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NEGOTIATING THE DEAL
One of the first things you might want to consider doing as you begin searching for a new home is to get pre-approved for a mortgage. A pre-approved buyer is one who has completed the mortgage process and has actually been approved for a mortgage up to a specified amount.
A pre-qualified buyer is one that has submitted certain income information that a lender uses to say they are qualified to borrow up to a specified amount. However, the lender has not verified any of the information that has been submitted and may also require additional information before final approval is granted.
Generally, mortgage companies and banks look for a monthly mortgage payment that is 28% or less of your gross monthly income and total debt including bank loans and credit cards that is less than 36% of your gross monthly income.
Being pre-approved is useful for a number of reasons. First, it lets you know just how much you can afford to spend on a home purchase. You'll know exactly what the bank will finance, you'll know how much you need for a down payment, and finally, you'll know just how much closing costs will be. Once you've been pre-approved, you can also sleep at night knowing that as you shop for your new home, there won't be any obstacles to financing the purchase.
Secondly, pre-approval will aid you in your purchase negotiations. Most offers to buy property are contingent on being able to finance the purchase. A pre-approved buyer is a fully qualified buyer which the seller is often more willing to negotiate the price with.
You've been pre-approved for a mortgage and you've found the house you want to buy. You like the neighborhood, the schools, the community facilities, the shopping and the roads into and out of the neighborhood. Now it's time to negotiate the price. It is important to remember that the seller has made a valid, legal offer to sell his or her home at a specified price and inclusive of specific personal property. In reality, you are presenting a counter offer or proposal. When considering the seller's initial offer you should keep in mind several key factors:
- The offering price as it compares to your budget
- Comparables, the prices of similar homes in the area
- The prices you've seen on other similar homes you've considered
- The age and maintenance needs of the property
- Any personal property that stays with the house like appliances, spas, window treatments, furniture, etc.
Given your consideration of all the above topics, you're ready to make a counter offer. In doing so, try not to criticize the furnishing of the individual's home. You may not like the color of the carpets, walls, or wallpaper; but, saying so will only alienate the seller and make them less willing to negotiate. Unless they are in poor condition, something you've already considered in the inspection phase, their aesthetics do not detract from the value of the home.
Likewise, a low ball offer will almost always be rejected and can only serve to alienate the seller, making them less willing to negotiate in good faith. Be reasonable in your offer and you are more likely to get a fair price. There is nothing wrong, however, on countering with a low offer on a home that you feel is grossly overpriced based on your research. Finally, your counter offer should be for a very short time duration; often 24 hours. This prevents the seller from shopping your offer to another buyer and using it to get a higher price.
Elements of an offer
- Price: the amount of money you are willing to sell or pay for the home
- Earnest Money: the amount of money that must be deposited
- Mortage approval: has the bank approved a loan
- Terms: includes the price of the deal and the financing details
- Conditions: includes the home inspection either the buyer or seller must meet prior to the contract being finalized and the deal closed
- Inclusions or exclusions: those items that either remain or don't with the house after it is sold.
- Closing date: the date the financial transactions are completed and the title to the property is legally transferred.