In a residential real estate transaction in the Commonwealth of Virginia, buyers and sellers engage in three stages of negotiation. The first stage of negotiation is when a buyer makes an offer to purchase real property, and the buyer and seller negotiate the general terms of the contract. Those terms include Sales Price, Earnest Money Deposit, Settlement Date, Seller Subsidy, Appraisal Contingency, Financing Contingency, Termite Inspection, Home Warranty, Home Inspection, Radon Inspection and other terms such as a Home Sale Contingency, Lead Based Paint Inspection Contingency, or any other contingencies that are available to the buyer or seller. Unlike the boom days of real estate, today it is more typical for a buyer and seller to engage in extensive negotiations. For example, sellers want buyers to pay list price, but buyers are picky and are only willing to pay what they believe to be market value. And so both sides are off to the races.
When determining the offer price, buyers take into consideration all of the major factors: comparable sales in the neighborhood, location, size of the home, size of the property, and the perceived condition of the house. If the house needs a new kitchen and baths, the buyer will determine whether the seller’s list price accounts for future updating. If the seller has listed his home at an aggressive price, the buyer will recognize this and make an offer quickly.
Once buyer and seller agree on the price and other terms of the contract, phase two of the negotiations begins. Most contracts are contingent on a home and radon inspection. In the Commonwealth of Virginia, the buyer must perform his own general and specific home inspections to determine the condition and life span of all parts of the home, including all major mechanical, plumbing and electrical systems as well as the appliances, roof, windows, chimney, etc. The buyer will then submit to the Seller the home inspection report and his list of requested repairs orreplacements. In our current market, we always recommend to sellers that they fix everything on the list, as it is not worth haggling over a few thousand dollars for a sale in the hundreds of thousands of dollars. There are a few exceptions to this rule, and that is where an experienced real estate agent can advise his/her client on the best home inspection negotiating strategy.
Once both parties to the contract agree on what repairs and replacements will be made, it is on to the third stage of negotiations: the appraisal. Even though the Washington, DC area real estate market is recovering nicely from the bottom, buyers still want to pay only market value for a home and sellers expect to receive top dollar for their property. We tell buyers that if for any reason you have “overpaid” for a property, the appraisal will verify this concern. If the appraisal values the home either equal to or greater than the Sales Price, then the transaction proceeds to Settlement. If the appraisal is less than the Sales Price then the Seller and Buyer will continue negotiating. The Seller can either lower the price for the home or the Buyer can increase his down payment. Or, Seller and Buyer can each do a little of both. Or, in rare instances the underwriter has reviewed the appraisal and has deemed the property insufficient collateral for the loan and the contract may become void.
In all of 2010, a long year of recovery in the market, the Huckaby Briscoe Group has had only one house appraise lower than the sales price, and the difference was a fairly small one. We were able to get Buyer and Seller to come to terms very easily and go to Settlement. Buying and Selling a home requires expert representation from a Realtor who understands the nuances of each stage of the negotiations of a Sales Contract. If you are in the market for a home or you would like to sell yours, please contact Lizzy Conroy at the Huckaby Briscoe Group at 703-734-0192 or Lizzy@HBGroup.us.