Learning the Language of Buying a Home
As technology and the market shifts, so does the language of home purchases.
By Laura Wehnes
Every time you purchase a home, whether it is your first or your last home, it can feel like your first time all over again. As the market shifts and as technology continues to improve, there become more options and challenges for a buyer. We are currently in a strong seller’s market that is in the beginning stages of shifting. Some price points and areas are feeling this shift more than others. In this article, you will learn some of the language you will hear throughout the process and tools that I am using to get my buyers under contract and try to protect them as much as possible. These are all topics that I discuss with my clients at a buyer’s consultation. Please do not skip this step, as it will provide you with invaluable information and prepare you for decisions that you will have to make in a short time frame.
Although the number of contingencies can be extensive, there are a couple that are discussed in every contract. These contingencies are financing and inspections. These, along with price, are the major points of discussion when a seller is reviewing multiple offers.
The first thing that we will discuss when writing an offer is the price that you want to offer the seller for their home. In this market, many times we will see prices that go above asking price. If you have not purchased a home in several years or you are getting advice from someone who has not purchased in a long time, it might be difficult to wrap your head around that. You can ask your agent for an average sale-price-to-list-price ratio of your area to get an idea of how much people are spending over asking price. When deciding how to write your offer for price, there are generally two options. One option is to put a price that you are willing to pay and that is a set amount. The other option is to put in an escalation clause. What that means is that you put in a price, but that price can escalate if there are other offers. For example, you might write in additional language such as “Buyer is willing to pay $5000 over the next highest offer up to $500,000.” People like to use this option as a way to show a seller they are serious and are willing to pay a significantly higher price, but also want to make sure they aren’t paying significantly over what someone else is willing to pay.
The financing contingency is one that needs to be planned for so that you can be prepared to make a competitive offer. If you are getting a loan, you will want to ask your lender of choice to go through the full underwriting process for yourselves. This means that when you go under contract, they will just have to get your updated information and put in the property. This can potentially give you the ability to write an offer not contingent on financing and make your offer look more like a cash deal, which is attractive to the seller. You should not consider this option if you have not talked to your loan officer first. Typically, a loan contingency is going to go hand in hand with an appraisal contingency. There are a few options on how to proceed with the appraisal issue. It doesn’t benefit the seller if there is a full appraisal contingency in the contract if you are putting in a high offer because if it doesn’t appraise for the value, the buyer will still be able to get out of the contract if the seller doesn’t lower the price. Therefore, a contract that did not have this would be appealing to the sellers. If you do not have extra cash that you are willing to add to the contract, this can be very risky. For someone who does not have as much cash, they could add in some appraisal gap language. This would sound something like, “Buyer is willing to pay $5,000 over the appraised value up to the purchase price.” By putting this in the contract, the sellers would have less risk and would appreciate that the buyer was willing to take on some of it as well. With all of these options, it is best to check with your loan officer and financial experts to make sure you are in a good financial position to proceed if you don’t have these protections in place.
The other main item that you and your agent will discuss is the inspection contingency. Again, you have a few options here. You can leave in the standard inspection language which would give you the opportunity to do inspections and either move forward as-is, mutually release from the contract, or try to negotiate repairs. The next option is to remove the inspection contingency completely. In general, I do not recommend this option to my buyers unless they are contractors, have extra money to put toward unknown repairs, or are extremely knowledgeable about homes. In fact, I also suggest to sellers to let buyers do their inspections, so they know about the home, and it gives them peace of mind. One more option that I like to use in this market is to keep inspections in the contract with buying it as-is, but having the ability to back out if there are any material defects that they weren’t aware of.
As you can see, buying a home is more than just looking online, finding a house, and writing an offer. It takes consulting so that you are prepared when you want to write an offer, preparation to make sure all of your financing is in order, and market research that your agent can provide you with so that you understand the market and how competitive you may need to be.
If you are thinking about buying, selling, or investing in Real Estate, please call, text, or email. We would love to meet with you for a free consultation to talk about your options and how to reach your Real Estate goals.