There are many things to consider when making an offer on a home. Some of those things are very common, while others are less understood. How the intangibles are structured, can be the reason a seller chose your offer over the others.
In my final installment of Home Buyer Bootcamp, we will discuss what I call the intangibles of the deal. Intangibles can include things like home sale contingencies, seller credits, and appraisal contingencies.
Structuring a Seller Credit
In Reading and Berks, a large percentage of home sales include a seller credit. In short, a seller credit is when a seller uses proceeds from the home sale to pay all or part of the buyer's closing costs. For more on the seller credit see Home Buyer Bootcamp ~ Negotiating The Deal Part 1. Home sellers tend to look at a seller credit negatively. The seller often believes the buyer is not qualified and needs financial assistance from them. In some cases, the buyer will increase the sale price to cover the seller credit.
Example: $200,000 home sale. The buyer asks for a $6,000 seller credit and pushes the sale price to $206,000 to cover. In this example, the seller receives a net offer of $200,000 ($206,000 - $6,000= $200,000), which is the original asking price.
Upping the sale price to cover the closing costs presents some additional burdens to the seller. The seller will now have to pay commission and transfer taxes on a $206,000 sale, and the property will have to appraise for $206,000, not $200,000.
If you need a seller credit to buy any home, I suggest you make every effort to let the seller know you are a well-qualified buyer. Have your mortgage lender include a closing cost estimate showing the funds needed to close the transaction along with a detailed pre-qualification letter. Also, include a Buyer Financial Information form showing you have the additional funds to complete the deal.
If you can close the deal without seller credit but desire it for other financial reasons, consider the following: Use an appraisal contingency stating the home only has to appraise for $200,000. If it appraises for $206,000, you get the full $6,000 seller credit. If it appraises for less, you reduce the seller credit to match the appraisal. After all, the seller is only asking for and getting $200,000. You can also consider paying the difference in transfer tax between $206,000 and $200,000, which is only $60.00. Even though it is a small amount, it shows the seller you are respectfully considering their bottom line. The additional real estate commission can be negotiated between the agents.
Home Sale Contingencies
Having to sell your home to purchase your next can be a complicated matter. It can get especially interesting when there are several offers on the same house. In most cases, a home seller will take a non-contingent offer before one with a home sale of any kind. There are several ways to sweeten the pot if you have a home to sell.
Consider timed hard deposits ~ Example: You ask for a 60-day settlement. Your first escrow deposit may be an amount totaling $5,000. After 30 days the deposit goes directly to the seller but will be credited back to you if, and when you settle. You could also add a second deposit after 45-days with the same structure. This scenario puts plenty of pressure on the buyer but is one way to entice the seller to consider your offer over others by giving them guaranteed funds. I also suggest you get prequalified to see if you could settle on the new home without selling your home as a safety net. I will be dedicating a full article to the home buying/selling process in a future article.
I hope you have enjoyed the Home Buyer Bootcamp series. In the coming weeks and months, I will be crafting more articles that I hope will provide more clarity to the home buying and selling process. If you have any questions, please visit my website or email me at email@example.com.