You’ve found that ideal home. Congratulations! Now to secure it as yours. I’m going to proceed with this blog under the assumption that we are not in competition with another buyer (that’s a different blog!).
Your offer will be made based on two primary things.
- Market Value (what other comparable homes have sold for)
- The visual condition of the property
At this point you’ve also been to your mortgage lender and know what you can afford; that becomes part of this process as we try to estimate costs associated with buying this particular house.
The following items to watch for are critical when determining a price:
- Roof shingles
- Windows and doors
- Walls (plaster)
- Electrical panel
- Flooring
- Signs of water problems
- Knob and Tube wiring
- Asbestos
- Kitec and cast iron pipes
- Exposed foam insulation
These 10 items are likely to cost you the most money if they are an issue. Make sure to check if the home price already reflects one of these or another issue. If it does then you will have to eliminate it from your negotiations. In other words you can’t fight the price down for new roof shingles if the home sellers have adjusted the list price down to accommodate this cost. Make sense?
Some of these items may not be noticeable with our visual inspection. So what does that mean for your offer price? Your offer is based on what you can see. If your offer is accepted you will have the opportunity to have a home inspection which should uncover what you couldn’t see.
Example
List Price: $250,000
Market Value: $245,000
Deficiencies: Roof shingles – $10,000 to replace
Offer Price – $235,000
Let’s assume your offer of $235,000 is accepted. You have received a price concession of $10,000 for new roof shingles. A week later you have the home inspection and it is discovered that the sewer line from the house to the street is severely damaged by trees roots and will cost approximately $8,000 to replace. Your agent will go to the seller’s agent and request that this work be done prior to the closing date at the seller’s expense. The seller accepts and an amendment is drawn up and signed.
At this point I will back peddle a bit to include other components of your offer beyond price.
- Closing date – the date you will pay for the home and take ownership.
- Deposit amount – usually $1,000 per $100,000 (to be applied to your purchase price.
- Condition dates – this date is usually the same for all conditions (2 week period is common). This is the time period allotted to the buyer for the completion of each condition.
- Financing condition – your will need an approval letter from your lender
- Insurance condition – you will need a letter from your insurance company confirming that the property you are buying can be insured.
- Home inspection condition – you, with your agent, home inspector and contractor if needed, will carry out the home inspection (2 to 3 hours)
- Legal condition – your chosen lawyer will review the agreement and the Deed documents for your protection and to your satisfaction.
- Water and septic condition – if the property has well water you must have this water tested in order to obtain a mortgage. There are various tests available (bacteria and mineral) and a flow test (gallons per minute from the well) to be considered. You are able to have the septic system inspected to ensure it’s condition.
- Chattels – items you are requesting to stay with the property in good working order unless otherwise noted.
- Property Disclose Statement review if applicable – a statement from the seller about the condition of the home.
You can also ask to review utility costs, taxes and anything else that might be appropriate for this home.
There is far more detail than I can cover in this simple blog however you should get the general idea. Remember your REALTOR® is working for you; not the seller and will make sure you are protected and well informed.
Good luck and reach out if you have any questions.
Kathy
