Step #4: Buying

In this segment of the course we get down to business. We explore the intricacies of making an actual offer to purchase the home you've chosen. You'll learn how to select the sorts of qualified home professionals who will be a critical part of your pre-closing team and who can help you avoid unseen, and often costly, mistakes. We'll also help you prepare you for moving day.

Here's an outline of what's in store for you in this section: A Typical Offer Includes: The Buddy System . . . Just the Facts, Mack "Contingent Upon . . . " The Home Stretch - Going to Closing Locating Qualified Professional Service Providers The Home Inspection The Inspection Report What if the Report Reveals Problems? Do I Really Need an Attorney? Down to the Wire . . . Moving Day Battle Fatigue Finding a Qualified Mover Insurance for the Move Pop Quiz

Let's Make a Deal

What Price is Right?

By this time, you have already learned how to calculate your maximum monthly payment and survived the loan application and approval process. You know how much you can afford to spend on a house, which means you know your limit. Unfortunately, this doesn't have anything to do with the seller's asking price for a particular home.

Your goal as a buyer is to purchase a home for the least amount of money you possibly can. A seller's goal is to obtain as much money for the home as possible. This is where settling on a price can become a little dicey.

What's it Worth?

The first step in determining a purchase price is to determine what the home is actually worth. Just because it has a high selling price on it, doesn't mean it is really worth all that money. Check it against other homes sold in the neighborhood. Ask your broker to pull up the real estate comps for homes similar to the one you're interested in. The comp (or comparable price) should be for a home that is in the same neighborhood, with the same amenities and the same approximate size. Comparing a two-story Tudor with a finished basement to one that doesn't have a finished basement won't help you determine a purchase price. The homes are too dissimilar.

Looking at the comps will tell you how high the sales are for that type of home in that neighborhood. The more recent the comps are the better. You should also ask to see the original list prices for these homes. This will tell you the percentage of list price the sellers' are receiving in that particular neighborhood. This percentage will guide you in making your original bid.

Tip

Real estate professionals have found in repeated studies that the average sale is six percent lower than the list price. This means that homes listed for $100,000 sell for an average of $94,000.

Work Your Way Up

Unless you're living in a very tight housing market with little room for negotiating, never offer the list price right off the bat in your first offer. You will want to offer at least five to 10 percent lower than the price that you actually want to pay. For example, if you want to pay no more than $95,000, then your first offer should be somewhere between $85,500 and $90,250. This gives you some wiggle room during negotiations. Never start at the maximum amount you can afford. It doesn't allow you any room for negotiation once a counter offer is given.

Always know your maximum price before you start negotiating a final price. This will guide your negotiations. It will also give you a rational, emotion-free bottom line. You don't want to be cavalier when it comes to your finances. You must be able to walk away from the home if the price is too steep. In some cases, you won't have a choice. You can only qualify for a certain amount and if you can't make up the difference with cash, you are stuck with that maximum loan amount.

Making the Offer

The official offer to purchase document is far simpler than the final contract to purchase. Some states will accept an offer written on anything, including a napkin. But the best idea for making a formal offer is to use a standard form appropriate to your state or local jurisdiction. Your broker or settlement attorney will have these forms available for you.

Tip

Standardized forms for real estate transactions are written for the seller. Be sure to carefully review any forms before signing them. You may want to hire an attorney to assist you in this endeavor.

Minimal Offer Requirements

• Address or description of the property
• Price you are willing to pay
• Date for a closing

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