Real Estate Contract Decisions - two women drafting an offerThe real estate contract decisions faced by home buyers include the price and terms – and terms are basically “everything else” beyond the price.

Real estate contract decisions – price and terms

Assuming that you are pre-approved for a mortgage and that you are are working with a great Realtor or real estate licensee (those should be your starting point), you’ll have a number of things to address and choices to make involving price and terms.  The next is to find out if there will be multiple offers or not – your agent should call the listing agent to inquire.  That is a game changer so should be done upfront. Here are a few of the basic considerations.

1. FORMS Most listing agents prefer the CAR contract, but some may request that offers be written on PRDS forms. Will you draft your offer on the CAR or PRDS contract?

This is perhaps the first “term” to be considered.  In general, this decision is influenced by geography: the “west valley” communities from Almaden or Los Gatos on the southern end up to Redwood Shores or a bit further north will tend to use the PRDS contract.  Most of San Jose, Santa Clara, Milpitas and so on will usually prefer the CAR contract.

If you have written a couple of offers on one of them and then shift to the other, this can be unsettling. Talk with your agent about this decision.

2. TIME / DEADLINES Some of the most important terms among your real estate contract decisions are the timeframes. Other terms matter, such as having a pre-approval letter and providing all the required documentation, such as the proof of funds.  Contingencies are also hugely important terms. Today most sellers want to see no contingencies. That doesn’t always happen, though.

    • How much time does your lender require for the loan contingency removal (assuming that yours is not an all cash offer)? You or your agent should get all of the loan terms upfront, plus the number of days reasonably necessary for this contingency removal.  Remember, the longer the time frame, the less competitive your offer will be. But you don’t want to ask for too little time and then have to ask for an extension later. It’s a balancing act. It is imperative that your real estate agent coordinate with your lender so that you don’t accidentally overpromise and under deliver on the times allotted.
    • How much time will you need for inspections, your personal investigation of the property and area etc.?  This is another important question. If it’s multiple offers, you’ll be pressured into less time than if you’re the only bidder.  If there are good pre-sale inspections, you may not need as much time.  Talk to your agent about this. The boilerplate number of days in the CAR contract is 17, but many in Silicon Valley consider that excessively long. With multiple offers, some buyers (especially in some areas) are writing offers with no contingencies for loan, appraisal OR inspection.
    • Keep that in mind that even if you have no inspection contingency, you can inspect for your own information.
    • How fast can you close escrow? For a vacant, staged house, usually faster is better. If the property is occupied, the seller may want a longer escrow, a rentback, or both. Your agent should have a conversation with the listing agent about what the seller requests or requires.

3. PRICE. The price is a multi-tiered question, because your offer price may not be the same as the price you’re ultimately willing to pay. Will your terms include large seller concessions,    such as them paying for larger ticket items? Sometimes the seller wants a rentback for a period of days or weeks. In that case, your real estate contract decisions will include how long it can be, whether there will be a cost or if it will be free to the seller, and how much the security deposit should be.

It’s good to think of it in terms of the net price to the seller if you’re asking for loan points, or other cash from the seller, for instance.

Price and TermsObviously, the first of all of these real estate purchase contract decisions is whether to write an offer or not at all. If you are wavering, that probably means it’s not the right home for you, or that you may not be comfortable putting in a competitive bid.

Also, do not wait until a few hours before the offer deadline that you’d like to write a contract and then spring it on your Realtor.

Most real estate brokers and sales people in the San Jose area – at least those who are full time – have appointments set up in advance for at least part of the week, if not most of it, so giving a day’s notice will be a big help to you and to your agent to write a good, strong offer that is not hastily written (and more likely to have errors or be misunderstood by you because of the rush) that will increase your chances of success and happiness with the deal you’ve forged. Much of what is done behind the scenes takes more time than you might expect!

In many cases, the sellers will seek to get both the highest price and the most favorable terms.  With multiple offers, they often succeed at it.

With just one offer, a seller may take a slightly lower price for excellent terms, such as a cash offer. But it usually is not an enormous discount.

Real estate contract decisions – related reading

What is an exclusion in a real estate contract? What is an inclusion? (this site)

A summary of tips for multiple offer situations (this site)

Contingencies (