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Establishing a good price to offer on the home you have selected is a big step in reaching the goal of actually buying the right home for you. Your Realtor has helped you select the right Lender for your portfolio and has also worked with you to select a good neighborhood and to understand the current dynamics of your real estate market. Now you need to begin to put all this together to craft a price point to use in your negotiations with the Seller. Selecting a good price to submit as your offer is a key point to your success in securing a contract and in closing the transaction. In addition to the price, there are other important factors to consider at this time, such as amount of down payment, options, contingencies, a feasibility period, etc. but first let’s consider the price point.
The price point is the maximum price you are both willing and able to pay for the home selected. How much are you willing to pay for right house? How much are you able to pay? These numbers may vary depending on the transaction at hand. For example, for a multitude of great reasons, you may absolutely want the house. So, you are willing to pay "what-ever-it-takes" to close the sale; but in reality you are only able to afford a finite amount. Or, you have a letter of credit that ensures you are able to afford any house you want but how much are you willing to pay for this size house, in this neighborhood at this time in the market cycle?
The "Right" price brings your willingness and ability in sync and is a price that will keep the Seller at the table to agree to a Contract for the Sale. It should reflect current and expected market conditions and be reasonable. You do not want to insult the Seller who listed the house at their (hopefully realistic) price point and you do want to open the door to negotiation. At the same time some sellers are unrealistic about price or don’t accept that they might be in a poor market. At this point you need to look for a seller with more reasonable expectations. Once your price point is defined you are almost ready
to make an offer. You should now review you financing strategy and determine how much of a down payment you want to make. With a large down payment, the amount to be financed will be less. Your willingness to select the right down payment amount will impact your ability to hit your price point.
Unless you are going to pay cash for the house you will need to make a down payment of 0 - 25% of the sale price and finance the remainder. If you have great cash reserves to put at-risk, a 0% down payment may be available. A 20% down payment may be required in order to avoid mortgage insurance payments. In other instances, the down payment is a fixed percentage of the Sales price, perhaps 5% or 10% and has been pre-determined by the Seller or the Seller’s Agent or perhaps the Lender. Discuss this with your Realtor, and then move forward with a clear understanding of your financing plan.
In addition to price and down payment, you may want your offer to include a contingency on finalizing your financing, or on your ability to sell you current residence, or in consideration of other factors. The sale may also require an appraisal, a survey, an inspection, definitely a title search and possibly a feasibility period. (The feasibility period is a defined period of time in which you verify certain factors and information to determine the impact all this new information has upon you decision to purchase.) Your Realtor will be able to help you with all of these considerations. It is very important to have selected a Good Realtor early in the process.
Armed with this information, you are now ready to make an offer. Remember, the offer will include a sales price and any option or feasibility period, general financing or other contingencies. The seller will respond with acceptance or a counter. Should the seller counter, then you do a bit of back and forth negotiations until you come to agreement on your contract to purchase. With the negotiated agreement all parties will sign and initial, contingencies excepting, a closing date will be set.
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