Making an offer and negotiating a contract are crucial parts of the home buying process. This is not an area where you want to make a mistake. Which is why it is so important to have a good agent, and lender working with you before you make an offer. The process of making an offer is fairly easy thanks to uniform contracts. Here in the state of Georgia, almost all realtors utilize the Georgia Association of Realtors Contract. It changes a little from year to year but the core components stay the same. This is good because it helps create uniform practices throughout the state. Nevertheless, other areas of real estate do not always use uniform contracts. For example, a condo conversion or a commercial purchase often have special contracts that are unique to the agreement or property. But that is rarely the case with residential homes. Your agent will walk you through the contract when you are preparing an offer. Most things are fairly straightforward. Honestly, the current GAR contract is more of a buyer option than a contract because there are so many contingencies in favor of the buyer. Regardless, when I work with buyers in any transaction I want them to understand three things:
- Negotiation tactics vary depending on the property and market conditions
- An offer price needs to be realistic
- Time frames are crucial and must be understood
When it comes to negotiating everyone claims to be an expert. I have worked in real estate for over 10 years, and I have seen all kinds of tactics. Many of us are naturally competitive, and that seems to come out in people when they negotiate for property. Someone wants to win. In reality, both sides should win. A seller wants to sell and a buyer wants buy. Depending on market conditions, a buyer may get a great deal and other times a seller may get one. But a good agent can make sure you buy or sell at a price that is either fair or a good deal. The property and market conditions should influence your offer price. For example, if the market is slow, and the house has been sitting there may be an opportunity to purchase well below asking price. Conversely, if the property is well located and highly desirable you need to bring a strong offer. The type of property influences negotiations as well. People become emotional about their home where as an investment or commercial property is mainly a business decision. There is no rule of thumb or secret to negotiation. It will depend on the situation, the market, and the circumstances around the property. Try to find a good deal, but also be prepared to pay a fair price for what you want. A good deal is always preferable, but there is nothing wrong with paying a fair price either. Sometimes there just aren’t many great deals available.
When it comes to price all the same rules apply. There is no set rule for the initial offer price. That being said, most of the time you don’t want to make your best offer in the beginning. But from time to time you will need too. The last thing you should do is go around making low ball offers to everyone. First of all, it wastes people’s time which is rude. And lastly, it often makes you look stupid instead of smart. Don’t get me wrong, you can make a low offer but do it within reason and when it makes it sense. Most importantly, understand that it is ok to pay fair market value. In the end, a good realtor will make sure you either get a fair price or a good deal.
Lastly, you need to understand the time frames of the contract and make sure they are realistic and reasonable. As a buyer, you will have a due diligence period and a financing contingency. A due diligence period should be two weeks at the most when buying in the Athens area. This is the time frame for you to get a licensed inspector into the property and your loan process underway. 14 days is more than enough time to get this accomplished for an existing home. New construction purchases can be a little different, but 14 days is plenty of time for an existing home purchase. The loan approval and appraisal can take a little bit longer. In most cases, 25 days is enough but this can be pushed back a little if necessary. The appraisal should be done within this timeframe. Ideally, the appraisal price is equal to or greater than the contract price. If not, you will have the option to leave the contract, reduce the price, or pay the difference. It should be noted that most appraisals are usually within a few thousand of the agreed price. Basically, don’t expect the appraisal to be $30,000 over your contract price. It can happen but it is rare.
In the end, this part of process is very subjective. The market conditions and circumstances around the property should always be considered when making an offer. For instance, when a property is in foreclosure you may be able to take advantage. But beware because many foreclosures are competitive, and you may need to offer list price or better to acquire the property. One of the biggest things you need to have with your realtor is trust. You may need to rely heavily on them when it comes to making an offer. So it is important to find someone that you can trust that is professional. There are bad people in every profession. Bad lawyers, bad doctors, bad chefs, and bad hair stylist. Real estate is no different so find a good person to help you.