making an offer on a home in Charleston

Plan your strategy before making the offer

Once you have identified the home that you want to purchase, you and your real estate agent will put together an offer. An offer is simply a statement of your terms that you expect to be met in order for you to be willing to purchase the home. An offer can be a simple, straightforward list of terms or it can be a very complex, convoluted proposition. The best offers are usually simple and clear. When you begin creating your offer there are a number of things to keep in mind.

The first consideration in putting together an offer is understanding as much as you can about the seller. Is the seller an individual or is the seller an entity, such as a bank. Individuals see their home from a much more emotional perspective than do banks. Unless it is an investment property, the seller probably lives in the home and may have a great deal of personal ego and emotional investment in the home. Presenting an offer to an individual should be done with these considerations in mind.

Buying or selling is always an emotional process. What you do not want to do is to derail the negotiations by offending the seller. While it is important to address issues about the home that may have a direct impact on the home's value, becoming unnecessarily critical of a home in order to attempt to drive down the price is not a typically successful strategy when dealing with an individual owner.

In addition, it is common for sellers to scrutinize buyers from a personal perspective - they want to be sure they are selling their precious home to someone that will be a caring owner - someone who will appreciate their home. Also, the sellers may have other emotional investments in neighbors and the community that are important to them. The best way to handle sellers is to be considerate yet firm about your offer. Criticisms of the home should be measured and tempered with honest complements.

Understand what the home is worth to you and have a strategy for transferring that understanding to the seller in a positive, caring way. If the seller is a bank or similar non-individual, the emotions are largely removed from the side of the seller. These sellers are looking for the best net on the property and they want to sell the property as quickly as possible to get it off their books. These sellers, however, are not in the business of giving away property. They are usually well staffed with educated business people looking for the best deal for their company.

One common misconception is that bank properties are always a bargain.

While you have a good chance of getting an excellent deal on a bank property, the bank will seek to sell it for the highest price that the market will allow; so, if it is a popular property you will compete for it with other buyers and you will pay a fair price. Emotional considerations with the bank are very limited. Present an aggressive offer and expect a counteroffer with several levels of negotiation before achieving a final sales price. Working with banks can take some time so be patient.

After sizing up the seller, make a list of the terms and review them with your real estate professional. The terms that are the most important include:

Sales price
closing date
closing costs
costs other than closing costs such as transfer fees
personal property to be included (i.e., in South Carolina a refrigerator is considered to be personal property)
contingencies
earnest money
home inspection
termite inspection (CL-100)
contract extensions
delay penalties (most common with bank owned properties) and

Sales price

In determining the sales price, your agent will help you look at the pattern for prices for similar properties as close as possible geographically to the home under consideration. This is like the process that an appraiser will do but in a less technical fashion. Consider the average sales price per square foot, consider other factors such as the location in the neighborhood and the type of lot, and consider how much deviation is normal in that area between the average asking price the average sale price. Look at how long active listings have been on the market in comparison to homes that have sold in the past year (on market time trends).

Creating an offer price is more of an art than a science and does involve strategy. The best agents know how to massage the offer price to get you the best terms.

Closing date

The closing date should be as close to the contract date as possible. There are sellers who list far in advance of their need to close, but this is not common, so approach assume that the seller needs to close immediately. The sooner you are able to close, usually, the higher likelihood you will have your offer accepted.

Closing costs

Closing costs can be negotiated. The South Carolina contract that most agents use has a standard distribution of normal closing costs preprinted. Changes can be made to this. When you are considering asking the seller to pay closing costs, or a portion of your closing costs, remember that you are asking the seller to lower their net profit on the home, dollar for dollar, for every dollar of closing costs that you ask. The seller already carries the heaviest burden in closing costs because they have to pay for such items as real estate commissions. Do not expect seller to pay your closing costs; but, you may be fortunate enough to have them agree to do so.

Other fees

There are fees that are not closing costs that you may negotiate as well. For example, it is customary in South Carolina for the seller to pay for certain transfer fees related to homeowners associations. The seller may ask the buyer to pay these fees or some of these fees.

Personal property

If you have identified personal property located in the home that you would like to purchase, you need to list that personal property on the offer. The most common type of personal property to be transferred in South Carolina is a refrigerator. Many states consider the refrigerator to be part of the home and so it does not need to be included as a separate item. If you want a refrigerator in South Carolina then it is best to include that wish in the offer. Do not assume that this appliance will automatically convey.

Contingencies

Most people, who are not first-time homebuyers, have a home to sell before they can buy their next home. The problem that many people face is that their ability to buy their new home hinges upon their ability to sell their current home. The following e-mail is an example of e-mails I receive frequently on the topic of how to buy and sell.

Buyer: " Am I to understand then that a contingency only applies to the purchase of a newly-built or under-construction home? If so, please share with me how other folks make this transition of selling a home in one state and relocating to another. It looks as though I won't have alot of time between the date of my closing and my moving out date- maybe a week. Will l simply have to wait until my closing takes place in order to make an offer on a home in your area? Thanks, Chris

This situation is quite common. Most people have a home to sell before than can qualify for a new purchase and few people can carry two mortgages.

One strategy for handling the situation is to use contingencies as a bridge to allow you to begin the home search process and even make an offer before you have sold your current home. The basic idea is to make the purchase of the new home "contingent upon" the sale of the old home. This is not always a straightforward proposition and it is impacted by many potentially confounding factors. Still, it is a strategy that can be used successfully and often is.

Keep in mind that the person who may make an offer on your home may also present their offer contingent upon the sale of their current home. It becomes evident, very quickly, that the contingency option can add significant complexity to home buying and selling. Cases of multiple contingencies can work much like a row of dominoes were the failure of one contingency can result in the collapse of more than one sale. This is one reason why contingencies should be used with great care.

Contingencies may be accepted on a re-sale or a new home depending of the situation with the seller. While new construction home builders are still cautious after the large number of contingency contracts that fell through in recent years, it is still possible to get one accepted in the Charleston area - while not as easy as before. Also, builders that accept contingencies may impose a cap on the number of contingencies that they do accept on a per-development basis and/or on a per time frame basis.

An individual selling their home to you may accept a purchase contract contingency on the sale of your home also - especially if they know that you already have a contract on the home you are selling. A lot of things can make a difference to the buyer in deciding whether or not to accept any contingency, such as earnest money, offer price, closing date and other important terms.

Contingencies can be tricky and can have an impact on your ability to achieve your objectives whether the contingencies are on the sale of your home or the contingencies are placed on an offer to purchase your home or even both.

If you find yourself in a position where you need to buy and but you need to sell in order to buy, speak with an experienced real estate professional.

Using contingencies are but one of many strategies that may help you achieve your goals.

Earnest money

Earnest money is always an important issue. Ernest money is offered for the purpose of solidifying an offer into a contract once the offer is accepted. Ernest money is the legal "consideration" for the offer and "consideration" is a necessary element in forming a contract.

In addition to this reason for having earnest money, a reason that is important to the seller is that the earnest money gives them a level of comfort that the buyer is serious and it provides them with a simple means for collecting liquidated damages in the event the buyer defaults on the agreement to buy.

In understanding the seller's perspective, the seller makes an important decision in removing their home from the market as an "active " property on your behalf because, while the property is off of the market awaiting closing, it is not likely that buyers will continue to consider that property. While it is true that a property may be listed as, "active contingent" and still be available for showings, as a practical matter, most agents will not waste their time showing properties that are already under contract. Therefore, the seller wants to be sure you are serious.

Ernest money can have a big impact on whether or not the seller accepts your offer. The question is: "how much earnest money should you offer?" There is no set figure. More expensive properties usually require more earnest money but there is no formula for determining exactly what the correct or best figure is.

High earnest money amounts will make the seller more comfortable and will have the potential for allowing you to negotiate a lower sales price or other terms that may be favorable to you. The operative word here is "potential" because it is difficult to know the value that the seller places on the earnest money. The downside to high earnest money offers is that, in the event of a dispute or default, the buyer has a higher potential loss.

Low earnest money amounts may signal to the seller that the buyer is not very serious or that the buyer is not strong financially. However, by offering a lower figure, the buyer has less exposure to loss.

Finding the right balance for earnest money is a discussion you should have with your agent.

Home inspection

An important step in buying your home is having it inspected by a professional inspector. An inspector is there to help you identify problems with the home that need to be corrected and to help you understand the systems of your home better.

It is a very good idea to be present for the home inspection. Most items listed on a home inspection report seem ominous but very few are. The inspector carefully lists every problem that they encounter and they emphasize the need to correct most problems even if those problems are minor. The liability concerns of an inspector tend to drive their emphasis. If your are present during a home inspection you'll find that most of the items that are listed for most homes are minor and require minor attention if any.

The inspector may locate more serious problems that definitely need to be addressed. You can always ask your seller to fix problems with the home. The seller is only required to fix problems that they have agreed to in the sales contract. Even so, problems they have not agreed to previously may be addressed by the seller in order to satisfy the buyer and increase the likelihood of the closing.

If you're using a government-backed entity such as the Veterans Administration to help you purchase the home, inspectors/appraisers will be sent out that our specifically qualified by this entity to do the inspection. In order to secure financing using the backing of the VA or similar organizations, items that they identify that must be repaired will need to be addressed by the seller or the buyer will not be able to close on the property.

Termite inspection (CL-100)

Most banks will require a termite inspection to be done. This inspection is designed to locate active termite infestation, previous treatment for termites, excessively high moisture levels in wood, and the presence of active or inactive wood destroying fungi. Either the buyer or the seller can pay for this inspection. It is more common for the seller to pay for this inspection. Items found during this inspection may need to be corrected in order to achieve a "clear letter" which will be required by a lender.

Contract extension clauses

Contract extension clauses are sometimes included. Usually these say something to the effect that the buyer and the seller may extend the contract if the closing those not occur by the closing date expressed in the contract. The buyer and the seller, during their negotiations, determine how many days they are willing to extend his contract for in the event that the closing does not occur. By including this extension clause, it reduces the paperwork later on if the buyer and the seller wish to extend.

Delay penalties

Delay penalties are usually included if the seller is a bank. These penalties may apply on a per diem basis or they may be lump-sum penalties. Most common are per diem penalties which assess a certain amount per day for each day that the closing is postponed beyond the agreed to closing date. These penalties may be assessed whether or not there is any fault on the part of the buyer. Because of this, it is important to understand these penalties. Be aware of the current lending conditions as bank delays in providing lending may be sufficient to invoke these penalties and are the biggest reason for the application of these penalties.

. . . . . . . . . . . . . . . . . . . . . . . . . . Chris DeLoach . . . 843-270-1272 . . . . . . . . . . . . . . . . . . . . . . . .