Welcome to my Three Step "How To" Guide to Successfully Buying a House Without Using a Real Estate Agent. I am a real estate attorney, as well as a licensed real estate broker, and I've helped hundreds of successful home buyers.
Craig provides the following insight for informational purposes only, and without any warranty or guarantee whatsoever. This blog does not create an attorney/client relationship, and Craig is not your attorney unless you have a signed fee agreement with him. Now with that disclaimer out of the way...
So you've searched online, taken a tour, and you're convinced: You've found the One. Time to make an offer.
STEP TWO GOAL: Get the home under contract.
The Contract Process Starts with an Offer
An offer is simply a contract, signed by one party. If the other party signs it as written and before the expiration date, it becomes a contract. Otherwise, the parties negotiate further, until hopefully both parties agree to the same terms. The sale of real estate requires a written contract. Since every transaction starts with a writing, you need someone to draft it.
That's the work of lawyers. Brokers can do it, because the law allows them to engage in the limited practice of law. Specifically, they can complete pre-printed forms that were drafted by lawyers. But drafting a contract is exactly what a lawyer is trained and licensed to do. If you haven't done so already, it's time to hire an attorney.
Understand the Risks
One benefit of having a lawyer: Someone to answer any questions and explain the contract process. You may get answers from brokers, but they are likely going beyond what they are supposed to do. Explaining legal obligations is the practice of law. If you're one of those people who likes to know what they are signing, you will love working with a lawyer.
Seattle Tip: Here in WA, a buyer and seller can agree what will happen if the buyer defaults on the contract. As long as it is 5% or less, the seller keeps the earnest money, and has no other claim against the buyer. So assuming you and the seller agree to this term, that is the absolute worst that can happen if you get acute Buyers' Remorse: forfeit the earnest money.
There is one other essential writing that should be sent to the seller: Your pre-approval letter. Don't worry!! You took care of the issue before you even started your search. Just make sure the approval letter is updated and current and shows a pre-approved amount appropriate for the offer.
Insider's Tip: Tailor your pre-approval letter to the strategy behind your offer. Coming in low? You may want to "telegraph" that you have some room, but not a lot. So your pre-approval letter should show a loan amount a little higher. Coming in somewhere close to list? Maybe you want the offer amount and pre-approval amount the same. That way the seller may be more inclined to accept the offer without any counter. And for goodness sake, DON'T have a pre-approval letter that shows more than you're willing to pay. That sends the wrong message to the seller.
Negotiate the Contract
Because the contract must be in writing, usually the negotiations are in writing as well. Once the seller receives your offer, she has three options:
- Sign it as written. If she does so before the expiration date, it is a contract; if after, then you have the right to re-approve the terms. If you do, usually by initialing one final time, then you'll have a contract.
- Extend a counteroffer. Any change to the offer creates a counteroffer, which goes back to the buyer for approval. If the buyer changes the document further, it goes back to the seller. And so on, hopefully ending in agreement on all terms and thus a contract.
- Ignore it. This can happen if the amount of the offer is simply too low. Some sellers won't counter in that situation. They'll just ignore you. Then you need to decide whether to move on, or to "bid against yourself" (a classic negotiating no-no) by extending another, higher offer.
Eventually, either the parties will realize they are at an impasse and negotiations end, or they'll reach agreement. If the former, back to Step 1. If the latter - WOO HOO!!
Up Next, Step Three: Close on the Home