Buying a home is a huge responsibility. It’s scary and exciting and will probably be one of the most important investments of your life. That is why it is important to be sure you have all of your bases covered before making an offer on a house.
You may have fallen in love with a home already and are itching to buy it. This isn’t the type of decision you make lightly – it’s not like buying a car or TV – buying a house entails so much more. Before making an offer, there are several steps you must follow to even get to that point. This article will go through those steps and hopefully help you learn how to make an offer on a house.
Before you buy anything, the first thing you generally do is check your budget or your credit to determine if it is something you are even able to afford. It’s not very common to buy a house with cash. So what do you do? You get pre-approved for a mortgage loan from a bank.
Based on the loan amount and its interest rate, with a mortgage you pay off your home in fixed monthly payments. For approval you’ll have to answer several questions regarding your salary and expenses so that they will be able to determine if you are able to handle the loan you are requesting.
Searching For A House
Once you know how much you will be able to spend, it is time to go on the hunt. The best way to do this is to make a list of what you need (as opposed to what you want) in a home. This may not help you achieve that romantic house vision you’ve had since childhood, but you’re a grown up now and it’s time to be practical.
How many bedrooms and bathrooms will you need? Do you have pets that need a yard? Do you have children? If so you’ll want to think about the local school districts. Location is probably the most important thing you want to think about when choosing where to settle down – you want to be in a safe neighborhood and you want to be sure it caters to your particular interests. Do you like to walk everywhere or take public transportation? You’ll want to be sure your new home is convenient to local shops and bus or train stops. Are you an avid bike rider? Accessible bike lanes or paths would be important to consider.
Once you’ve determined what you need you can jot down some things you’ve always wanted in a home – a swimming pool, hardwood floors, large kitchen, etc. By separating your needs from your wants you will be better equipped to more efficiently focus on what actually fits your needs while also keeping in mind some of the things you want. Be willing to compromise and you are sure to find just the right home.
Real Estate Agent vs. Buyer’s Agent
A lot of people think that in order to buy a home you need a real estate agent. A real estate agent isn’t there to help you buy a house at an affordable price. They are there to sell the house to you at the highest price possible. When selling a house one needs a real estate agent, but when buying a home it is helpful to have a buyer’s agent.
A buyer’s agent works for the homebuyer. They work to find the best price, make sure the home is inspected, and generally work for your interests. As with signing any contract, be sure to read all the fine print and pay close attention to what the buyer’s agent will be paid, that there are no conflicts of interest (such as the buyer’s agent making commission off of what the real estate agent makes), and that there is nothing they are neglecting to specify.
Making The Offer On The Property
Because you haven’t made the decision on a whim, you’ve probably spent months searching for your new home. It meets all of your needs and even has some stuff you want (but don’t necessarily need) and it all fits into your budget. Now it’s time to make the offer. Not only is there an art to negotiation, there are some things to think about when making your offer.
Length of Time on the Market
The longer a house has been on the market, the lower the asking price will get. The seller is most likely eager to unload the property at this point, so it would be in your best interests to make an offer that is $5,000 to $10,000 lower than the asking price.
We don’t want to urge you to be a shark and take advantage of anyone’s rough situations, but if you can get a little information on the seller and their reasons for wanting to give up their home, you might find you have a leg up on what to offer. For instance, if the seller is going through a divorce or is relocating for work, he or she is probably looking to sell the house quickly and is more likely to accept a lower offer. This is how companies like Quick Move Now make money investing in real estate – a motivated seller gives them leverage for a discounted price on a home.
Comparative Market Analysis (CMA)
To be sure the offer you want to make is fair, complete a comparative market analysis. To look at comparable transactions and homes in the area, search the “sold” listings at Trulia or Zillow and, if the sales prices of the same types of homes are similar to their asking price, then you know you’re okay.
Your offer must come in the form of a written proposal that specifies the price, terms, conditions and contingencies of the offer. The proposal should also come with a cash deposit of $500 to $1,000 to show “good faith”. If the seller does not accept your offer, you get this deposit back. If you make a proposal without offering a deposit, you come out looking shady and it’s unlikely anyone is going to take you up on your offer.
Sellers aren’t fond of contingencies when their house is on the market; however, they are expected. It’s best to keep them fair and to a minimum. Here are some to consider including:
Why would you buy anything sight unseen? It is recommended that your offer be contingent upon a satisfactory home inspection, which entails an examination to determine if there are any hidden problems in the house.
You want to have an inspector check items like ventilation, plumbing, and electrical systems as well as the foundation. After the inspection if there are any repairs that need to be made and the seller does not oblige you, feel free to drop the offer.
It is important to include an expiration date with your offer; this ensures that the seller will respond within a certain amount of time. If the seller does not respond in the required amount of time you are free to bid on another home.
An inspection may not get all the information you need on possible issues with the house and while a seller is not required to make any repairs, with an offer contingent upon full disclosure you will at least be made privy to any possible problems you may or may not want to deal with. If the seller agrees to make repairs, but fails to do so you can legally back out of the contract.
On the day of closing it is wise to do a final walk through, that way you can make sure that all necessary repairs have been made or that there aren’t any undisclosed issues – if there are you can postpone closing until the problems have been fixed.
The big day is here. The house has passed inspection, the mortgage is locked, there are no liens on the house and nobody else actually owns it, you are ready! Just be sure to come prepared with these things:
- Proof of homeowners insurance
- Down payment for mortgage
- Closing costs
- Mortgage note (signing on to the mortgage and agreeing to foreclosure should you fail to make your payment)
- Settlement Statement (HUD Form 1)
Other Things to Keep in Mind
In addition to some of the factors we mentioned above, here are additional things to keep in mind when making an offer on a home or rental property.
Ideally you will be the only one bidding on the house, unfortunately that may not be the case, so you want to make sure your offer counts. There are ways to successfully outbid other potential buyers while also making a fair offer.
The escalator clause increases your offer (up to a certain amount) if you’ve been outbid.
Increase Your Offer Deposit
If you’ve put down $1,000 with your offer and you find out that there is competition for the property, increase your offer deposit by a few thousand, if possible.
Keep Your Contingencies Low
In general, sellers know they will have to make some repairs before getting a buyer for their home, but no way are they going to accept your offer if you’re asking for unnecessary extras when another buyer is not. If you don’t like the design of something, remodel it yourself once you have the keys in your own hands.
Pay Your Own Closing Costs
Usually, since buying a house is so expensive, buyers ask for help with closing costs and sellers are generally happy to do so; however, the less a seller has to spend, the better, and – if you’re the one buyer willing to pay your own closing costs – the more likely it is that your offer will be accepted.
Buying a house pretty much hinges on your written proposal and it can raise your anxiety levels especially if there are other bidders – one better proposal and your deal is null and void. Create a rational and reasonable offer and don’t ignore your agent’s advice. Do not attempt to negotiate without the help of your agent, unless you’ve done it before successfully. Remember, if you don’t let the frustration of losing a bidding war discourage you, there are other houses out there and the right one is waiting for you.