Real Estate Guide

Buying Your Home - Questions and Answers
'Making an Offer'

• What is the difference between list price, sales price and appraised value?
• How do you determine the value of a troubled property?
• Can you buy homes below market?
• Whose obligation is it to disclose pertinent information about a property?
• What contingencies should be put in an offer?
• What are some tips on negotiation?
• Are low-ball offers advisable?
• Who gets the furnishings when a home is sold?
• Do I need an attorney when I buy a house?
• What about an ALL CASH offer?

What is the difference between list price, sale price, assessed value, and appraised value?

For full discussion See ► Selling Your Home - Pricing Your Home To Sell

How do you determine the value of a troubled property?

Buyers considering a foreclosure property should obtain as much information as possible from the lender, including the range of bids expected. It's also important to examine the property. If you are unable to get into a foreclosure property, check with surrounding neighbors about the property's condition.

It also is possible to do your own cost comparison through researching comparable properties recorded at local county recorder's and assessor's offices, or through Internet sites specializing in property records. See Comparative Market Analysis

(Beware: internet or "online evaluations" as they're called, can be as much as 20% off both high and low because there is is no one there adding or subtracting value for missing amenities, property condition, and improvements. This is the type of subjective analysis that only a REALTOR can do.)

Can you buy homes below market?

While a typical buyer may look at a dozen homes before making an offer, an investor who makes bargain buys usually goes through many more. Most experts agree it takes a lot of determination to find a real "bargain." There are a number of ways to buy a bargain property:

• Buy a fixer-upper in a transitional (improving) neighborhood, rehab it and keep it or resell at a higher price.
• Buy a foreclosure property (after doing your research carefully).
• Buy a house due to be torn down or in a poor location and move it to a new lot.
• Buy a partial interest in a piece of real estate, such as part of a tenants- in-common partnership.
• Buy a "leftover" house in a new-home development.

Whose obligation is it to disclose pertinent information about a property?

For full discussion See► Selling Your Home - Disclosurel

What contingencies should be put in an offer?

As a buyer, you could forfeit your deposit under certain circumstances, such as backing out of the deal for a reason not stipulated as a contingency in the contract. Most purchase offers include two standard buyer contingencies:

1. A 'financing' contingency which says that a contract may be deemed null and void if (for whatever reason) you cannot obtain an acceptable loan commitment from a lender.
    
2. A 'satisfactory home inspection' contingency which says that because of defects that may be discovered in the inspection, and the failure to reach an agreement with the seller to remedy those defects as outlined in the contract, you may withdraw from the contract and have your earnest money deposit returned without penalty. See Buying Your Home - Home Inspections

However, there are other important contingencies your agent should consider adding to the contract as addendums:

3. An 'appraisal' contingency which says the house must appraise at least for the agreed upon price. (Some agents don't include, or recommend waiving this contingency thinking that if the home doesn't appraise the buyer's won't be able to obtain a loan, and the financing contingency kicks in to save the day. This is only partly true, especially if your earnest money deposit is substantial. The seller may argue that the loan could still be approved by using part of the earnest money deposit to make up any difference between the sale price and the appraisal and lowering your down payment. Therefore, it's important to include an appraisal contingency as well to protect your earnest money.)

   In recent months, due to changes in appraisal regulations as well as the number of foreclosed sales used as comparables, banks selling REO properties are refusing offers with appraisal contingencies. Why? Because savvy buyers have been offering high prices, knowing full well that the property won't appraise for market value, and the price will have to be renegotiated to the appraisal. This situation is probably only temporary, however, as appraisals will eventually catch up to the market.

4. A satisfactory C.L.U.E. Home Seller’s Disclosure Report. In recent years this has become increasingly important as insurance companies have begun to weigh heavily not only the claims made by individual policy holders, but also recent claims (within 7 years) against the property being purchased itself. C.L.U.E. stands for Comprehensive Loss Underwriting Exchange, where a database of losses incurred by any insured property is maintained. When you buy a property, you also inherit the insurance claims made against it. A poor C.L.U.E. report may prevent you from insuring the property at a reasonable cost if at all. Savvy real estate agents will ask for a C.L.U.E. report as a contingency to the sale.

   See ► Real Estate Guide: Owners, Insurance - What's is CLUE?

5. A 'septic and well' inspection contingency, if necessary, which says the sale of the home is contingent on the certification of the septic system and well by the health department of the jurisdiction. This should be written into the contract as separate from the home inspection contingency because a septic and well inspection may take considerably longer to accomplish because of certain health department rules or statutes that go well beyond the simpler home inspection contingency.
6. "Chattel" contingencies, which says that the sale of the home is contingent upon the seller leaving behind certain items that may not be considered part of the house such as a chandelier, refrigerator, or ceiling fans. Although we advise against making 'non-fixture' items part and parcel to the sales contract, should they be included, make sure that it is all put into writing. (Even 'fixtures', items that are now part of the home because they are permanently attached, should also be listed in writing to prevent disputes.)
7. A 'pre-settlement walk-through' contingency. Ask for the right to inspect the home on the morning of closing (not the day before and especially not the 'night' before) to make sure that all repairs that the seller promised to make have been made, and that the home is in the same condition that it was when you made the offer to purchase it.
8. A 'sales' contingency. (Sometimes called a 'Right Of First Refusal - ROFR) If you must first sell your house in order to purchase your new home, you will want to add a 'sales' contingency specifying that you must sell and close on your present home before the contract on your new home is valid. Be aware, however, that the seller, will probably ask for and include two further  provisions before he will accept this contingency :
    
   1. A kick out clause that allows the seller to continue to market his home. The 'kick out clause' says that should he receive another acceptable offer during the term of the contract, you will be given a right of first refusal which is an option to either remove your sales contingency and go forward with the contract or withdraw (usually within 48 to 72 hours). If you are unable to go forward, the contract between you and the seller will collapse, and the seller will be free to accept the new offer. (Example addendum with a 'right of first refusal' clause.)
   2. An expiration date for the contingency, after which you must perform or the contract collapses.

The purchase contract should also outline important seller responsibilities that although part of the standard contract could also be categorized as contingencies. Such things as :

8. Passing clear title.
9. Maintaining the property in its present condition until closing.
10. Making any agreed-upon repairs to the property.
11. Possession. It's always best to arrange for possession on the day of closing, but that is not always possible. In either case make sure the date of possession is specified as an actual date (month/day/year) and specify the time of day as well. Contracts which  give  a 'number of days' after closing can lead to different interpretations between you and the seller. If the possession time is to be an extended one, make sure there is a lease is in place, and that everyone is aware of who is responsible for such things as taxes, repairs and maintaining the condition of the house.

What are some tips on negotiation?

For full discussion See ► Buying Your Home - Negotiations and Closing

Are low-ball offers advisable?

For full discussion See ► Buying Your Home - Negotiations and Closing

Who gets the furnishings when a home is sold?

For full discussion See ► Buying Your Home - Negotiations and Closing

Do I need an attorney when I buy a house?

For full discussion See ► Buying Your Home - Negotiations and Closing

What about an ALL CASH offer?

For full discussion See ► Real Estate Guide: Your Mortgage - What About An All Cash Offer?