Write and negotiate an offer: The Arizona Residential Resale Purchase Contract is the primary form used in residential sales. There is a corresponding purchase contract used for vacant land sales. The contract is between a buyer and a seller and establishes the terms and conditions of the sale of residential property. There is a lot of “boilerplate” language and items that can be modified by either party. Keep in mind that just about everything can be negotiated. Your agent should be able to explain each item and any additional addendums required. The property and type of sale will dictate which addendums are necessary (Home Owners Association, As Is addendum, Short Sale addendum, etc).
If you aren’t paying cash, the standard Arizona Residential Resale Purchase Contract requires a Loan Status Report (or LSR) be submitted with the offer. In the Phoenix real estate market and in the current lending environment, it is critical to demonstrate to sellers that you are not only willing to purchase their property, but that you are able to. An LSR signed by your lender is in effect a statement of pre-qualification. It is not a guarantee that the loan can be obtained but it does show that you are a strong potential buyer. The LSR outlines the loan terms, down payment required and qualification amount.
The most common question we get is, “How long does this process take?” If you are obtaining a loan for a standard home purchase (not a short sale). It’s usually best to plan on 30 to 45 days. If you are paying cash it can be done in about 21 days (I’ve seen shorter time frames but it is very stressful and I don’t recommend it). Short sale purchases can take significantly longer.
Probably the second most common question from first time home buyers is “What is earnest money and how much do I need?” Jay previously wrote a post about earnest money. It’s a great post and I don’t really have anything to add.
The down payment is often indicated in the LSR and is typically discussed with your lender prior to locating a property.
The buyer should determine the price offered for the property – not the agent. Your Realtor can provide information (such as the latest comparable market analysis or “CMA” for the neighborhood) to help you with your decision. Properties in the last few months sold (not those that are listed for sale or under contract) are usually a good indicator of current value. Upgrades do not necessarily add value to the property but condition issues can reduce the current market value. Your agent should be able to help you determine if any of the recent sales were foreclosure or short sale properties. These “distressed” properties are often sold below market value. Once you determine an approximate market value, ask yourself two questions:
1 – Is this property realistically priced?
2 – What am I willing to pay?
Successful negotiations begin with realistic expectations by both the buyer and the seller. Buyers don’t want to pay too much for a property – sellers want to get the most from their investment. If the property is priced significantly higher than the comparables the seller may be unrealistic and it could make negotiations difficult. A higher than comparable price may also create a problem when the property is appraised for your loan.
A common negotiation mistake made by a buyer is to submit an unrealistically low offer with the expectation that the seller will counter the offer somewhere between the list price and the offer price. This isn’t usually what ends up happening. Many sellers have a difficult time seeing their property as an investment –they’ve made memories there. They’ve made improvements. They are emotionally bonded with their home. Extremely low offers tend to irritate the seller to the point that they don’t want anything to do with you or your offer. It can be better to start with the amount you expect to pay (maybe just a little bit less) and be willing to walk away from the property if the seller asks for more.
Walking away is not easy, but it may be necessary so prepare yourself. It’s important not to fall in love with a home while you are in purchase negotiations! There will be plenty of time to make memories and fall in love with your home after you’ve moved in.
There is more to submitting an offer and negotiating the purchase of a home than just the price (though obviously that is the major factor). Other considerations are the amount of earnest money, the inspection period, items that the buyer and seller will pay, length of escrow period and even loan terms all come into play. Your offer is a combination of all these factors and each factor will be weighed differently by different sellers. Make sure you understand all of the purchase contract terms and conditions BEFORE you submit an offer. Work closely with your real estate agent and let them help guide you and educate you on the nuances of submitting and negotiating a purchase offer.