Remember, home buyers: You have the right to negotiate everything

June 15, 2012

Everything — in real estate, absolutely everything — is negotiable.

Recent economic reports indicate that real estate sales are on the increase, especially since mortgage interest rates are at an all-time low. But, despite what experts tell you about sellers having the upper hand, it still is a buyer’s market.

Home buyers, especially first-timers, do not understand that they have the right to bargain and negotiate all aspects of their real estate purchase.

Potential buyers should not hesitate to make a low offer on a house. The real estate broker or agent has a duty to submit any offer — no matter how ridiculously low it may seem — to the owner of the house.

A seller has three options when an offer is received. She can reject it out of hand, accept it or make a counteroffer.

If your offer is rejected, you can always present another offer that is closer to the seller’s asking price. Or, if price is a concern, you can look for something else.

If the seller counteroffers (which is the usual practice), then you can slowly begin to narrow the difference between the two prices until, hopefully, you both reach that happy medium.

Once you have signed a contract to buy, the negotiations should not cease. First, you have to determine what kind of mortgage loan you want. Do you want the security of a fixed 30-year loan, in which your monthly payments will remain the same? Do you think you will be selling the house within the next five to seven years? In that case you may want a five-year adjustable rate.

Incidentally, I do not recommend a 15-year mortgage. True, the rate will be less than a fixed 30. But your monthly payments will be higher. With a fixed 30, you have the right — but not the obligation — to make larger payments, as if you had a 15-year loan. And if you need that extra money — or if a better investment comes your way — you can always go back to your regular 30-year payment.

You should shop around and compare interest rates among a number of mortgage lenders in your area. Presumably, the real estate agent will give you the name of a potential lender or two. Certainly you should contact them. But don’t stop there. Check out at least five lenders to try to get the best rate for your purchase. Then make your decision.

After you select your lender, once again the negotiations should continue. Your contract should contain a provision that the deal is contingent on your obtaining a satisfactory inspection by a professional home inspector. Typically, there are two kinds of inspection contingencies. One gives you the absolute right to cancel the contract for any reason based on the results of the inspection. The other requires that you provide a list of problem areas to the seller, who has three days in which to agree to some or all of the issues. If the seller agrees to your concerns, the contract remains in full force.

I prefer the first approach. From the purchasers’ point of view, if there is dissatisfaction — or even buyer’s remorse — they have the right to cancel the contract immediately. (Typically, the contingency lasts three or five days after the contract is accepted.) From the sellers’ point of view, it’s better to lose a sale now rather than have an unhappy potential buyer who will give you trouble all the way to settlement — and even beyond.

Usually, the real estate agent involved in the transaction will provide you the name of an inspector. But insist on getting at least two names. This assures you that there is no collusion between the agent and a particular inspector; it also protects the agent from claims that he was in cahoots with the inspector.

Do not let the broker select a title company or lawyer for you, at least until you have compared prices among several such settlement providers. Keep in mind that the law is very clear: You, as the purchaser, have the absolute right to select who will conduct your real estate closing.

Home owners insurance (hazard) will be required by your mortgage lenders. Once again, shop around. There are many different kinds of insurance coverage, and you should familiarize yourself with the various policies before signing up with a particular company.

No doubt the real estate agent will try to be helpful and will want to walk you quickly through the entire process. After all, the agent wants the deal to close so that the commission will be paid.

But it’s your money. And a lot of it. Take your time, shop around, and then make your decision based on all the facts and a lot of negotiation of price and terms.

Benny L. Kass is a Washington lawyer. This column is not legal advice and should not be acted upon without obtaining legal counsel. For a free copy of the booklet “A Guide to Settlement on Your New Home,” send a self-addressed stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036.

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