Offering more money than the home is likely worth came into our market via the escalation clause a few years ago. As I previously wrote, the typical clause was a watered down version of a true promise to pay more than someone else, but it did serve its purpose of catching the seller’s attention. More often than you might think the seller’s attention drifted when they looked closely at the clause and discovered more money might happen, but at the cost of more uncertainty, greater risk, and some long days waiting.
What happens when we pay more money for a house than the house is worth? We spend our equity before we earn it. Paying $275,000 for a $250,000 house and using $30,000 as a down payment might leave you negative equity. That’s a tough way to begin ownership of an home and an unwise way to make an investment.
Fortunately, when working with agents who know how to construct a custom contract to present your full ability you have more than money to use to catch the seller’s attention. We use the offer to appeal to the seller’s desire for security and safety. A sure thing at a fair price has a better chance of being accepted than a high price with high risk and lots of uncertainty.
It sounds easy enough. And yet, it remains an uncommon skill. Essential Real Estate is created to customize offers for client and make the contract terms work in their favor while being appealing to the seller.
Outcomes are determined by control. The residential home building process is all about control. Your satisfaction of the process will depend on your ability to maintain control and your wisdom to relinquish control to responsible people.
When you control the building site, you have the upper hand in everything from design (to the extent building restrictions permit) to completion date. If the outcome matters, this might be a strategy to employ.
- Locate a building site that fits your lifestyle, and is not connected to a builder. Unless the builder will let you build with a builder of your choice on the lot she or he is selling to you, keep looking.
- Get an accepted offer with necessary contingencies to do your due diligence on the lot, and include a contingency like this: This Offer is contingent upon buyer executing a residential building contract with a builder of buyer’s choice within ________days of acceptance of this Offer. (Allow sufficient time for design, pricing, and selecting a builder.)
- Before you close and take ownership of the lot, you want to know the lot is sufficient for your purpose and you have a plan that can be built by a responsible builder at a price, with the amenities you can afford.
- Work with an architect to design a plan. Architects will save you time and money even if the plan is relatively simple. They should know the current building codes and have smart ideas on wise use of the space. An architect will specify materials and construction methods.
- While the architect is working on your plan, study up on Building Science. Be prepared to know best practices in construction.
- Take your plans and specifications to builders of your choice. Ask them questions about their construction practices. Knowing a little bit about Building Science will help you ask prudent questions.
- The time you spend getting your specifications nailed down will come back to you in dollars and cents. Every decision made with builder’s bidding against each other is one less place for the builder you choose to have you accepting her/his price later.
- You’re going to get a bid from a builder. Make sure that bid includes a copy of the builder’s warranty, construction schedule, and a copy of their contract. At the end of the day, it’s a leap of faith you take with the builder you choose, but the contract is your rule book…your attorney may have some ideas to keep the rules favorable.
- Take out your own construction financing. If the builder tells you they can save you money by acquiring the lot from you and you buy the house as a “turn-key” finished product, ask for proof. Remember, he who has the control of the lot has the control of time and money.
- Include the architect in the process of reviewing the construction. The building plan is called a plan for a reason. Contractors may choose to deviate from the blue print for their benefit, but the cost to the next subcontractor on the job is your problem. Someone, and don’t expect it to be the builder, has to make sure the house is built to plan. Builders charge for change orders. You can charge for deviations and the corrections to get back to the plan.
- The builder gets the final payment at the time you take occupancy. If you work with an attorney on your side, you will not make the final payment without 100% of the work finished. If you do take occupancy with loose ends, an escrow of more than sufficient funds is a good idea.
As you navigate this building process, keep control in mind. Either you have it or someone else does. Control is divisible by nothing.