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FORMS, FORMS, AND MORE FORMS
Buying a piece of real estate is anything but simple.
State and Federal governments have created a lot of rules to help
document all of the particulars in real estate transactions so that the
consumer is fully informed. However, these useful consumer protection
efforts lead to a lot of forms in a transaction, most of which need to
be signed to be valid. "Required" and "optional" forms may differ in
each state, but they can be a headache for the average buyers unless
they are utilizing the services of a professional. We know
which forms are required by law in MN and which might be
necessary to make your offer more appealing to a seller or to protect
your best interests in the transaction. The most common ones that you
will probably be using are:
Purchase Agreement--includes the
price you are willing to pay for the property, the
amount of your earnest money deposit, the date of the
closing and the date you will assume possession of the
property, and who is expected to pay any special
assessments and property taxes.
Financing Addendum--includes the
interest rate and type of financing package you have
chosen. Most common options are Conventional, Insured
Conventional, FHA, VA or Contract for Deed.
Inspection Contingency Addendum--includes
the time frame for having the property inspected by a
professional (at buyers’ expense) to find out its true
condition. Offers are often written "subject
(contingent) to home inspection" which means that a
buyer doesn’t have to commit to actually purchasing the
home until the inspection is complete, facts about its
condition are documented in the form of an inspection
report, and buyers and sellers have agreed in writing to
the resolution of any problems brought to light by the
inspection.
Personal Property Agreement--A
list of items to be included in the sale. In most cases,
items that are permanently installed are already
considered part of the property but, if there is any
doubt, list them in this agreement. You can also ask for
items such as drapes and appliances.
Arbitration Disclosure and
Residential Real Property Arbitration Agreement--Buyers
and Sellers have the right to choose whether to have any
disputes about the physical condition of the property
decided by binding arbitration or by a court of law.
Arbitration allows the resolution of these disputes by
one or more impartial persons who hear testimony and
receive evidence in a formal hearing. Based on the
evidence, they render a final and binding decision,
known as an award, which has the same force and effect
as a court judgment. Arbitration is binding only if all
parties to the transaction agree to arbitrate.
Sellers Property Disclosure Statement--Generally,
sellers provide and buyers receive and review this
document prior to the purchase agreement being signed.
Buyers should be aware that the Disclosure is made by
the seller only, not the Broker representing either
party. Furthermore, the Disclosure Statement does not
constitute a contract between the buyer and seller, but
merely provides a disclosure of the seller’s knowledge
about the property as regards environmental issues,
foundation status, roof/ceiling damage and operational
systems such as plumbing, heating, electrical etc. As
such, the buyers need to sign the statement
acknowledging that they have received and reviewed the
document.
Lead-Based Paint Disclosure--applies
to sales of all housing built before 1978. Seller must
disclose known lead-based paint and lead-based paint
hazards and buyer has the option of having a lead-based
paint inspection performed, at buyer’s expense. Both
buyer and seller sign the disclosure.
Buyer’s Estimated Expense Worksheet--An
estimated computation of buyer expenses and cash
requirements to close using various financing
alternatives. Also called a "Good Faith Estimate" or GFE
when given to the buyer by the lender at the time of
mortgage application.
MAKING AN OFFER
Once you have made the decision to offer on a
property, we will assist you in putting it into the form of a
Purchase Agreement which, once accepted by the seller, will be signed as
a legal contract by all buyers and sellers in the transaction. The
dollar amount of your offer is based on a value that is determined by
many different factors. The real value of the property to you is how
well it fits into your pre-set goals and that value may or may not
coincide with the listing price of the property. We will us our knowledge of the current real estate market and access to market
statistics via the local MLS to come up with a fair, realistic offer
price. Offers can be "colored" or made more appealing to the seller in
several ways, not the least of which, of course, is to offer full list
price or more. A few other items to consider:
Providing your Pre-Approval letter from your
mortgage consultant that can be sent along with the offer,
indicating that financing has already been approved for the
offer amount. In addition, the terms of your financing
should not include costs to the seller.
Increasing the Earnest money amount to more than the norm,
which should indicate to the seller that you are very
serious about buying their property.
Indicating a quick and timely closing date on your offer,
which is especially appropriate if the home has been on the
market for awhile or is currently vacant and needs to be
maintained by the sellers at their expense through the date
of closing.
Writing a personal note to the sellers, expressing your
interest in the home and what it is about the home that
particularly appeals to you and your family.
Keeping your requests for repairs to a minimum.
Limiting the items of personal property requested .
Different sellers are motivated by different things.
In addition to price, a seller will look at the other terms of the
offer, as indicated above, and be more willing to negotiate or even
accept, a "clean" offer from a pre-approved buyer, even if the price is
slightly lower.
COUNTEROFFERS AND WIN-WIN NEGOTIATIONS
Once the offer is written,
we will coordinate and set up the offer presentation with the listing agent
as quickly as possible, but the offer itself may be presented by either
the listing agent or by use depending on the situation. The sellers will either
accept the offer as-is and sign as required to finalize the contract, or
they will reject the offer, or they may counteroffer as a means of
keeping the negotiations open. Any one item or a number of items on the
purchase agreement may be subject to a counteroffer, whereupon the
sellers will initial the changes they made and sign the original offer
before it is returned to us. Buyers will then accept the
changes (by initialing), reject the counteroffer as being unacceptable,
or initiate negotiating strategies of their own.
We often think of negotiation as a process where the
person with the most information or the most leverage wins and the other
party loses. Is there always a winner and a loser, or is that the case
only if we choose to think that way? Times seem to be changing and
Win-Win negotiation techniques are being accepted in the real estate
world, with happier clients on both sides of the table as a result. An
attitude of Win-Win negotiations which include compromise throughout the
entire process is the most positive way to achieve your buying goals and
eliminate anxiety.
MULTIPLE OFFERS
Multiple offers are not uncommon, particularly on a
new listing or a very desirable property. We notify the listing agent by
phone that you are in the process of writing an offer on the property
and will be told if yours is coming into a multiple offer situation. Once they have all
been presented, the seller can choose to accept one and reject the
others, reject all of them hoping they will all rewrite better offers or
counter one and reject the others.
IF YOUR OFFER IS ACCEPTED
Now it’s time to get everyone together. All issues agreed to
in the purchase agreement need to addressed:
Arrange for Inspection--If you have included an
Inspection Contingency Addendum with your accepted offer, you probably
have a limited amount of time to arrange for a professional inspection
to carefully evaluate the property’s systems and structure. A
comprehensive written report of any problems is well worth the cost that
ranges from $200 to $400. It should take two to three hours and you
should make every effort to attend. Check that the
company has liability and errors and omissions insurance. Then, you have
recourse if they miss something that ends up costing you money. They
should be member of ASHI (American Society of Home Inspectors) that has
membership standards and a code of ethics. A detailed report should be
provided by the inspector and it should cover:
Roofing, flashing, chimneys
Exterior—windows and doors
Structure/foundation
Windows
Electrical system
Heating system
Insulation
Plumbing
Interior—windows and doors
Water heater
Property and site
Major appliances
You should also be aware that there are several
companies which offer home warranty programs which cover certain home
components including appliances, heating, plumbing, electrical, roof and
foundation for a period of time, usually a year from the date of
closing. There is typically a deductible to be paid at the time of
service and only authorized repair vendors may be called, but your peace
of mind may well be worth the premium that is paid at closing.
Finalizing Your Financing--The financing addendum
to your purchase agreement probably includes a time frame during which
you must finalize your mortgage application. If you have already been
pre-approved through a particular lender, this procedure will be
relatively simple; the lender normally requires a copy of the earnest
money check, a copy of the purchase agreement and all pertinent property
information including the legal description. The lender in turn will
provide to the buyer, a Good Faith Estimate of Closing Costs or GFE. If
you have not been pre-approved, the mortgage consultant you choose will
probably require the following in addition to copies of the purchase
agreement and earnest money check:
Full
names and social security numbers
Current
and previous addresses
Employers
for last 2 years
List of
all charge accounts with account numbers
List of
all outstanding loans with account numbers
Current
mortgage holder and account number (if applicable)
Make and
model of car(s)
Estimate
of value of personal property
Income
tax returns or financial statements (if commissioned salesperson or
self-employed) from the last 2 years
Appraisal—The lender will order the appraisal or
valuation of the property immediately. Normally, the appraiser will
contact the listing company to arrange a time for the appraisal. Payment
for the appraisal is usually paid to the lender prior to closing.
Next:
Getting Ready for Closing
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