When you make an offer to buy a home, condo or townhome, it includes the option to state specific terms for the loan you've received, or will be securing. These terms are found on page 1, section C, paragraph 1, of California's Residential Purchase Agreement (aka The RPA). What many buyers don't know or understand is that the numbers and percentages entered here represent the offer you're making. If your lender changes these terms, for example raising your interest rate outside of your offer, you'd have the option to cancel your purchase based on a lack of an appropriate loan being available to you.
Although your agent will have their own opinion and advice on how this section of the RPA should be completed, we typically will pad the maximum interest rate by about a point to allow for market fluctuations, especially over a long escrow. If we don't pad the rate, most savvy listing agents will counter these terms to protect their sellers best interests.
Here's a trick to watch out for
I can only talk about how we recommend our clients respond to an offer, but we often will include language in a counter offer that states; Item 1, section C, paragraph 1 to be: best available rate and terms. Essentially, this language states that you must take ANY loan that is available to you, regardless of rate, terms or points.
As a buyer, should you ever include Best Available Rate and Terms in your initial offer?
Although not normally recommended, it sure makes your offer look more compelling. If you're comfortable with your financial situation and fully understand the potential negative ramifications of including this language in an offer, go for it. In practice, the only time we tend to see this positioning tactic used is when we're in a multiple offer situation.
Should you ever accept Best Available Rate and Terms in a counter offer?
There's no simple answer here, it really depends on your situation and desire to purchase a particular home. Step one, if you get this sort of counter offer, is to talk with your lender and agent. In a multiple offer scenario, not accepting may be enough of a reason for the seller to go with an alternate buyer.
Standard practice for many South Bay agents
Most of our first counter offers include Best Rate and Terms Language. We have never had a buyer not accept this.
