Negotiating Offer and the Contract
Photo Credit / shho
1. Making an offer
Typically, the elements of an offer are pretty basic. These include price, expected closing date, the amount of the broker’s commission, the percent of the purchase price that will be financed through a mortgage, and whether you are asking for a mortgage contingency and/or a funding contingency.
Less commonly, the offer may include terms like the right to take possession before closing and pay rent to the seller. Inspection contingencies, allowing buyers to walk away from contracts with their deposits, are not common practice in NYC, but most sellers will agree to an offer that specifies “inspection prior to signing.” That basically means the seller will allow the buyer to have the apartment inspected before signing contract, leaving the buyer room to walk away without signing the contract if an insurmountable problem surfaces.
When making an offer below the asking price, make sure it’s reasonable and share with the seller the facts that your offer is based on--specific comparable sales, an issue in the building, a change in the economy, etc. This approach works psychologically by communicating that you’re serious and attempting to be fair, even if the seller does not agree with you.
Another tip: Don’t assume the seller’s broker is going to articulate your position very well. Always give them something (a well reasoned and worded email, comparables pulled from StreetEasy, etc.) that they can cut and paste into an email to help convince the seller.
Even if you consider yourself a decent negotiator, chances are you've only negotiated the purchase of a home a handful of times at most. Here are a few key do's and don'ts:
- Don't talk too much in front of the seller's agent. You may give the agent reason to believe you can afford more than you initially offer or you might disqualify yourself as a buyer by inadvertently underselling your qualifications. Your own broker, if they're experienced, will be able to best present your net worth statement as even the most educated buyers tend to leave out assets that they didn't realize could be counted.
- Don't present your best offer first. The other side assumes it isn't your best offer and will keep chipping away, while you've got nothing left to give.
- Do write an offer letter. Your agent should write a carefully crafted Word document on your agent's letterhead (scanned and emailed is fine) explaining your offer and the reasoning behind it, reference supportive information like comparable sales. It communicates sincerity and demonstrates you are probably not making offers on 10 properties at once. And usually the seller's broker will show it to the seller, ensuring that your points will not be lost.
- Don't ask for everything at once with your first offer. A lowball offer, for instance, is best digested alone.
- Do be nice. It will get you a lot further than being a jerk, because residential transactions are more emotional. This includes your broker--so make sure you don't select one with an abrasive or bullying personality.
- Don't blow small things--like who gets the window a/c's--into deal breakers.
Advice From Our Experts
3. Bidding wars
Photo Credit / Alexander Korabelnikov
If you find yourself competing for an apartment, here are a few things to keep in mind:
- Offer all cash if you can. In today's topsy-turvy financing world, this eliminates a major element of risk that the transaction won't go through if you can't get financing.
- Act interested. Wouldn't you rather sell your home to someone who is thrilled with it than someone pointing out flaws or acting blasé because they think enthusiasm will compromise their negotiating leverage?
- Keep in frequent touch with the listing broker so you know when things change (for example, if another buyer changes their offer to all cash) and you can stay competitive.
- Most people bid in round numbers. Try making an offer with an odd number, so you'll come in just above a close offer--like $753,000 instead of $750,000.
- Put a deadline on your offer, like 48 hours, so you'll have a clear idea on when to expect a response. Additionally, the seller may feel more compelled to take your offer.
- Get personal by writing a letter explaining who you are, your intentions, and why you love the apartment. In a close bidding situation, this may make all the difference to someone who has lived in a place for 15 years and has deep emotional ties to their home.
- Accommodate a seller's special needs like agreeing to a quick close, buying furniture, or letting the seller stay in the apartment for a period of time after closing.
4. The contract
Photo Credit / shho
Once you have an accepted offer in hand, it’s time for your attorney to get busy. Generally speaking, it takes about 10 business days to go from accepted offer to signed contract and another 30 – 75 days to close depending on whether you’re using financing and the speed with which your lender and the building’s board move. Of course there are always things that can delay closings even longer.
During this time, your attorney will review the last few years worth of minutes and financial statements and ask the managing agent some probing questions, all of which is intended to disclose any pre-existing or potential problems related to everything ranging from finances, bed bugs, leaks, noise complaints, reserve funds, major capital projects, problem neighbors, etc. As we’ve said before, your attorney will ideally do these things him or herself, rather than dispatch a paralegal, and speak to the managing agent in person or by phone, rather than sending a questionnaire.
Your attorney will also review the building’s offering plan, bylaws, rules and renovation policies to make sure there are no surprises that might change your mind about buying the place.