Making an offer - what should I put in the written offer?

Hi,
We are about to make an offer on our first IP. We have submitted our documents to our broker to get pre-approval but that will take around 3 weeks, according to the broker. We are confident of our ability to secure the loan but obviously need to reassure the vendor with the wording of our offer.
This is what my offer looks like currently:

1)Price $202,000
Deposit $3,000.00 *transferable to your Trust Account on contract becoming unconditional.
Settlement 30 Days from contract becoming unconditional

2) Price $204,000
Deposit $2,000.00 *transferable to your Trust Account on contract becoming unconditional.
Settlement 60 days from contract becoming unconditional

2) Price $206,000
Deposit $1,000.00 *transferable to your Trust Account on contract becoming unconditional.
Settlement 90 days from contract becoming unconditional

1) Offer is subject to satisfactory building inspection, to be arranged by the purchaser within 14 days from the date of sale. If the purchaser deems the building inspection report to be unsatisfactory, the purchaser may rescind this contract and all moneys are to be refunded to the purchaser.
2) Subject to a satisfactory pest inspection, to be arranged by the purchaser within 14 days from the date of sale. If the purchaser deems the pest inspection report to be unsatisfactory, the purchaser may rescind this contract and all moneys are to be refunded o the purchaser.
3) Subject to the purchaser obtaining final approval within 21 days from the date of sale of loan amount not less the full-agreed purchase price. If the purchaser’s mortgage broker (Care Finance) does not gain unconditional approval of the loan amount within the 21 day period then the purchaser may rescind this contract and all moneys are to be refunded to the purchaser.

These offers are open for acceptance by your vendor for 24 hours, closing at Wednesday 29th April 2009 at 5pm.

We are aware that the vendor wants a quick settlement and we are not fussed either way. That is why we have structured our offer as such. Just wondering what you think about it - pro's and con's of this letter.

Also, at what point do we offer a holding deposit - at the time of making the offer?? What sort of deposit should we offer? Is my letter suggesting we would, then, make another extra financial commitment (as outlined above) when we get unconditional approval. I'm getting a bit confused by the process, as you can tell.

My mortgage broker suggested three weeks for approval but I'm wondering if this is called pre-approval, not approval. Does approval only come after you've had pre-approval and then you forward further documentation for approval. I guess my question is, are they two separate process - pre-approval and approval - and how do I capture this in our letter of offer.

Should I mention any deposit in my letter of offer?

Another unrelated question, but how do we find out the original cost of the building to work out depreciation? The house is 20 years old and I can't find the building cost listed anywhere on the Sec 32 (Vic). When I read about the first five years of a building's life being the best for depreciation is that because it's when it's being calculated in 'current' dollars - rather than this house, which may have only cost around $60,000 to build (guessing) - and therefore have lower depreciation benefits in today's money??? Is it worth using a quantity surveyor on a 20 year old property - or do I just use my accountant to work it out?

Thanks for your feedback, in advance.
newlywed1311

Geeze, lots of Qs for one post NW.

Read this thread here where it was discussed at length:
http://www.somersoft.com/forums/showthread.php?t=48369

Thanks Propertunity, had a read of that thread and gleaned some useful information.
Am still working on my offer and may trying to make it look more 'attractive' rather than more prohibitive.
Cheers.

newlywed1311 said:

Just wondering what you think about it

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OK - well, seeing as though you are just wondering....


1. Your 3 'conditions' are completely wormy. If I was the Vendor, I'd scratch those three out immediately and throw your inadequate Offer back at you. "If the purchaser deems the wind blowing in the wrong direction to be unsatisfactory, the purchaser may rescind this contract and all moneys are to be refunded to the purchaser."

You aren't serious about this purchase are you ?? Any prospective Purchaser with that many flimsy clauses has either ;

1a. Read too many articles in API magazine.
1b. Attended far too many property courses.


I'll give you a wee tip. None of them wash with hard-nosed Vendors out in the real world.

i always ensure this is in writing:

Up to four buyer inspections.

this excludes any building inspection, electrical inspection, plumbing etc.......

reason i do this is that its impossible to see everything after one inspection.......always good to have a 2nd and 3rd look......

take photos of every room as a minimum especially if your dealing with high value property........vendors can be crooks you know...they can substitute soft furnishings etc, take out air cons etc...........get everything in writing..i cant stress this enough..

plus definitely do an inspection the morning before settlement or when the other party vacates....get that in writing..............furniture etc can hide many things...and a building inspector probably wont pick any issues up especially if they are stuck behind a cabinet, wardrobe etc..they dont move furniture usually..its all visual for them..

add as much as you want to a contract if your a buyer..after all its your money......

if the vendor isnt happy with your request then go elsewhere...

im always overkill when i spend good money on property....

some spend 10 minutes inspecting a million buck property, sign her up, pay for then find it wasnt up to scratch..............dont ever get caught out...

cover yourself best you can

good luck..

csc said:

add as much as you want to a contract if your a buyer..after all its your money......

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there is a flip side to every contract - after all it is the Vendor's property.

csc said:

if the vendor isnt happy with your request then go elsewhere...

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no wurries - go elsewhere and try the same with the next vendor - who won't accept - no wurries - go to the next vendor.....ad nauseum....


Some people mistakenly believe that as a Purchaser they have the power in the negotiation when purchasing property. Over 90% of the time, this is not the case. Until the Vendor signs.....it's all stop.

Thanks for your words of advice.
Have had a chance to chat with my mortgage broker and she's suggested one offer only at a price we are happy with, 60 days settlement (due to backlog of processing finance applications), $1,000 holding fee upon signing of purchase contract and then a further 5% of the purchase price upon the receipt of unconditional financial approval. Also subject to building/pest inspections.
Is this better??

TPFKAD said:

I'll give you a wee tip. None of them wash with hard-nosed Vendors out in the real world.

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True, unless the Vendor is about to be taken over by the Bank.

When we asked for some clauses in the Contract for this business we are buying, the Vendor flatly refused every one initially.

Hard-nosed Vendor indeed, and not about to be taken over by the Bank.

I know businesses are not buying real estate, but similar - Vendor, Purchaser. Me have, you want.

The clauses weren't weird and/or being smart. Just a slightly better deal for us hopefully. There were 3 that we definitely had to get - one was lease term and the Bank wouldn't have come to the party without it.

Keep in mind, we had offered full asking price for the business, so were hoping for a bit of compliancy.

We said fine, seeyalayda.....

Hang on; Clauses accepted.

No-one knows what the other party's motivation is until they ask.

newlywed1311 said:

Thanks for your words of advice.
Have had a chance to chat with my mortgage broker and she's suggested one offer only at a price we are happy with, 60 days settlement (due to backlog of processing finance applications), $1,000 holding fee upon signing of purchase contract and then a further 5% of the purchase price upon the receipt of unconditional financial approval. Also subject to building/pest inspections.
Is this better??

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Yes, pretty standard - but much better and more likely to be accepted IMO.

newlywed1311 said:

Thanks for your words of advice.
Have had a chance to chat with my mortgage broker and she's suggested one offer only at a price we are happy with, 60 days settlement (due to backlog of processing finance applications), $1,000 holding fee upon signing of purchase contract and then a further 5% of the purchase price upon the receipt of unconditional financial approval. Also subject to building/pest inspections.
Is this better??

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Brian: "How much for the beard?"

Vendor: "17 shakels."

Brian: "Right, there you are then."

Vendor: "Hang on; we're s'posed to 'aggle."

Huh Bayview??? Not sure what you mean. Perhaps that I should not be so compliant??

newlywed1311 said:

Huh??? Not sure what you mean. Perhaps that I should not be so flexible??

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Nah; you're fine.

I'm just being an idiot - I thought of that haggling sketch from Life of Brian and had to share it. I should have added more of the lines from it, but couldn't be bothered. Reading back, it reads like I suggested you wouldn't negotiate. Sorry - didn't mean to infer that.

In regards to negotiations; it's a people game largely.

I reckon you should always try to look for win-win, so we all need to concede on something.

Looks like you've done that; well done.

BayView said:

Nah; you're fine.

I'm just being an idiot - I thought of that haggling sketch from Life of Brian and had to share it. I should have added more of the lines from it, but couldn't be bothered. Reading back, it reads like I suggested you wouldn't negotiate. Sorry - didn't mean to infer that.

In regards to negotiations; it's a people game largely.

I reckon you should always try to look for win-win, so we all need to concede on something.

Looks like you've done that; well done.

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Do we have any Cwucifixons????

I disagree in part with Daz however. Not all vendors are hardnosed- many are desparate, ignorant or irrational. You may make 100 offers before 1 is accepted. At that point you have to determine how much time was spent getting there- 300 hours at $20/hr =6k so the deal better recoup more than that. ($20/hr is a made up figure you can earn on the checkout at Aldi-your time may be worth more however),

This is what we submitted yesterday...

1)Offered price $205,000
Deposit $500 holding deposit at the time of signing a purchase contract and until the receipt of unconditional financial approval. A further 5% of the purchase price upon the receipt of unconditional approval.
Settlement 60 Days from contract becoming unconditional or earlier by agreement.


1) Subject to satisfactory building inspection, to be arranged by the purchaser within 10 days from the date of signing the purchase contract. If the purchaser deems the building inspection report to be unsatisfactory, the purchaser may rescind this contract and all moneys are to be refunded to the purchaser.
2) Subject to a satisfactory pest inspection, to be arranged by the purchaser within 10 days from the date of the date of signing the purchase contract. If the purchaser deems the pest inspection report to be unsatisfactory, the purchaser may rescind this contract and all moneys are to be refunded o the purchaser.
3) Subject to the purchaser obtaining unconditional approval within 21 days from the date of sale of loan amount not less than 95% of the agreed purchase price. If the purchaser’s mortgage broker (Care Home Loans) does not gain unconditional approval of the loan amount within the 21 day period, then the purchaser may rescind this contract and all moneys are to be refunded to the purchaser or the purchaser may seek an extension on this contract.

These offers are open for acceptance by your vendor for 24 hours, closing at Wednesday 29th April 2009 at 5pm.


They have accepted our offer however want to change the finance terms. They want to reduce the unconditional approval period to 15 days and reduce the settlement period to 45 days. My broker says we can reduce the settlement day, however, it is very likely we'll need an extension given the delays with processing at the moment. She said if we reduce period for unconditional finance, then we should leave the settlement period at 60 days as we'll get penalities if we ask for an extension on that.

What do you think?

newlywed1311 said:

They have accepted our offer however want to change the finance terms. They want to reduce the unconditional approval period to 15 days and reduce the settlement period to 45 days. My broker says we can reduce the settlement day, however, it is very likely we'll need an extension given the delays with processing at the moment. She said if we reduce period for unconditional finance, then we should leave the settlement period at 60 days as we'll get penalities if we ask for an extension on that.
What do you think?

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I think you did well - congrats!

You'll have to explain to them that due to every lender's backlog of approvals, you cannot "reduce the unconditional approval period to 15 days" - no-one can its out of your control - sorry.

You can though "reduce the settlement period to 45 days" that part is relatively easy. (and just quietly... if it takes longer, big deal - its still going to be a sale you have locked in and penalties often do not start for 14 days after due date and even then they are only 10% pa and even then if it is the lender dragging the chain, the lender will often cough up)

Go do it

Propertunity, are you suggesting we would be better off to reduce the settlement period and keep with the same unconditional approval period, ie, the other way around from what we are considering? My broker was quite firm that she believed it would take more than 14 days for unconditional approval as we only submitted documents yesterday and she knows the banks and their timelines. However, we do have the opportunity to extend that two three weeks if needed and perhaps just reducing that time period will reassure the vendor (who has another mortgage and will be moving out of this house to live in that house - so keen for quick settlement).
My broker was firm in saying that if we reduced that unconditional approval time period we should keep the settlement period at 60 days We will be shutting down our mortgage on our PPOR and opening up a new line of credit mortgage with another bank for our PPOR and IP - so the paperwork could take some time.
Just interested in your thoughts - keep the unconditional approval period to 3 weeks and reduce the settlement period to 45 days - is that a better offer?

You should be guided by what your MB says - she alone will know the time delays in arranging everything for you. Sorry if I caused confusion - I must have skimmed your post too quickly.

Thanks for your response. We made an offer with two weeks to unconditional approval (with option to extend another week) and 58 days till final settlement. Hardly any different from our first offer but it was enough to keep the vendor happy. So we signed on Thursday and are madly getting all the other little jobs done to see the sale through.
Very exciting to call ourselves investors

Congrats on the buy.

hope all goes well.

newlywed1311 said:

Very exciting to call ourselves investors

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Well done - you capitalists!