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MOVE Worthy Podcast
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MOVE Worthy Podcast
Expert Advice for First-Time Buyers on Contracts and Offers
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Navigating the home buying process can be daunting, especially for first-time buyers. We delve into essential elements of making an offer, emphasizing the importance of understanding contracts, due diligence, and knowing when to walk away.
• Overview of the offer process
• Importance of understanding contract language
• Clarifying good faith deposit and its implications
• Explanation of the due diligence period and inspections
• Financial considerations related to appraisals and financing
• Strategies for negotiating offers during bidding wars
• Importance of setting clear deadlines in contracts
MOVE Worthy Podcast with Lauren Jones & Jenny Lendle. Together we have the experience to MOVE you forward!
First-Time Home Buyer Contract Process
Speaker 1all right , we are back with the move worthytime home buyer chat I think we talked about financing , showings , things like that and we're at the offer process , making an offer . What does that look like when you're a first-time buyer and you're making that offer ? It's a lot it's a lot and it should be calmer today , but you just had something you just had .
Speaker 2You're in a bidding war right now a bidding war with a first-time home buyer . I mean like that's not the market we're in .
Speaker 2I know wrong year wrong year , wrong year , but it happens . It happens , um , but I think the you know , first and foremost , when it comes to contracts for the first-time homebuyer , there's a lot I mean with any buyer really but there's a lot to explain in the contract . That's a lot of verbiage that comes their way . It's very overwhelming to see all of that language in a contract and not fully understand all of it .
Speaker 2You know your buyers that buy all the time know what a due diligence period is . They know they have to pay a good faith deposit . They know that there's timelines . So you know , for a first-time homebuyer it's very important to , before you , send them paperwork because , let's face it , we all do everything electronically these days you just click right through to sit down and talk about what to expect and what what these important lines mean yes what does it mean to give the deposit ?
Speaker 1what does it mean to do your inspections and what does it ? What happens if you need to back out of a contract ?
Speaker 2when can you do that like it's ?
Speaker 1so important so important . I think a lot of people take our contracts lightly . Yeah , and they are not to be taken lightly . I mean if that were to happen , the whole industry could crumble .
Speaker 2If we didn't follow these contracts , yeah , I typically send a text to my first-time homebuyers well , any of my buyers , but especially my first-time homebuyers and I make sure that they have it in writing and not just hearing it from my mouth .
Speaker 2And then them reading it and them reading it , and they're able to go back and reread it , because it's so much information that they may forget from the time I started the conversation to the time I finished the conversation .
Speaker 2Um , but the key , the key points that I always like to touch on with first-time home buyers is , of course , the offer . What that looks like , you know , running an estimate showing them exactly what that means with their escrows , what their down payment's going to be , all of that good kind of stuff . So , of course , once we get to a point where we're comfortable with a price , that's first and foremost the type of financing that they're doing has to go in the contract . Sometimes they don't realize that and what that actually means . And what it actually means is you are making an offer of this amount of money subject to the fact that you can finance a conventional , an FHA , a VA , a USDA , whatever type of loan that you're financing , subject to being able to get that type of lending with that type of down payment , even down to that interest rate , correct . You can literally put in the contract that if I can't get lower than a seven percent interest rate , I'm not buying this house I can't right , I can't afford it right .
Speaker 2So you're protected . You're protected by contract for financing . The next thing I always go over in great detail is you're protected in the contract by due diligence . We talk about how many days that we think we're going to need for inspections , insurance quotes , all of that good kind of stuff . If it's something that you want to use a property to build something on , you're going to check building restrictions and zoning codes All of that good kind of stuff happens in that time period , right ?
Speaker 1one thing they don't they don't truly understand is you can certainly walk away if something is found if something isn't right in that 12 days or 15 days or whatever you decide right , right , I know there are so many times when I mean the . The inspection period is a stressful period for both sides because , things you don't know about the house , things the seller might not know about the house . And if something is too much , too expensive , too overwhelming , seller isn't willing to do anything to repair . Or even if you just had no idea and it scares you too much , it's okay to walk away .
Speaker 1You're out some money , yes , but in the long run you probably save thousands by walking away from a problem .
Speaker 2Yeah .
Speaker 1And I find people just don't feel okay doing that , and even from a seller's side .
Speaker 2Yeah .
Speaker 1Like it's so . You know they get frustrated too , but it's like , hey , it didn't work with this one , it's going to work with another one yeah and if there is a major problem that needs to be addressed and it didn't happen with that first buyer , definitely going back to that seller and saying , hey , what are we going to do about this , definitely needs to be disclosed .
Speaker 2But would you go ahead and fix this and remedy it , because it's going to come back up with the next buyer and the next buyer yeah , I , and I don't think that all buyers truly understand that when you talk about a due diligence period and talk about an inspection , like what really is that , you know what else they don't really truly know . They don't realize that inspections are going to cost , between you know , $500 to $800 , depending on what kind of inspections you get .
Speaker 2You know , if something comes up in the home inspection're like oh , I think we should have a stucco inspection , I mean , that's another 200 . Or a video pipe inspection , that's another 250 , right , you know . So those types of things I usually touch on when we talk about the due diligence period in the contract . Um , next , they don't always realize that within 48 hours of an acceptance we need a good faith deposit . What does that look like ? You know , how much should you give ? I always tell my buyers it really depends on the price point . I mean , if I'm , if we're writing an offer for a house that's between two and 400 , I think a thousand dollars is a very going rate kind of deposit .
Speaker 1Ultimately , Right , it's for them to decide Right . I think it's location specific too , because I find when you get into some other areas they might be a little bit higher , definitely price point and some of them will actually say what they want .
Speaker 2Oh , they want the listing . It'll say uh , you know , five thousand dollar good faith deposit required right or they won't even look at the offer they won't even look at the offer . So , um , and another thing , first time , first time homebuyers don't realize is that deposit does come back to you if you walk away , if you walk away in the protected by the contract ?
Speaker 2yes , so if you walk away in your due diligence period because you find something you didn't like , if you walk away because it didn't appraise to contract price and the seller's not willing to come down if you can't get financing , so we put all of these things in this contract to protect buyers . And if you do have to cancel a contract and any of those things are the reasons for it , you will get that money back if you continue through the transaction . That deposit is applied to your cash that you're bringing to closing . So it's not additional funds , right , it's not your closing , it's not your cash to close plus your deposit . It's applied to that . It's deducted from that . Yeah , correct , um , so that's another thing that that I think first-time homebuyers are sometimes shocked . It's like wait a minute , what I have to ? I have to , I have to give money now . Yeah , you know yes , like yes .
Speaker 2You have to give money now yes , and then the next week you're gonna have to pay for inspections , and those are things that are not typically considered when you speak to a lender correct you know . So I think that's definitely something to talk through with a buyer any buyer , definitely a first-time home buyer and then you have your appraisal . I think it's important to make sure that they know that and that's an out-of-pocket expense also sometimes lenders will include that in their cost .
Speaker 2Sometimes they won't , but they should be prepared that that's gonna be an expense , potentially an expense of around $500 . Yeah , and then also , you know that it's .
Navigating Real Estate Contracts and Offers
Speaker 2I mean , it's my recommendation that any contract should be subject to an appraisal , because you do want that extra protection . You do have the option if you're not borrowing money , if you're paying cash for something , you have the option to waive an appraisal .
Speaker 1You do yes , and I guess it depends . I usually ask , instead of assuming that a cash offer is always going to say not conditioned on appraisal , but I always ask like do you still want to do an appraisal ? Do you still want that ? Because when you have a cash offer , you really only have your inspection period you don't have any other contingencies in case something arises , that appraisal clause could be something to protect you but a lot of times I find people who are offering .
Speaker 1I mean , we do a good job of giving our clients information about the comps in the area when they're making these offers and sometimes we just know .
Speaker 1Yes , you're making a cash offer . Yes , this property is worth that yeah , and some and some so and a lot of those buyers I feel like are more savvy to what they are doing and more comfortable with you know , here's my offer . No , we'll do our inspections and then we'll close as soon as possible . So , you kind of get eliminate that contingency , but it's also there if you want it .
Speaker 2Right , yes .
Speaker 1I mean , a great realtor is going to go through this with you , whether you're savvy or not .
Speaker 2They should .
Speaker 1And make sure that , hey , you know how do you want this ? To go Right at some point . I think the first time . Home buyers are going to get more savvy and a lot of them have been doing some research and trying to educate themselves on the process , so that way they're not completely oblivious to the process when you start making offers I mean even like we said in the very beginning , you're in a bidding war right now . I mean , who would have thought ?
Speaker 2Right .
Speaker 1You got a first-time buyer .
Speaker 2Yes .
Speaker 1It can be very overwhelming , and then all rational thoughts go out the window .
Speaker 2Yeah , I could do a little story time on her . Okay , Somebody I've been shopping with , we've probably seen I don't know probably 40 or 50 houses since she started shopping . Maybe not that much , but it feels like that it just had to be this one .
Speaker 2And she finally decides to write an offer . She loves this house . It was on the market for five days . Four days when we actually wrote the offer . The house was listed at $249,000 . She was doing an interest rate buy-down which was costing around $6,000 . So she went in . She has the cash that she needs . She was doing conventional 20% down , but it was very important for her to have a low interest rate just because of the monthly note .
Speaker 1To get the note down .
Speaker 2Which happens a lot with first-time homebuyers . The note is what's really important to them . So we went ahead and wrote the offer . Like I said , it was listed at $249 . We went in at $245 , and we asked for a $5,800 credit to reimburse her for the buy down . At the time that we submitted the offer there were no other offers in . We gave them until 6 pm the next day . Two more offers came in that day , oh man . And so they ended up doing highest and best , which is due today by 7 pm . But that was a tough conversation to have , because here you are with a first-time home buyer . They're already nervous as hell . Are they making the right decision ? Are they doing the right things ? And then you've got to go to them and say , hey , if you really want this , you've got to pay more , right ? And then as agents , we have to get creative .
Speaker 1Correct , because there's so many things already in this contract .
Speaker 2Right . So many things that she is trying to do Do To get this house , yes , to get it to the note she wants .
Speaker 1And now you're telling .
Speaker 2Yes .
Speaker 1Now you got to say hey , so I ran the comps again .
Speaker 2I really think it was priced really well , which I told her from the beginning , obviously why it's in a multiple offer situation . So what I recommended is to go over asking the six thousand to make up for the six thousand dollar credit . So the seller was still netting full price . And they come from and this is something that I think agents and buyers kind of learn of each other they come from a very strong family of fixer-uppers and very handy people , knowledgeable people , and when you walk through houses you learn those things . It's like oh , uncle Joe can fix that , oh , aunt Becky can do this , and you learn it's not a big deal , it's not really big deals to them . So my suggestion to her was hey , while I'm never going to advise you to not do inspections , we absolutely need to do inspections . It might behoove you to offer no repairs you know , to sell the seller .
Speaker 2You're not asking for any repairs . You still have your due diligence , you still have time to do your inspections and if you don't like it , if there's something major , you can still walk away . Correct ? But I think it does add a little extra knowing that the seller is not going to come out of pocket any more money to fix something .
Speaker 1And again , we had this conversation too on a previous one . I think that's assuming nothing major is going on , that you can't see Right . Because if something major does come up like wow , this was definitely not expected , we were not going to go through that inspection report and nitpick you on every GFI and reversed outlet and leaky faucet yeah . But something major pops up . It kind of changes things a little bit , I think .
Speaker 2Yeah , and they were totally comfortable . Like I said , she's like you know , we have a lot of do-it-yourself for people in our family . I don't really don't . I'm not concerned about asking them for any repair . So ultimately that's what we decided to do . We went in um six thousand over . We still asked for the fifty eight hundred dollar credit and we we guaranteed no repairs no repairs .
Speaker 1Sweet , did you turn it in already ?
Speaker 2no , okay , it's not due till seven o'clock tonight , so I just got off the phone with the lender to make sure everything was good to go with the increase , and we'll write it up and see what happens .
Speaker 1Wow , and ultimately , we have no idea what the other people are offering .
Speaker 2You don't . And those were her . Let me read you her exact words . She said , she said , she said I just don't know how to know what the best course of action is here . And my response was you don't .
Speaker 1You don't .
Speaker 2I said . You know , all I can tell you is stay comfortable with your price point . Try not to put emotions into this . Try to stay level-headed . You know there's everything happens for a reason , you know . Stay focused on the task at hand , right , try not to get so indulged emotionally because then you could make a mistake that you , you're going to regret later right and we don't want that for sure I know , I think too .
Speaker 1I say a lot , like you know , because they ask us what would you do ? Yeah , what do you suggest ? And like what do you feel comfortable ? Yes , what is your number ?
Speaker 2what do you think this home is ? Yeah , what do you suggest and like ? What do you feel comfortable ? Yes , what is your number ? What do you ?
Speaker 1think this home is worth ? Yeah , do you they ? You went above and beyond the sale price to cover some things that you know . If that works for you , great . If it doesn't work for you , that's okay too .
Speaker 2It is and I said you know , if this is this doesn't work out , there's going to be another . Unfortunately , you have no idea what other buyers are coming in at right but , I feel comfortable with this price point and where you're going in for purposes right now , if somebody comes in with a cash offer or comes in waving appraisal , you don't stand a chance .
Speaker 2You can't even compete . So don't be down on yourself about that . There is something , some things that you cannot compete with , and it's okay and that's okay , and there's some things you don't want to do again .
Speaker 1Yes , because that regret comes right in . Yeah yeah , oh yeah , we just did a lunch and learn yeah with a similar thing back in 2021 , someone waving inspections decided to back out of a contract and it didn't go so well .
Speaker 2And now there's . You know there's a lawsuit out there .
Speaker 1Yeah , Like you , just it's , it's not worth it in the end . Right , and my husband always says you know there'll be more cars like this .
Speaker 2There will be more houses .
Speaker 1Yes , we're in a market , where there are houses popping up daily .
Speaker 2For sure .
Speaker 1I don't think we're in that crazy 21 market no although you are in a bidding war which is so weird but I think there's other options out there and , yeah , I think the the whole , the family , do-it-yourself , fixer-upper type people yep , something else will come along and oh , I agree all work out I agree but we're hoping that they get this one . Yes , we are hoping that they get this one .
Speaker 2Yes , we are hoping that they get this one . And then I just wanted to add one more thing for the contract is deadlines .
Speaker 1Yes .
Speaker 2So never something . And I am . I'm going to tell you , I'm going to be honest , I am the worst with like I talk to the lenders , typically we get an idea of closing dates or timelines as to when they could do it , and then I just put it in the contract and it's like wait a minute . I don't even talk to the buyer like , is this date okay ? Something I have to try and force myself every time because we we physically put an act of sale date on the contract that says you will close before or on this date , and I have a hard time with that , sometimes remembering to have that discussion .
Speaker 2To ask them what date would you like ?
Speaker 1I usually choose my dates too . Like that , I'll go into the calendar depending on the type of loan . Right .
Speaker 2I'll listen to what the lender says . Does it need four weeks ? Does it need six weeks ?
Speaker 1You know , 30 to 45 days , and I always like to pick the whatever that next . Friday is that I don't like to close in the middle of a week , yeah . Never a Monday , yep , but always whatever that next that following Friday .
Speaker 2So a lot of times my contracts have Fridays mine do too , mine do too so we probably look at it the same way and honestly , I don't think they really look at it , because I'll usually get a call . It was like wait a minute , are we supposed to close by a certain day ? And I'm like , oh shoot , yes , it was in the contract , you signed it , but we didn't discuss it , right ?
Speaker 2yeah , um , so that , and dot deadlines for for responses too yours , oh yes you know , if they , you know we talk to you , talk to your , your buyers about it , let them know that . You know we typically allow 24 hours , but if we're in a situation where , honestly , I could have maybe avoided the bidding , bidding war on this one , with a shorter time period yeah but then it's like I know you really want to be thoughtful to everyone in the process .
Speaker 1I do because I've seen some contracts where like what is this five hour deadline ?
Speaker 2are you kidding me , like I can't even talk to everybody in five hours ?
Speaker 1yes , yes so , yeah , that that's a tough one too , and they always want to know when do they have to respond . Yes , I'm like look , 24 hours is typical . Yeah , certain situations might call for a little bit less , but man .
Speaker 2And certain situations might call for a little bit more . I mean , if it's like a succession or there's six people that have to . You know , agree , agree , sign all of it . You know they may ask for longer .
Speaker 1Yeah , definitely . There's so many . What ifs ?
Speaker 2And .
Speaker 1I think that's important to always remember , to always let your clients remember . There's so many people involved in this one situation . There's a lot of things that happen a lot of things that transpire . Having a great agent will get you through all of those things .
Speaker 2Yep , yep , easier , I hope . First-time homebuyers watch these podcasts and say I will never do this on my own . I know , you know what I mean . Attempt to do this . There's just so much that they don't realize that goes in .
Speaker 1And they can put themselves in such legal harm .
Speaker 2Yes .
Speaker 1Because not everyone is so understanding to mistakes .
Speaker 2That's right . Some are , but some are definitely not . Some are definitely not . Oh well , they'll say , I know .
Speaker 1Absolutely . I know Trust . I think I've been in some of those myself . You know like and at a certain point , what do you do ?
Speaker 2Right .
Speaker 1I'm not taking this anywhere . I'm not going this anywhere . I'm not gonna spend extra money , I'm just gonna back out and move on . Yep , but that does not happen every day .
Speaker 2Yep , this was good .
Speaker 1Yes , we could definitely keep on going .
Real Estate Information Podcast Series
Speaker 1We're in the center of the contract status for a first-time homebuyer .
Speaker 2Yes .
Speaker 1But I mean we will , like Lauren said , listen to these podcasts , watch these podcasts . We are trying to give as much information as possible to be helpful to everyone in the real estate world , whether you want to be an agent , you want to be a first-time buyer . You're selling a house . You want to be an investor ? I mean that's what we're here for , so we'll be back . I mean we're here every Monday .
Speaker 1We'll be , back next week , monday 10 am . This was our second half of first-time home buying process and we are the Move Worthy Podcast with myself , jenny Lindley .
Speaker 2And Lauren Jones .
Speaker 1And together we have the experience to move you forward .
