Will your real estate transaction run smoothly to completion, or will it creak and wobble like a poorly-oiled wheel? A good purchase offer, also called a purchase agreement, can make all the difference.

Unfortunately, many new agents do not adequately advise their buyers and, as a result, many transactions never get off the ground. On the other hand, the agents who have mastered the art of the sales contract are those who help their buyers understand a few simple rules. Understanding these rules means you’ll have a much better chance of getting the home you really want on the terms you’re happy with.

1. Expect competition. You should always expect that there are other buyers competing with you. This is true even in a “bear market,” when you would expect buyers to be able to take full advantage of desperate sellers. A buyer’s market does not mean that the competition disappears. In a buyer’s market, the lowest-priced homes still attract multiple offers, while the most expensive homes simply sit there. So unless you’re that rare buyer who picks up a home starting at a higher price because it’s exactly what you want, you should expect other buyers to compete against you.
2. Understand where the price is now. Before writing your offer, your Realtor® must “run the comparisons” for you. “Comps” is agent jargon for a CMA, or comparative market analysis. This is simply a printout of recently sold homes nearby that are similar in age, size, configuration, etc. Remember what we said earlier about waiting for competition? Well, comparisons show you whether to expect a lot of competition or just a little. This in turn should be the basis of your price. $10,000 below full price may not be enough of a discount if the house is too expensive to begin with. On the other hand, going $10,000 above full price might sound like something you would never consider doing because it’s stupid; Turns out, it’s not so stupid if the home’s value is $80,000 below market and you can end up moving in with $70,000 in equity.
3. A purchase agreement is not a referendum in the market. Real estate agents and newspapers love to publish market updates, because they are statistical generalizations that are easy to write. However, when you write an offer on a house, you are not there to make a statement on the market. It is very likely that the seller and his agent have “run the comps”, so they know what they are offering. The market may be terrible, but the house can be a fantastic bargain! Or the market may be so active that you’re chasing an overpriced turkey. Yes, you should have an idea about the forest, but your purchase agreement should focus on just one tree.
4. Days on the market may or may not matter. Finding out how long a house has been on the market is a good idea, but you also need to find out if anything has changed in that time. For example, I once worked on an offer on a house that had been on the market for a year. However, three weeks earlier, the tenant had moved out, the ugly pink paint was replaced with a neutral color, and the sunscreens were removed from the windows. As a result, my buyers, who were not expecting competition based on days on the market, were surprised to discover that theirs was one of two offers on the property. (Yes, they got the house, by the way!). A much more common example of the same thing is the house that has been on the market six months and was reduced by $50,000 last week. The correct way to think of this house is not as a $400,000 six-month house, but as a $350,000 one-week house.
5. Weak terms need a stronger price. The classic example of a buyer with great terms getting a better price is the cash buyer who negotiates a higher discount because the seller knows he can close. The other side of this coin is that if it comes with 100% financing based on a down payment assistance program, be prepared to offer the seller more on price.
6. What is the most important? Avoid kitchen sink deals. Before writing an offer, you need to understand what is most important to you and craft your offer accordingly. The best offers are written by buyers who understand that there is another party involved in the transaction. and that an offer is a process of give and take. The worst deals are the “kitchen sink deals,” so called because they throw out everything but the kitchen sink (and sometimes that, too!). This is the offer that takes 20% off the sale price, where the buyer is strapped for cash and asks the seller to fix the back fence, cut down the trees, and replace the carpet. Oh yeah, did we mention we want a 120 day escrow! If you think about it, this rule is a variation of rule #5. If you are negotiating a lot on the price, be nice to the seller about the terms. Choose your battles well and you will win every time!