by Dru Bloomfield on September 21, 2009
Home buyers and sellers often spend most of their time and focus on negotiating the purchase price of a house, and while that is often the deal maker or breaker, there are quite a few other negotiating points which may actually close a real estate transaction.
However…. You can be as creative as you choose, but price is the starting point.
Home sellers often have a bottom line price they will accept. However, some are much more motivated than others. Some may be bordering on the verge of a short sales. Some may be behind on payments. Others could have significant equity, but have a life changing event motivating them. Others are willing to take a “loss”, because they know they will make it on on their next purchase. In my experience, you have get your first offer in writing to them to see how the seller is going to respond.
Buyers either have been pre-approved for a maximum purchase price, have a set amount of cash available, or have investment guidelines that determine just how much they can pay for a house profitably.
Getting into the mutually agreeable ballpark is critical, and then there are number of other negotiating points that may prompt a seller to accept an offer that is slightly less than desirable, or prompt a buyer to offer a bit more than they were hoping to.
- Closing Date
Some sellers want to get out as quickly as possible, while others need extra time to find a place to find another home, or are waiting for a new home to be completed. Knowing the closing time frame that the seller needs or wants is very helpful. A buyer’s agent can inquire, and many times a seller’s agent will share this info.
- Possession Date
In the case of post-possession (or lease back), many home buyers are purchasing their as a primary residence, which is how their loan is being approved and insurance policy is written. Some lenders and insurance companies may allow a few days for the property to transition. The buyer and seller should always get this info in writing, if the property is changing hands on any other day than that of the Close of Escrow, or recording.Pre-possession creates a risk for the seller. What if the buyer’s loan doesn’t get final approval? Suddenly, the home seller is now a landlord.Pre-possession and post-possession are tricky.
- Earnest Deposit
Buyers often ask just how much earnest money should they offer. The earnest deposit is considered a show of good faith, and can be interpreted by the seller as a gauge of buyer motivation or financial position. With the Arizona real estate contract, the buyer has a good number of contingencies, so there are some protections. However, a buyer also should know that this deposit is “at risk”.
- Down Payment
Down payments vary by loan type. FHA loans currently require 3.5% down. Conventional loans can occasionally be found with a 10% down payment requirement, although 20% down is much more common. Some buyers will choose to put down more than the minimum required to match their financial objective. While down payment is not typically a negotiating point, it’s another place that a buyer can strengthen their offer, in a way that sellers (and lenders) could view positively.
- Payment Type
In today’s real estate market, there are three common loan types, cash, FHA, and Conventional financing. VHA and seller carryback are two other ways to purchase a house, but are less common. Some sellers feel more confident with a cash offer, while others seem to have no preference, and look to the bottom line. Others prefer conventional to FHA financing, due to the stricter property condition requirements needed for that loan approval. Buyers may qualify for conventional financing, but choose to go FHA to maintain a better cash position, especially if they would like to have cosmetic work done on the house.
- Personal Property
Some sellers view offering their personal property as an incentive to the buyer. If the property is a vacation or second home, and furnished beautifully, a buyer may be interested. Or not. Another negotiating point.Buyers, on the other hand, may spot personal property that they would like to have the seller leave behind, and may ask for it in the contract.In the Arizona contract, refrigerators, washers and dryers, are considered personal property, and the contract makes it clear that the buyer can request these items as part of the offer.
- Buyer’s Costs, including Loan Costs, Closing Costs, and Pre-Paid Charges
Asking the seller to contribute to the buyer’s closing costs, is fairly common these days. Especially on FHA contracts. Sometimes, you will even see homes, where a motivated sellers, offers to assist with closing costs.
- Appraisal
The buyer can waive the appraisal contingency, and in today’s market with the new appraisal rules, some seller may find this offer very attractive.
- Inspection Period
The default inspection period in the Arizona purchase contract is ten days. Some buyers can sweeten the offer by shortening the period, or an out-of-town buyer may ask for additional time. On rare occasions, a buyer may waive the inspection period.
- HOA Transfer and Capital Reserve Fees
HOA fees vary significantly from community to community. Buyer may ask the seller to cover. Seller may agree, or the two parties can split these home owner associations costs.
This list is not at all comprehensive, but it should be a good starting part for creative thinking that may be need for you to successfully buy or sell a home in Arizona.
DISCLAIMER! Please note that this information is strictly based on my opinion and experience, and should , in no way, be construed as real estate guidance or counsel. Ask your Realtor for any clarification, and seek appropriate legal and financial guidance from an attorney or CPA who is well-versed in Arizona real estate.
by Dru Bloomfield on August 9, 2009
It’s been quite awhile since I had a Sunday off, and I spent part of the day getting caught up on my blog reading. I thought I’d share a few highlights from other real estate bloggers that I read. Lots of changes and helpful reminders, for both buyers and sellers.
Home Loans
Noted blogger and active lender, Dan Green has provided a very complete and concise review of the federal government’s shutdown of the third largest FHA lender.
Local lender, Justin McHood recommends having a home mortgage back up plan, just in case.
Kelly Koehler, Tucson Realtor, describes yet another change that has occurred in the world of real estate financing. The process is designed to better protect the consumer, and Kelly shares “you’re supposed to get disclosures earlier, not pay any big fees until you have time to review them, and if your costs and/or interest rate make a big swing, you’re supposed to get an updated disclosure.”
Home Buyers
David Lorti, a Chandler-based real estate agent, wrote the blog post that’s been floating around in my head this week. With less than four month before the purchase deadline, and a competitive real estate market, buyers who want to take advantage of this credit need to act now.
Rod Rebello, a Tempe Realtor, took the time to explain how the earnest deposit works and several of the buyer contingencies that are standard in the Arizona real estate contract.
Teresa Boardman, Realtor (plus an amazing photographer) reminds buyers that negotiation is give-and-take. True, whether you are buying real estate in her St. Paul market, or any other location in the world.
Home Owners
Kristal Kraft in Denver discusses the in’s and out’s of loan modification, where “the lender agrees to work with the homeowner in order to make the mortgage payments “doable” so the homeowner can avoid foreclosure.”
I put this post together last month and have been keeping it updated with the latest legislative negotiations. Comments have been coming in that show the frustration and insights that others have with this new law.
Scottsdale schools start back tomorrow morning, and although it’s still pretty warm, we are are all looking forward to what has traditionally been our second busiest real estate season of the year. Besides knowing what the real estate market is doing in your specific area, it’s really important to know the overall real estate environment, too. Hope you found this info helpful.
by Dru Bloomfield on July 1, 2009
I can always count on Mike Orr at the Cromford Report to make his way through the numbers and make sense of what is really going on in our Phoenix real estate market. Here’s his review of the Yahoo News post that I blogged about yesterday, “Phoenix-Mesa-Scottsdale Real Estate in 2012?” :
Business Week Forecasts Phoenix Home Prices Will Rise
A Business Week article dated June 23 and titled “What Your Home Will be Worth in 2012″ by Prashant Gopal and Diana Holden attempts to forecast what the median price might be in 2012. They cover the 50 largest metro areas, but we are only really interested in the Phoenix-Mesa-Scottsdale metro. Their analysis for this metro is as follows:
- What a Home Will Be Worth in 2012: $141,859
- Q4 2008 price: $169,000
- Projected price change by MSA: -16.1%
- Projected price change by state: -17.2%
The prices are stated to be median sales prices. $169,000 was the monthly median sales price for “all areas and types” on October 18, 2008, so that matches up nicely. What is mysterious is why they would start with a price that is so ancient as the comparison point. Since this article was also featured prominently on Yahoo’s home page, it is likely to have been seen by a large number of people. I wonder what their overall impression was – that prices would go down? In fact the article is saying that the median home price will increase quite significantly from today’s level.
The projected price change by MSA is -16.1%. However monthly median sales prices already fell twice as far between October 18, 2008 and April 30, 2009 to $115,000, a change of -32%. The forecast median sales price of $141,859 requires an increase of 23.4% over the coming 3 years from the April 30 level to meet their forecast.
The median sales price for “all areas and types” has risen $10,000 or 8.7% in the two months since the end of April, so we have covered more than a third of that increase already. The Business Week forecast now requires a further increase from $125,000 to $141,859 – a change of 13.5% over three years, which is pretty close to a “normal” level of home price appreciation.
It is strange that Business Week expressed their forecast as a drop in prices from Q4 2008 when it actually represents a substantial increase from today’s price levels. I would have thought that would make a more interesting story, but never mind. It’s all in the presentation, I guess.
Quite a different perspective, isn’t it?
by Dru Bloomfield on May 5, 2009
Last week, I wrote a blog post Looks like Phoenix real estate prices may be on their way up, where a comment was left regarding the danger of generalizations. I agree, generalizations can give a false picture of what is happening in various areas of the market, such as in different communities or different price ranges.
For example, Scottsdale has not followed the same trend of pending price increases that is being seen in the overall Phoenix area. In the first chart, you will see that Scottsdale’s pending price is still decreasing, where as in the second chart you will see that in the overall Phoenix area the pending price of homes is increasing.
As Artur mentioned in his comment, price is another area where there are large differences in our market. You can see from this next chart that we are very much in a seller’s market in the price range of $150,000 and below, but still very much in a buyer’s market in the over $300,000 and over range.
Understanding the pricing dynamics for your zip code, neighborhood, price range, house size, and much more is critical to correctly pricing your house, if you are planning to sell, or for making a smart offer in today’s real estate market.
Indeed, basing your decisions on general information could be an expensive mistake. Get the detailed information you need to make an informed decision.
by Dru Bloomfield on December 19, 2008
credit: Dru Bloomfield – At Home in Scottsdale and Altos Research
In looking through the Altos Research charts for Scottsdale real estate today, you can see we have headed into another downturn in the market over the last several weeks. The Altos Market Action Index shows slowing in all Scottsdale markets, across all zip codes.
My suspicion is that many people are focused on the holidays. At the same time, I’m seeing that many buyers are still very focused on searching through the new listings, keeping track of pricing changes, and asking me to refine their home searches. While there are not a tremendous number of new homes going on the market during the last couple of weeks of the year, sellers are focused on preparing their homes for listing in January. Our warm winters and huge events (golf, horses, and cars) attract visitors in droves and these sellers want to be ready.
I believe that after the first of the year, real estate will become a bigger focus for first time buyers and winter visitors / part-time residents. Why?
- Home prices continue to drop. Sellers (those that are motivated) are listing their homes at more realistic prices. Foreclosures and short sales are driving home prices down, and have an impact on normal, non-bank involved home sale prices.
- Interest rates are excellent. Rates dropped to 4.5% briefly for one morning this week and are now back up to the 5% range. Most lenders are writing about the refinancing boom, but these good rates also help home buyers, too.
- First time home buyer tax credits will expire. The government has created a tax credit program, that’s really interest-free loan. The program expires in July 2009, so will provide an additional incentive for first time home buyers who believe it’s a good time to purchase a home.
So, while it looks a little slow now, all that could change fairly quickly during January. Time will tell.
