You’ve found your dream home. You’ve lined up your Financing. You’re SO DONE with your landlord. You’re ready to make an offer!
When you find that special property, we’ll put together an offer to purchase the home. Offer terms include: purchase price, loan amount, earnest money amount, contingencies (i.e. home inspection, appraisal, financing, etc.), settlement date, and more. The offer will also include your pre-approval letter and a copy of your earnest money check.
There’s More to an Offer Than Price
If you are ready to pull the trigger, as your agent, I’ll first make a call to the seller’s agent to find out what the story is with the listing, and to let her/him know that an offer is on the way. (Wouldn’t want the seller to accept another offer while we’re filling out the paperwork.) In order to come up with the best offer, you’ll look at how long the home has been on the market, if there are other offers on the table currently, and if there’s a specific day the sellers will review the offers. I can uncover a lot by learning about the seller. I’ll try to find out why they’re selling and what their motivations are.
We’ll read the seller’s disclosure to be sure we understand what it is you’re buying. How old are the systems, the roof, the house itself? Is there public water or will you be using a well?
We’ll analyze the recent sales in the neighborhood with similar characteristics, going back at least six months. The condition, location, time on market, improvements and the competition will all play a factor in final sales price for these comparables. Let’s talk about the sale-to-list price in the neighborhood, as that will tell you a lot about whether you should expect to pay below asking price, asking price, or above asking price based on today’s market.
There is no single right answer and no “exact” price or terms for a home you covet. As an educated buyer, you’ve got the market knowledge and experience it takes to analyze the deal. Believe in yourself. Take what you’ve learned, partner with a great agent, and trust your judgment. Remember the homes you’ve toured and open houses you’ve attended, and you will see where your home of choice fits in the market.
Depending on the state of the market we will structure the offer for the best chance of success.
Contingencies will likely be written into the contract. It’s a very rare deal that has no contingencies. The most common contingencies are for:
home inspection – structure, systems, roof, windows, etc.
environmental hazards – mold, soil testing, air quality, asbestos, etc.
wood infestation, pest
deeds, restrictions and zoning
water service and quality
property and flood insurance – insurability
lead-based paint hazards
condo document review
In a seller’s market, contingencies should be minimized. We’ll evaluate which are necessary.
Where the market is competitive, we’ll include a personal letter or buyer profile describing you and your family to the seller. When a seller is presented with multiple offers, this can help your offer rise to the top of the list.
It is important to carefully consider the price you indicate on your initial offer. The seller may accept, counter offer or reject your offer completely.
If your price is so low it offends the seller, you may run the risk of having your offer rejected and having the seller not take you seriously. Moving twice in negotiation, especially at the beginning, often shows a position of weakness – so don’t let the seller call your bluff.
Understand the real market value of the property, and think about your emotional attachment to the home in comparison to other homes you previewed. Also, remember that market value may or may not have much to do with the listing price. Motivated sellers may list their homes under market value for a quick sale and the possibility of multiple bids. Sellers with more time on their hands or a unique property may list the property a bit higher as they are willing to wait for a buyer who appreciates the home as much as they do.
Keep in mind that negotiating $50,000 off the price of a home doesn’t mean you got a good deal if the home was $60,000 overpriced – just as paying $10,000 over asking may mean you still got a great deal if it was a fire sale!
Don’t expect to pay your initial offer price as it’s rare for a seller to accept your initial offer without some back and forth negotiating. In addition to deciding what price to offer, you’ll need to think now about how much you’re willing to pay for this property and what your walk-away price is before things get heated and emotional.
Downpayment and Earnest Money Deposits
The downpayment is the amount of the purchase price not covered by your mortgage. On a $500,000 home, with an 80% mortgage your downpayment would be $100,000 or 20%. Therefore, if you’re planning to put $100,000 down for a down payment and you’re paying $25,000 in earnest money; at closing, you would bring an additional $75,000 for the remainder of the down payment.
When the market is competitive, the amount of ‘skin in the game’ you are willing to put toward the deal will indicate to the seller the strength of your offer.
It is common to include a $1,000 check with an offer to purchase, along with 5 to 10 percent of the purchase price after the inspection contingency has been met. These funds will be held in escrow until closing, and may be awarded to the seller as damages if you do not close, despite all contingencies being satisfied. The escrow funds will be returned to you if you pull out of the transaction due to one of the contingencies. Read more about Earnest Money HERE.
The terms of your offer can make or break your deal. In a buyer’s market, a Seller Assist might make the deal happen. If the seller wants a quick close, and you can do it, give it to them. If you are competing with a cash offer, make your loan terms foolproof. How long will you take for your inspections? Do you want to close quickly or take a longer time? Will you need an appraisal and loan contingency? How long should that be? Marry all of the data from above and take your best shot.
Given the age of the home and the state of the systems, a request for a Home Warranty might also be included.
The terms of the sale consist of all the contingencies attached to the offer. Your agent (me!) can help you decide which contingencies make the most sense for your situation. The fewer contingencies an offer contains, the stronger the offer and the more likely the seller may compromise on price.
Dates and Deadlines
The offer to purchase includes a deadline, usually a date and time, for the acceptance of the offer. It also includes the Purchase and Sale date, inspection dates and deadline for inspection-based requests, mortgage contingency date and closing date. Be acutely aware of these deadlines; once a contingency date passes, the contingency expires. If you think you will need more time to meet the deadlines, discuss your options with your agent.
In our market, closing typically takes place 45-60 days from the date the contract is executed. Occasionally, you can ask for a longer closing date depending on the party’s needs. Therefore, if you want to move around August 1, plan on making an offer at the beginning of June. 45 days is usually the required minimum if you’re using a mortgage to buy the property. If you’re paying 100% cash you can often close faster than 30 days, but if the property is seller occupied this will be an issue.
Give your lender a heads up
Your lender should be on speed dial at this point. Let him or her know you plan to make an offer on the home. Not only will you need a pre-approval letter with your offer, but you will want an update on mortgage rates and products since these change daily.
From the time you applied for pre-approval until now, there could have been a massive shift in rates or a new product that could benefit you. For all you know, you can afford more, or that bonus you received last month could mean a higher down payment and qualifying for a better product.
We’ll then submit your offer to the seller’s agent. While negotiations sometimes go quickly, it’s not uncommon for negotiations to take a few days. Read more on negotiations here. Every seller, every deal, every home is different. Keep calm and carry on. And if it’s just not meant to be…
Remember, there will be other houses
Rarely does a buyer score the first house they offer on. And it’s not the end of the world if you don’t. There will be other homes for sale.
People change jobs, get divorced, move closer to family, have children or pass away. All of these things can result in a home sale or purchase.
Have faith that another home will come along in the future. There’s no rush, and you should never buy real estate overnight. Have fun, and learn from each offer you make.