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Negotiating the Sale of Your Home

by Connie Yoshimura

    In today’s market, negotiating the sale of your home is never complete until the closing documents have been signed and recorded at the recorder’s office the following business day. The entire process can take as little as 30 days or as long as six months, depending upon the condition of the property and the abilities of all the parties involved, including realtors, appraisers, home inspectors, mortgage originators, mortgage underwriters, mortgage insurance underwriters, escrow closing officers, FHA/VA/AHFC project and subdivision approvals. That’s a multi-step process and anywhere along the way, things can get delayed, lost, miscommunicated or just plain derailed.

    Negotiating an agreed upon purchase price is only the first step. Even in today’s fast-paced market, most offers require one or two counters. These counteroffers need to be in writing and signed by all involved parties. If two people are in title to the property, it requires both seller’s signatures. Buyers are still asking sellers to pay additional closing costs and these costs must be identified not by type but by maximum amount. Closing dates are important to sellers, particularly for builders who have interest carrying charges.

    Once price, closing costs and time for performance are agreed upon, the next step is the approval of the home inspection report. Buyers are encouraged to get a home inspection (paid for by them) and their offer will be contingent upon their approval of the inspection report. Home inspections vary widely, depending upon the qualifications and thoroughness of the inspectors. The best home inspectors are licensed, bonded, insured and a professional engineer. Both buyers and sellers have the right as identified in the MLS purchase and sale agreement to renegotiate the purchase price based upon the home inspection report. In today’s market, if the buyer requests items beyond health and safety repairs, the purchase price is often frequently increased or the transaction is terminated.

    The final negotiation has to do with the appraised value of the home. If, for some reason, the appraisal does not meet the agreed upon purchase price, the seller is in for another round of negotiations. In a fast paced market where we have had an 8% increase in values in some market segments during the first quarter of 2013, it is difficult for an appraiser to keep up due to their required reliance upon closed sales data. Appraisals are now ordered through third party entities on a rotation basis and it is no longer possible for mortgage originators or realtors to request their favorite appraiser. This has good and bad implications. The good is that there can never be the appearance of collusion or price fixing. The bad is that in the past appraisers frequently were able to specialize in an area of the market which gave them in-depth knowledge of subdivisions, builders, price ranges and locations. Now, appraisers are generalists and as generalists their knowledge is not going to have the market depth of a specialist.

    When an appraisal does not meet or exceed the agreed upon sales price, it is usually the resale seller who takes the hit. On the other hand, if the appraisal exceeds the purchase price, buyers think they got a good deal. Buyers of new homes are adding a lot of extras on to their purchase price but they can’t expect appraisers to always add the full cost of their add-ons in which case they must pay out of pocket for their ‘have-to- have’ upgrades.

    By the time this three step process is finished and buyer and seller are at their separate closing tables, the negotiations are hopefully over, assuming the title report and the HUD statement do not have any surprises.

Negotiating the New Home Sale

by Connie Yoshimura

    You are negotiating for a new home to be built.  The builder seems unreasonable.  You can’t understand why he won’t pay for the Kohler Bowl you’ve picked out for the powder room. It’s only $350 above your plumbing allowance and is miniscule in comparison to the $400,000 you’re paying for your new home which doesn’t even exist yet.  You also want to upgrade to Brazilian hardwood cherry flooring rather than the Evoke laminate that is part of your allowances.  Oh, and you also want knobs and pulls on your cabinet doors.  They only cost $2.75 a piece and there are only 24 of them and the builder is telling you they cost at least $3.00 each to install.    

    There are literally hundreds of parts and pieces to a home that could be negotiated but let’s stop here.  You and your builder are on the wrong track.  Buyers need to understand that home building is a business and profit margins are slim and sometimes even non-existent due to weather and time delays.  National statistics place pre-tax profits at 6 to 7% on new homes so although all the items listed above don’t seem like much when compared to the sales price, they dig pretty deep into the builder’s pre-tax profit of $24,000.  In our real estate industry there is a significant misconception that the bottom line buyers and realtors see on HUD  settlement closing statements is the builder’s profit.  That bottom line is before the end of the month bills have come and doesn’t take into consideration ongoing expenses like rent, payroll, bank fees and interest.

    Builders are entrepreneurs.  They are general contractors with a residential endorsement that requires on-going continuing education courses.  They have more education and testing restrictions on them than general contractors. It takes fewer qualifications to build the De’Naina Convention center than a new single family home.   The builders who stay in business the longest are those that run a tight back room and know how much it costs to install those knobs you’ve picked out.

    New buyers should not receive more concessions from their builder than their neighbor.  That’s the golden rule every builder should follow.   It is inevitable that buyers will talk to one another.  If a builder pays $3,000 in closing costs for one buyer, he should expect to pay it for each and every buyer coming in his door for the same plan in the same location for the next three months.  Markets do change and smart builders make adjustments based upon the time of year, inventory, et cetera.  However, the bottom line for a builder is to treat every buyer equally within a reasonable time frame.  Even family and friends should not be exempt from this golden rule because ‘special deals’ lower value for all buyers due to appraisal comparisons.

    Buyers do not really care about the cost of a winter build or the pending increase in price of lumber.  What they care about is how their house looks to their family and friends and whether or not it reflects their personal lifestyle and taste.  Builders need to save room in their pricing for a few items that are cosmetically important to the buyer and will make their home look custom.  These small items mean a lot to a buyer who’s making the largest financial investment in their lifetime.   

    Finally, there can be no ‘nibbling’ on either the builder or the buyer’s part.  Once the offer to purchase is signed by all parties, that should complete the financial arrangements for the home purchase.  Everything should be in writing down to the knobs on the cabinet.  Anything else is an extra and needs to be in writing with a change order.   

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Dwell Realty
561 E. 36th Ave., Suite 200
Anchorage AK 99503