairly confident that you are aware of any major problems with the house. You should have personally inspected the house to the best of your ability and questioned the sales agent and the owner about the structural soundness and condition of the basic systems. Both the owner and the sales agent can be held liable if they fail to tell the buyer about any defects they know of in the house. You should also have a clear idea of what it will cost to fix any major problems.
Circumstances surrounding the sale
In deciding how much to offer, try to determine how anxious the owner is to sell. For example, if the seller already has a contract on another house that is dependent on the sale of this house, you may be in a good negotiating position. It will be to your advantage to know how long the house you want to buy has been on the market, and whether the asking price has been reduced. Also, how much did the seller pay for the house, and when? How much equity does the seller have in the property?
What you can afford
Before making an offer on a house, you need to know what your monthly housing costs (PITI) would be if you get the house at the price you plan to offer. This requires knowing the annual cost of utilities, local taxes, homeowner's insurance, condo fee (if applicable), and the current rate for the mortgage loan you are considering. Make sure that the amount of your down payment is adequate, and that you will have enough to cover the closing costs. Do not offer more than you are sure you can afford.
Remember that there are two aspects to an offer: the price and the financing terms. The terms may actually be more important to you than the price. For example, if the seller is willing to offer attractive financing terms, including paying for the title search, the home inspection, and other settlement costs, you may be more willing to accept their price.
A real estate professional will be glad to advise you as to how much you should offer. However, the decision is yours alone. (Remember the seller's agent typically acts on behalf of the seller). Most prospective buyers do not offer the full asking prices, at least initially. For example, you may want to offer less than the asking price if you feel that the condition of the house warrants a lower price. However, do not be tempted to "lowball" an offer as you may offend the owner and preclude any future negotiations.
Submitting the offer
You may make an offer by submitting to the real estate professional a signed offer to purchase the house for a given price under specified terms. In Florida, the offer to purchase is a six page Sale and Purchase Contract. You may want to explain in detail to the seller's agent (or your buyer's agent) that your price reflects certain flaws that you noted during your inspection of the house. The agent is required by law to deliver your offer to the seller.
This may help
An earnest money check should be made out to the escrow company, which will be credited towards the total amount of money you will need at closing. $500 is a minimum amount for an earnest money check, and most sellers like to see approximately 1% of the sales price.
Earnest money is a "good faith" payment you submit with the offer to show the seller that you are serious. There is no set amount that is required, and your real estate professional can advise you on what would be best, given the specific circumstances of the sale. The check should not be made out to the seller directly, but rather to a selected escrow company. The earnest money should be deposited in escrow to be returned to you if the seller does not accept your offer within a specified number of days. You usually forfeit the money if the contract is accepted by the seller and then you back out of the deal.
What the offer includes:
- A complete legal description of the property
- The amount of earnest money accompanying the offer
- The price you are offering
- The size of your down payment and an explanation of how the remainder of your purchase will be financed (including the maximum interest rate you are willing to pay)
- Any items of personal property that the owner has said will stay with the house, or that you want to be included
- A proposed closing date and occupancy date
- Length of time the offer is valid (three to five days).
- An expectation of satisfaction of certain specific contingencies, should offer be accepted
Terms of the contract
In addition to the basic terms of the sale, certain contingencies may be included in the contract. Contingencies are conditions that must be met in order for the contract to take effect. Some contingencies and other provisions that are commonly written in a contract are as follows:
The contract should state the purchase price, the amount of the down payment, the total loan amount, the exact financing terms you will accept, and how long you have to find the agreed-upon financing. It also will state the amount of deposit being held in escrow, and which closing costs are to be paid by the buyer and which costs are to be paid by the seller. This contingency makes clear that if you don't get the money you need at the terms you have specified, the deal is off and your deposit will be refunded. The seller, in turn, may insist that a clause be included that requires you to make a "good faith effort" to obtain the mortgage. It is best if you have already been pre-qualified for a mortgage before this stage of the process.
When you apply for a loan, the lender will require a professional appraisal of the fair market value of the property. The appraised value of the house determines how large a mortgage the lender will be willing to give to you. If the appraised value is lower than the agreed-upon purchase price, this contingency gives you the right to withdraw your offer.
As we noted previously, unless you are buying a new home, it is highly recommended to have the house inspected by a professional. You may also want to specify that certain inspections are completed before the sales contract takes effect.
Professional home inspection
Your contract should be contingent upon a satisfactory report by a professional home inspector. If any problems with the structure or systems of the house are uncovered, you have the right to cancel the purchase or to renegotiate the terms of the purchase.
It is a standard practice to require the seller to pay for a termite inspection, or to have him or her provide a written certification stating that the house is free of termite infestation and any damage from past infestation has been repaired.
Environmental hazards to investigate
Many home buyers today insist that the house be tested for the presence of radon. Radon is a naturally occurring, odorless gas that can seep into house and cause major health problems. In Florida, radon can be found in areas of previous phosphate mining. For information about radon in your area, you can contact one of the following organizations:
- The Indoor Air Quality Information Clearing House (IAQ INFO) is an easily accessible central source of information on the indoor air quality created by the U.S. Environmental Protection Agency (EPA). 1-800-438-4318 Monday through Friday, 9am - 5pm Eastern time.
- The National Radon Information Hotline, sponsored by the Consumer Federation of America. 24 hours a day, 7 days a week. 1-800-644-6999.
- The National Hispanic Indoor Air Quality Hotline provides bilingual (Spanish/English) information about indoor air pollutants. 1-800-725-8312 Monday through Friday, 9am to 6pm Eastern time.
If the house was built before 1950, you can be almost certain that lead-based paint was used. For houses built after 1950, but before 1978, there is a fair chance that lead-based paint may be present. The presence of lead-based paint should be investigated, because even low levels of lead exposure have very serious health, intelligence, and behavioral consequences for infants, young children, and pregnant women. Children do not have to eat lead-based paint chips to be poisoned. Lead contaminated dust from children's hands and toys can pass into their mouths.
Before a sales contract on a home built before 1978 can be finalized, the seller or the seller's agent must expect you to allow you ten days during which time you can hire a trained professional to conduct an inspection or risk assessment of lead-based paint hazards. You can make the sales contract contingent on this lead hazard evaluation. You need to find an inspector or risk assessor who has taken a U.S. Environmental Protection Agency course, or is certified in Florida. A lead paint inspection will tell you which surfaces are coated with lead paint. A risk assessment will identify any lead hazards, such as peeling paint or contaminated dust, and what steps are needed to correct them. Renovation projects on older homes can disturb lead-based paint. Do not attempt lead-based paint removal projects yourself.
- The National Lead Information Center (NLIC) is operated by the Environmental Health Center, a division of the non-governmental, not-for-profit National Safety Council. To receive a general information packet, or to order documents and other information, call 1-800-424-LEAD, Monday through Friday, 8:30 am to 6pm Eastern Time.
Did you know?
Spider plant ferns are believed to absorb formaldehyde that may be emitted from particleboard furnishings and other building materials.
According to the EPA, many homes constructed during the last twenty years probably do not contain asbestos products. However, you may hire a qualified professional who is trained and experienced in working with asbestos to inspect the home. A professional knows where to look for asbestos, how to take samples properly, and what corrective actions could be most effective.
Formaldehyde is a colorless, gaseous chemical compound that is emitted from many construction materials, and was also an ingredient in foam insulation that was used until the late 1980's. It can cause irritation of the eyes, nose, and throat, and is also suspected of causing cancer. In the case of a new home, check with the builder to see whether construction materials containing formaldehyde were used. A qualified building inspector can examine the home for formaldehyde, and other home monitoring kits are also currently available.