You searched and searched for a home. You may have participated in a bidding war and probably negotiated on a home price. You have had the home inspection and now there is one thing standing between you and your new home, closing. Closing is more than just picking up the keys to your new home; it can be a mysterious and confusing time for even experienced home buyers. Closing, or “settlement,” will require a lot of your patience and a fair amount of time so being prepared and armed with as much knowledge as possible beforehand will help reduce stress and make closing easier and more efficient. When closing on a home, set aside as much time as possible so that you do not feel rushed. There are a lot of documents to read and sign, they are very important but sometimes confusing so you will want to ensure you have plenty of time to read carefully, ask any and all questions and have a thorough understanding of your commitment. You will also want to be prepared financially for closing. There are certain fees associated with closing and they vary widely by the area in which you are purchasing. Closing costs are typically anywhere from 2% to 6% ($4,000 to $12,000 on a $200,000 mortgage) which means you will need to set aside additional funds from your down payment. Closing costs are essentially, fees, taxes and other charges from your lender. Some lenders do offer loans that have no closing fees associated with them. While these loans are a valid option for some, buyers should be aware that there are often higher interest rates associate with these types of loans. Buyers should also be aware that costs and fees associated with closing can and should be negotiated prior to closing which is another reason to thoroughly read all the documents at closing and pay attention to your GFE (good faith estimate) from your lender. There may be many people involved in closing such as the home seller, buyers and sellers real estate agents, title company representatives, buyers and sellers attorneys (if they have one), closing agents and lenders representatives. When you prepare financially and inform yourself in advance of closing it will make the process much easier. After signing papers the keys will be turned over to you and you will take ownership of your new home!
Supply is down in Phoenix which, based on the natural laws of supply and demand, would indicate that pricing would increase. Check. Demand, at the same time, has increased as more and more people who were thinking about buying a home are getting out and getting serious about buying. Check.
The simple strategy I’m about to show you for buying a home when there are competing offers is effective, but even in a market like this, can make no difference when weighing the strength of an offer.
The strength of an offer is important to a seller, as one offer may be higher than another, but weaker because the buyer is opting to fund with a loan, whereas the competing offer may be lower but have terms that are more favorable, such as a full cash purchase. There are a lot of cash buyers who are submitting offers sight-unseen (meaning they haven’t even looked at the house) with terms that waive appraisals and inspections that are making it difficult for the traditional buyer to buy.
There is an escalation clause that you can write into your contract that goes something like this:
“Buyer agrees to pay $1000.00 more than the next best offer up to, but no more than X dollars. Seller agrees to provide a copy of page 2 of the purchase contract of the next highest offer upon acceptance or this contract shall be canceled.”
Basically, what you’re saying is that you are willing to pay $1000.00 more than the next guy, but you want proof from the seller that there’s actually an offer that’s $1000.00 below your price so you know you aren’t being duped.
There’s much more that goes into the strength of your offer, but if you happen to be competing against buyers who have stronger offers (not necessarily higher offers) then the escalation clause may not be much of an incentive for the seller.