There is more to crafting an offer on a home than price — terms, and conditions are often the meat and potatoes of a real estate deal.
In the last installment of Home Buyer Bootcamp, we discussed pricing strategies, including escalation clause. In this chapter, we will talk more about terms and conditions and how they impact the offer.
Terms and Conditions ~ Settlement Date
Most settlements occur within a period of 30 to 60 days. Anything sooner or later can put pressure on a real estate deal. One of the hardships of selling a home is moving. Timing is often a vital component of any moving strategy. Buyers who are flexible with their settlement date are often attractive to sellers. If you can be flexible with the settlement, let the seller know you will work with them. It could go a long way in having your offer considered over less flexible buyers.
Terms and Conditions ~ Deposit Money
When an offer is submitted, it often includes an earnest deposit. The deposit, paid by the buyer, is kept on account until the transaction is complete, or terminated. If there are two identical offers on a home and one has a more substantial deposit that will likely be the one chosen. The lesson here is to put up as much of a deposit as you can.
Terms And Conditions ~ Home Inspections
Many home sellers are wary of home inspections. I have witnessed sellers taking less money for their property than a higher competing offer with inspections. I hear sellers say the home inspector will find something wrong whether there is an issue or not "it is the inspector's job!" For this reason, some homebuyers decide to waive all inspections and make their offer look more appealing to the seller. Please understand that waiving inspections can be risky at best.
A home buyer may be better off making a higher monetary offer and keeping the inspection contingency intact. If you are at the top of what you can afford and still want inspections consider a cost cap. Example: Ask for a home inspection and let the seller know they will not be responsible for the first $2,000 of any suggested repair revealed by the investigation. The inspection contingency would not take effect unless the cost of repairs is above $2,000. Another option is to bring a contractor or inspector with you to a home showing. This practice can be cumbersome and expensive. I would argue that the method is less costly than losing a home you desire or buying one and experiencing problems down the road.
Weigh Your Inspections Carefully
The most popular inspection is the full home followed closely by the wood infestation or termite. If a property has an on-site well or septic system, these inspections are often added to the list. The on-site septic inspection is more popular because it is a big-ticket item. Secondary inspections include radon, homeowner insurance, and zoning.
Following is an example of how an inspection contingency may not work in your favor: You make an offer of $200,000 and ask for a radon inspection. You use an escalator clause to raise your proposed offer to $210,000 in $1,000 increments. A competing offer of $205,000 with no radon inspection is on the table. Your offer is now $206,000 ($205,000 competing offer + $1,000 increment above competing offer = $206,000). If the property has radon and the seller is asked to install a system to remediate the radon, it would cost the seller approximately $1,000. The seller will likely take the lower offer of $205,000 with NO radon inspection contingency at all because it is less effort and risk for roughly the same money.
This scenario does not mean buyers should not ask for a radon inspection. The purpose of this example is to understand how the inspection condition can affect their deal. If radon is a big issue to the buyer, they may want to handle the situation on their own after they purchase the home. After all, you don't have to be concerned with radon in a home you do not own.
In the next installment of Home Buyer Bootcamp, we will discuss how to balance the offer. Stay tuned for more!
Knowledge is Power!