Leigh Anne Monk: While price is certainly a very important part of that purchase offer there are several other components that can frankly make or break a deal. So we’re going to spend some time in this segment discussing some of other factors. Mark, start us off.
Mark Wozniak: Yeah whenever you are structuring the purchase offer one of the most important things is to go through the various terms of the deal. There are really three key categories of these terms. The first of the financial terms as you already have mentioned Leigh Anne a price is obviously one of the terms in the way that price gets reflected shown on that purchase offer is that you also need to indicate how much down payment you intend to put down. So obviously having already talked through this with your lender we’ll indicate that on the purchase offer and then you’ll put down how much is being financed and in the actual purchase price but beyond price there are a couple of other key financial considerations. Your also going to list what kind of financing you’re going to get is it going to be a conventional loan is it going to be a FHA loan and in other segments within our video library we have further discussions on these types of loans. But that is something you’re going to want to let the seller know because they need to understand what kind of financing you’re getting. Because that can make a difference to them with you’re getting conventional or FHA or VA loan. Next up, let’s talk about the earnest money deposit this basically is what I almost want to consider your skin in the game if you will this is the amount of money that you would actually put down upfront in the deal and this is the money that would be at risk if you were to default on the contract. So it’s again it’s known as earnest money held in escrow often either by a bank or settlement company or your realtors brokerage office but this again its money that you put down up front. And when you go to settlement assuming you didn’t default on the contract and you end up buying it just becomes essentially part of your down payments. Another thing to consider with the financial terms is what’s known as a seller subsidy. Seller subsidy is where the seller would be contributing towards some of your closing costs because certainly the closing costs on the buyer’s side can end up being several thousand dollars or more and you may want to ask the seller to help contribute towards that. The reason that’s so important is because from the seller standpoint it’s that contribution towards your closing costs subtracted from what you offered on the price that’s actually their net take away price on the deal.
Leigh Anne Monk: Right so that impacts the proceeds that they actually leave with correct.
Mark Wozniak: Absolutely. So those are the main financial terms of the purchase offer when you’re structuring it. Next there are some settlement terms to consider. Two big ones but number one is probably the most important is when’s the settlement date going to be. And it’s real important to know is the seller trying to sell this home within the next few weeks or do they want to remain in the home for another couple of months. It’s not uncommon to us to see settlements take place 30, 45, 60 days in the future and that’s very common but every deal is different so you need to be prepared for different potential settlement timeframes. We also need to know from your lender ahead of time what’s the fastest they can do some because they’ve got to do a lot of work and settlement can’t just happen overnight that’s for sure. Another part of the settlement terms is selecting the right settlement agency because you as the buyer have the right to select the settlement agency and also there might be a situation in terms of the timing of the settlements where you are either and this is a little more rare hoping to move into the home before the settlement and rent it for a while before the settlement date or what’s a little bit more common is that you would settle on the home and the seller wants to stay in the home just a little bit longer and rent it back to you until the date you can move in. So those are all part of the settlement terms and then there’s what we call some payment terms and this is simply who will pay for things like the termite inspection and if there is a well or septic system with a home who is going to pay for the inspections of those. Clearly though there’s lots of variables involved so it simply isn’t just about prices it’s about all these things taken together to form your purchase offer.
Leigh Anne Monk: And rest assured that is the job of the agent to go through all those different terms and make sure that you put together a very, really structure an offer that makes the most sense for you and your benefit but also understand some of the nuances that the particular seller may have based on conversations the two agents have had. The second category of items within the purchase offers are what we call contingencies. First let’s talk about the common contingency that you might see in a contract Mark.
Mark Wozniak: Sure. Contingencies from a buyer’s standpoint is your opportunity to potentially void the contract or get out of the contract based on certain things occurring. Remember we talked earlier about that earnest money deposit. If we have a contingency where you are getting out of that contract because of that contingency then that money’s returned to you and you could move on to go look on at more homes and put more purchase offers in. But the common contingencies and number one the home inspection, this is where you have the opportunity to look for any defects or deficiencies with the home and based on what you find and whether the seller agrees to make certain repairs you might have the opportunity to get out of the contract. In fact this is such a wide ranging topic that we have a whole other segment on this in our video library so I really encourage you to watch the segment actually a few segments on the home inspection process and where we actually talk with the home inspector. The next pretty important contingency is the appraisal contingency this is where it is determined whether or not an appraiser agrees that your home is worth at least the value of what you’re going to be offering on that and again we will cover that more actually in another segment here in the home buying process. Then there’s the financing contingency which is whether or not your lender ultimately approves you for the financing that you’re seeking. Remember we came into this whole process with you being pre-approved. Now the lender has to actually approve you for this specific home purchase, this specific price. And if you’re not able to qualify for the home then that’s part of the contingency where you may be able to be released from the contract. And there is one where the situation is where the home is within a homeowners association or is a condominium where you have the right to review either HOA docs or the condominium documents which layout sort of the rules and regulations that apply to that HOA or condo. And if there’s something in those documents that you don’t like you can use that as a way to get out of the contract. So those are the main contingencies we typically see.
Leigh Anne Monk: We see those I would say in pretty much most contracts that are coming though these days. But there are less common ones, ones that would happen based on a buyer’s particular situation, based on the age of the home, based on the financial situation perhaps of the sellers so why don’t we go over now the less common contingencies.
Mark Wozniak: Well one that I do get asked about a lot is when we are working with buyers that have another home to sell they’re in a financial situation where they need to sell that home before they can buy the other home and they often ask will the sale of my home be a valid contingency. Well the answer is theoretically yes, that is a contingency to your contract there is a reality here that’s this is a very, very unpopular contingency with sellers and they rarely frankly will accept the contract because it’s just such an uncertainty.
Leigh Anne Monk: They have no control over how soon your house will sell and they literally have to take their house off the market if they accept your offer with that contingency in it. And so they could be artificially holding their house back from other people that could buy it that wouldn’t offer that same contingency. It’s a tough one.
Mark Wozniak: That’s right. It’s a huge risk for the seller so the answer again yeah it is a contingency but it’s often not considered and it will kill a purchase offer. Another one is a radon inspection contingency. Radon is a naturally occurring gas that can omit from up underneath the home and some folks like to have the radon level inspected. Another you eluded to the age of the home. For homes that were built before 1978 some folks like to do a lead based paint inspection on that home because that’s the time period before those lead based paints were outlawed. And then there are other situations another contingency and this is particularly prevalent with what we call short sells. When a bank has to approve the deal that’s known as a third party approval so that’s basically saying there’s some other party aside from the buyer and seller that needs to agree to this deal before it can move forward and the settlement can take place. So those are some of the less common contingencies but we take those contingencies together with all those terms that I mentioned earlier and that basically creates the body of the contract that then gets submitted to the seller.
Leigh Anne Monk: Right so all that gets submitted to the seller and what happens next because obviously the buyers done his job. He’s worked with his agent, it has been submitted what kind of response does the seller get back, does he have a certain timeframe to respond to you in. Exactly how does that work?
Mark Wozniak: Well the seller may or may not have a timeframe in which they have to respond back. It can be another term that’s written in that we need a response say within 48 hours other times it doesn’t make sense to put that in but often seller are pretty good about responding quickly based on the way the market is moving so you’ll tend to get a response back within a day, two days sometimes three days if it’s not a bank. If it is a bank things can be different. Obviously we hope that you’ve structured a great offer and you put all the terms that you want and that the seller is just going to go ahead and accept the contract as is. What happens more often than not is that there are at least some terms that they want to make a counter offer on and so they will actually mark up the contract and strike some items that they don’t like and write in what they prefer and that’s known as a counter offer and then that comes back to you and it’s now the ball is in your court essentially for you to consider their counteroffer and we can continue going back and forth. And that is known as the negotiation period and frankly that is another area where we as real estate professionals I think you could find us being very helpful to your situation just sort of knowing what makes sense and what doesn’t make sense from a negotiation standpoint. Then finally when it’s gone back and forth and everyone agrees to the terms we have what’s known as ratification that means buyer agrees to all terms seller agrees to all terms.
Leigh Anne Monk: And that is in writing all the initials are in place, all the signatures are in place and there is actually a ratification date that’s placed on the contract and that’s very critical because that is the date everything else kicks off on because there are several deadlines in the contract in terms of when those contingencies can be released and so that ratification date is critical for that.
Mark Wozniak: Right. So that’s how purchase offers get structured and then ultimately negotiated and ratified.