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I have a hard time with math, percentages, financial things, taxes etc. Trying to education myself here.
I'm wondering about the ins and outs of negotiating price with an eye towards..."contingencies" or other costs that aren't actual price.
Like if you feel you have to offer full price or close to it, but are trying to get the best deal other ways. Like I don't understan how closing costs or points work.
negotiate for a carpet allowance (if needed) ?
What is this? (from an article)
Negotiate After Inspection
While it’s not uncommon for prospective buyers to believe the deal is sealed at the offer signing, in many cases the negotiations begin afterward. If you’ve conducted a home inspection, you can ask the sellers for a cash-back credit at the close of escrow, which can help you complete the project yourself. You can also ask the seller for a credit to fix certain issues in the interest of offsetting closing costs.
What are the sorts of things you have seen negotiated that were a good thing for buyers. And I don't understand why a seller wouldn't just come down in price vs. giving up closing costs - because there is a tax advantage? Or a loan advantage?
Closing costs... the benefit to the BUYER in seller paying closing costs instead of a reduced price is, it's less cash the buyer has to bring to the table at closing.
Some closing costs can be rolled in to the loan, but not all.... depends on the loan and the lender.
The only risk, perceived or real, in a buyer who is bringing very little cash to the transaction, is if they HAVE very little cash, are at the edge of their qualifications, and do NOT have the cash to make up for a low appraisal or unexpected closing expense.
Otherwise, the bottom line is the same for the seller.... makes no difference. Net is the same.
Lenders are really cracking down on these kinds of deals. They don't like lending money for a house for the seller to give a rebate. These used to be common, but if there is a lender involved, they may not go for this anymore.
Contingencies = A/I - Appraisal and Inspection, all these come in to play after you have a signed contract to purchase. You can negotiate inspection issue's after paying for and having the property inspected. If the inspection shows big ticket issue's, i.e., HVAC, electrical, plumbing, roof, you may be able to use that to leverage a seller credit or repair, all done through your attorney and during the attorney review period of your contract, you can also opt out of the contract if the repairs are too much for you to take on. However, do note, if the property is being sold "As-Is", they may already be reflecting that in the list price(old carpet/flooring/appliances) and you will not get credit for that. Do your due diligence when viewing the property. Look at the roof, furnace, etc... and look at sold comp's in the area you are looking to buy (Redfin is good for this).
As far as closing credit's, if you can get them, take them. 3% of the purchase price will more than likely cover your closing costs so you will only need to bring your down payment to closing and can use that money for some updating, if needed. You do not necessarily need to offer list price to get them, it all depends on the circumstances of the property being sold (estate sale, etc...). Best advise to you, know your area market sold comp's. That, will take you a long way.
Your LO (lending officer), will give you the numbers on the rest and get you pre-approved.
Good Luck!
Last edited by photogal9; 04-18-2018 at 11:35 AM..
Closing costs... the benefit to the BUYER in seller paying closing costs instead of a reduced price is, it's less cash the buyer has to bring to the table at closing.
Some closing costs can be rolled in to the loan, but not all.... depends on the loan and the lender.
The only risk, perceived or real, in a buyer who is bringing very little cash to the transaction, is if they HAVE very little cash, are at the edge of their qualifications, and do NOT have the cash to make up for a low appraisal or unexpected closing expense.
Otherwise, the bottom line is the same for the seller.... makes no difference. Net is the same.
I still don't understand why not just take less in price?
And say if the carpet sucks and the buyer says, knock off 3,000 from the price for carpet - why would the seller say, no Ill give you a carpet allowance?
Or why have a set price advertised with a carpet allowance? or home warranty? Why not just knock it off the price?
I still don't understand why not just take less in price?
And say if the carpet sucks and the buyer says, knock off 3,000 from the price for carpet - why would the seller say, no Ill give you a carpet allowance?
Or why have a set price advertised with a carpet allowance? or home warranty? Why not just knock it off the price?
Because many buyers, even those with 20% down, don't have the extra funds for repairs or improvements.
Or they may be cutting their cash reserves too tight.
If they are financing the purchase, they can get the funds at a very low rate in their loan, and do the work after closing.
This is nothing to get hung up on. It is very common.
A seller should always negotiate to get an acceptable proceeds amount, I.e., the check you get after closing.
If they want additional funds, that amount just needs to be baked into the contract price so your proceeds check is still acceptable to you.
It shouldn't matter if you sell for $250,000, with a $5000 closing costs credit,
Or, if you sell for $245,000 with no credit for the same net proceeds amount.
But, it matters a lot to many buyers who appreciate having that cash available.
In the last 5 year's of buying and selling my area market, I have seen only 1 with a carpet allowance of $1,000.00. Home warranties are useless, IMO. I would not bother buying a property with one. It translates to old HVAC system, roof and appliances, which translates to a lot of money the buyer will need to update and/or replace and the home warranty is worthless in getting this done.
Why, you ask? Because the seller is looking at spending $400-$500 on a worthless home warranty and they may give you a $1,000.00 carpet allowance, (which, Diana pointed out already, lenders do not like those kinds of deals) instead of lowering their list price by $6000-$10,000, all comes down to their net gain.
Example:
$200,000 list price
<$16,000> commission and closing costs
$184,000 net
OR
$200,000 list price
$192,000 sold price (your offer based on condition)
<$15,360> commission and closing cost
$176,640 net
It's a numbers game. People get stuck on the numbers, buyers and sellers alike. Learn your numbers, what you can afford, sold comps and be firm in your negotiations.
When I am selling, I won't negotiate for anything that is obviously visible. Once we negotiate the price and terms, the only thing I will pay for is a repair needed that wasn't knowable. Like, the last house I sold had dryer lint underneath the house. Buyer asked to have that cleaned up, and I had it done.
The same buyer decided they wanted the trees in the backyard removed because they worried that they might fall on the house. Sorry, you saw them before you made the offer. What you see is what you get and I am not changing the landscaping for you. You wanted trees rdmoved, you should have put it in the original offer ( which I would have turned down ). But something like a carpet allowance, put it in the original offer. You saw the carpet before you made the offer. The price was set to reflect old carpet.
The seller won't give you a lower price because repairs are needed and then pay for the repairs himself.
I still don't understand why not just take less in price?
And say if the carpet sucks and the buyer says, knock off 3,000 from the price for carpet - why would the seller say, no Ill give you a carpet allowance?
Or why have a set price advertised with a carpet allowance? or home warranty? Why not just knock it off the price?
When trying to appeal to the first time buyer who might have good credit availability but not have a lot of cash available... taking more off the price doesn't get the carpet fixed, or the appliances replaced. Buyer will still have to come up with their own money to fix it.
By offering a carpet allowance or a home warranty, the seller is attempting to offer something that has MORE value than simply making the repair, or reducing the price. Sometimes that appeals to buyers.
$500 off the purchase price doesn't really help compensate for an old furnace. A $500 home warranty that will fix the furnace (or any other appliance or mechanical in the house) if it breaks, has more value for the $500... the seller hopes.
And say if the carpet sucks and the buyer says, knock off 3,000 from the price for carpet - why would the seller say, no Ill give you a carpet allowance?
This would be an odd remedy from a seller who has been asked for a price reduction for carpet... You're right... it would be no difference for the seller. But that's not how it usually is presented. Usually a carpet allowance is offered by the seller before an offer is made, as an enticement.
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