Gary Wuestenberg's Blog

First of all let me start by saying you aren’t actually writing an offer. What your intent should be is to enter into a legal binding contract. Because that really is what you are doing.

With that said I’ll talk a bit about putting forth a good “offer”. In my last two blogs I talked about REO properties and how repairs and FHA lender required repairs are handled. With that knowledge it is easier to know how to prepare the purchase contract. First of all, don’t try to buy anything you can’t really afford, are uncomfortable with the payments or don’t have the capability to repair. So lets start with a hypothetical situation. There is a house on the market priced at $200,000. It needs some TLC – carpet, paint, window coverings and landscaping. The fair market value for this property in good condition is $210,000. Obviously you would like to get this for less than the asking price as it needs repairs and we are still in a declining market. If you want to pay $190,000 for this property you will want to write your purchase contract for around $170,000. The banks are not afraid to negotiate but they are looking for serious buyers. So if you want to “bottom feed” this blog is not for you. In order for someone to purchase a house at 5 – 8 percent below market value you will need to start your negotiations at 10 – 12 percent below market value.

Something that is really working, especially to get first time buyers in the door, is to ask for credits for closing costs. It is not unheard of to ask for 4% in closing costs. Keep in mind that if you do this you should be prepared to pay close to asking price. But if you can get the 4% or even 3% it will help pay for your escrow fees and could even buy down your interest rate which would lower your monthly payments. And you can do this and still ask for repairs.

So, if you want this hypothetical house for $190,000 you need to start by offering lower and negotiate up. But if you happen to get into a multiple offer situation all bets are off. Once that happens the seller gains more leverage and the price is usually driven up. This generally happens with a property that is in good condition, priced right and is in a desirable location.

Another way to save money is to offer to pay for the little things that the seller would normally have to pay. For example, if  you are trying to buy the house for 10% below the asking price offer to pay for the home warranty, Natural Hazard Disclosure Report, Transfer Tax fees, etc. These would total about $1,000 on a $200,000 home. But by offering to pay for these you take the sting out of having your offer being for 10% below the asking price. You are essentially paying $1,000 to save $20,000.

Again, this all depends on market conditions and that is what I will write about in my next blog.

Thanks for reading!