How to get a property under contract

[Dakoda Spencer]

Could someone please lay out to me in very easy English how to get a property under contract? 

Here's my situation: I am talking to a homeowner that is interested in a cash offer of 70%. I have other forums posts searching for WV agents willing to assist me in pulling comps and also searching for a contractor to walk properties with me. After I come up with what my maximum allowable offer, how do I give that to the seller? Do I simply email the contract to the seller, have them sign it and mail/email it back to me? How do I come up with the contract that I send the seller? 

If you could, please explain it as if it was a flow chart. That's just how I understand things. 

Thanks, Dakoda

[Patsy Waldron]

Hi @Dakoda Spencer, 

To give you a really helpful answer, it would be good to know a couple of details:

1. Do you have financing lined up or cash available? That will direct your contract negotiations with the seller. You say that the seller is looking for 70% cash- is that off an asking price?

2. Are you working with a buyer's agent? You say that you have asked agents to pull comps, but do you have one who is representing you? If you do, your agent will present your offer on your behalf.

I love flow charts too, but I hope just a step-by-step guide will help you understand the process.

1. Figure out how you will finance your potential purchase (many on BP will disagree, saying that "if you find the deal the money will come"; I personally prefer to have my ducks in a row and appear serious when negotiating with seller). If you are paying cash, you know exactly how much you can afford. If you are financing with a bank, through private lenders, or some other way, you will need to talk to your financing source and figure out how much they will lend you and on what terms (interest rate, term of loan). This will give you a pretty good idea of what to limit your search to.

2. Contact an agent (or several, until you find one with whom you are comfortable) and explain to them what your criteria are- the type of property you are looking for, neighborhood, price range. It sounds like you don't have a buyer's agent. Since this is your first real estate purchase, I strongly recommend that you do work with a buyer's agent. It won't cost you anything- their commission is paid by the seller! It's in your best interest to have a professional negotiating on your behalf. They know things that you won't even think of. 

So- your agent will usually set you up with an online search that emails you MLS listings, or send you specific listings that match your criteria. In your case, it sounds like you have already found the property!

3. Once you identify a property that you are interested in purchasing, your agent and you will discuss an offer price as well as any conditions (e.g. contingencies like being able to get financing, a satisfactory inspection of the property, closing by a certain date, anything you want from the seller, like the awesome mirror hanging in the hallway). Most people offer below asking price, expecting the seller to counter. For example, you could offer an amount $10,000 below the asking price, but you expect the seller to counter at $5,000 more, etc.

4. Your agent has a form used for real estate contracts and probably fill it in and send it to you to sign, and then send it to the seller/seller's agent (if they have one). If you are dealing directly with the seller, you can take @John Thedford's advice and hand deliver the contract so you can talk to the seller. Nowadays it is all done online- the contract is in the cloud, you get an e-mail when you need to sign something, you sign online (electronic signature) and everything is transferred electronically and instantly. Beats carrying paper copies around!

5. The seller has the option to accept, reject, ignore, or counter your offer. If they accept, yay! You are officially under contract. If they reject your offer, you are out of luck. If they ignore it, not much you can do. If they counter, negotiate until you both agree on mutually acceptable price and purchase terms. At this point, you are expected to put some money down to show you are serious (called an earnest money deposit). This is done with an attorney or a title company which will handle all the paperwork to transfer ownership from the current owner to you. 

6. Hopefully you included an inspection in your report- you usually have a certain period (called the due diligence period) during which to order a property inspection (your agent probably knows an inspector and will arrange that). Get that done, and use the results to negotiate the price down or other concessions from the seller. For example, you can ask for them to repair a few things or to give you a reduction in purchase price so you can take care of them. Again, expect a back-and-forth.

7. If you are financing the property, at this stage you would turn things over to your lender. You will submit the final contract and any documentation relating to your personal finances that they may require. They will require an appraisal to make sure that the property is worth at least what you are going to pay for it; you will likely pay them for that. After that is done and all is in order (i.e. the property appraised at or above the purchase price), they will complete the underwriting. 

8. A few days before your scheduled closing date (anywhere from a couple of weeks for cash offers to 2 full months for bank-financed transactions), you should get an update from your agent or the title company whether everything is in order and whether you will be able to close on time. If you are financing, make sure you don't have anything new appear on your credit report (like a new car....), as the bank will check your credit report one last time right before sending the money to make sure it's still safe to lend to you. 

Sometimes things get a little behind and closing happens a few days late. Hopefully your seller is okay with that.

9. On closing day, be prepared to show up with a check for your share of the closing costs and to sign a few (if cash) or a lot (if bank) of papers!! At the end of it all you get the keys to your new house and you walk away a home owner!

Hope this helps. I made this really basic, and I am not sure how much of it applies to your situation as you mentioned a cash offer. Feel free to ask clarification for your particular situation. Good luck!