BUYER'S GUIDE
Making an Offer
Congratulations! You've found the home of your dreams! Before
you make a formal offer, you need to make sure the home is
priced correctly. You don't want to overpay. Typically used when
selling a home, a comparable market analysis (CMA) lists the
recent sale information of nearby homes, including how long each
home stayed on the market, how close the asking price was to the
actual sales price, etc. It then compares the information
regarding these houses with the one in question. If you're using
an agent, they will do this for you to help you determine a
realistic price. There are several online appraisal services
that can provide you the same information as a CMA.
Considerations Before Submitting An Offer
After some serious time commitments looking at many properties, you finally found that perfect piece of real estate – it looks good, its optimally suited for your needs, and its within your price range. Now it’s time to negotiate a deal by making an offer to the seller.
Although this seemingly easy task can be as straightforward as submitting a price, we advise that you should fully investigate the many factors into making a fair and effective offer. There are a few questions you should ask yourself in determining the value of your offer:
What is the going price of similar pieces of real estate in the area?
Often the most important determining factor in making your offer is what the market value is for that piece of property. The market value of a property is determined by defining the most probable price that a property would bring if it were to go on sale. This can be quantified by enlisting the services of an appraisal or by examining the sale price of similar pieces of property in that area. This is where perusing the multiple listing service (MLS) or real estate classifieds can be useful for assessing market value. If you have a real estate agent helping you with the transaction, they would provide invaluable advice of what a realistic offer should be. Agents should have access to all the local sales figures, and should be able to give you an estimate so that you can compare it to the property price you’re looking at.
f your real estate agent does not have access to the local sales figures, it may be beneficial to hire a professional real estate appraiser and to visit public record offices such as your county clerk or recorder’s office. Public records are an accessible source of information on comparable sales of the property. Many buyers are proactive enough by using the county public records even before comparing prices seen in real estate listings.
Comparing sales through the public record is very useful and not just because it gives you an idea about what the house you’re after should cost, but also because it reveals certain trends in the real estate market of that area.
How long has the property been on the real estate market?
During your research into market value, you may discover that the property you’re interested in have been on the market for relatively long time compared to other properties in the same area. This immediately begs the question - Why?
While this may be indicative of a slow local real estate activity, it may also belie a bigger problem. For example, you may discover that the property is located in a flood plain, or that it is on contaminated land. Whatever it is, you should always be suspicious of why. Use your real estate agent to objectively investigate any potential reasons.
How much competition is there for the property?
Any significant factor that will affect your offer is the amount of competition for the property. You can expect competition if the property is located in a desirable neighborhood, town, or even county. For example, real estate in the Bay Area is highly sought after so naturally there is a lot of competition for properties there. Consequently, you have to ask yourself – How bad do I want it? It is a delicate balance not to bid too highly, but high enough where you may are not underbidding compared to other prospective buyers. Again, the advice of your real estate agent will be invaluable here.
Submitting An Offer Proposal
Oral promises are not legally enforceable when it comes to the sale of real estate. Therefore, you need to enter into a written contract, which starts with your written proposal. When you make your offer don’t worry about making an offer that is lower than ninety percent of the actual asking price. You should remember that too low of an offer might be rejected immediately and may even insult the seller, but a reasonable offer should generate at least a counter-offer from the seller. The counter-offer may be very close to your offer.
You can easily obtain standardized forms for contracts and proposals that ensure that you don’t miss any steps involved in the proposal process. In most instances, the real estate agent that is brokering the deal will handle many of these duties, but it is always best to know what you are doing.
The purchase offer proposal you submit, if accepted as it stands, will become a binding sales contract (also known as a purchase agreement, earnest money agreement or deposit receipt). It is therefore important that it contains all the items that will serve as a "blueprint for the final sale." These purchase offer items include such things as:
- Address and sometimes a legal description of the property
- Sale price
- Terms -- for example, all cash or subject to your obtaining a mortgage for a given amount - Seller's promise to provide clear title (ownership)
- Target date for closing (the actual sale)
- Amount of earnest money deposit accompanying the offer, and whether it's a check, cash or promissory note, and how it's to be returned to you if the offer is rejected -- or kept as damages if you later back out for no good reason
- Method by which real estate taxes, rents, fuel, water bills and utilities are to be adjusted (prorated) between buyer and seller
- Provisions about who will pay for title insurance, survey, termite inspections and the like - Type of deed to be given
- Other requirements specific to your state, which might include a chance for attorney review of the contract, disclosure of specific environmental hazards or other state-specific clauses
- A provision that the buyer may make a last-minute walk-through inspection of the property just before the closing
- A time limit (preferably short) after which the offer will expire
- Contingencies (if applicable). The two most common are the buyer obtaining specific financing from a lending institution and a satisfactory report by a home inspector within a specified period of time.
Negotiations and Counter offers
When you have submitted an offer that wasn’t satisfactory, the seller may simply reject your offer, or send back a counter-offer. This is where negotiations generally begin.
It is imperative that you have negotiation strategy should the need arise to negotiate a price. Remember, this may likely represent the largest investment in your life and ineffective negotiations can mean the difference between thousands of dollars! You may be in a good bargaining position if you arrive at the negotiating table armed with the following:
- You’re willing to pay cash for all or the majority of the purchase
- You have a pre-approved mortgage
- Your purchase is not contingent on the sale of your existing property
These qualities are extremely attractive to the seller, especially in a buyer’s market, and they may be more willing to be flexible in their negotiations. Under these circumstances, you may be able to negotiate some discount from the listed price, particularly if the seller wants to sell the property fast.
On the other hand if the property is in a "hot" seller's market, then the seller may have the upper hand since there will usually be competing offers for their property. You may want to offer the list price (or more) to beat out other offers. This is where you negotiation strategy becomes more important, which should be planned out in advance. It is also beneficial to find out as much about the seller’s situation – Are they looking to sell the property as fast as they can? Remember that e month a property remains unsold represents considerable extra expense for the seller. Is the property vacant now? If so, then the seller is most likely grudgingly paying for two mortgages. Was there a recent divorce? Nobody wants to prolong the painful ordeal of a divorce. Is the property an estate of a deceased individual? Nobody wants to prolong the painful ordeal of a divorce. All these factors can be used as leverage during the negotiation procedure.
Knowing this you can be creative in your negations, giving a little �� taking a letter. For instance, you could negotiate a lower price for the property if you offer a shorter closing period. If the sellers give you a counter-offer with the condition of a 30-day close ask that the price be lowered and accept the condition. For example, if a house is listed for $400,000, you might offer to pay that amount with a 150-day close, or $394,000 with a 30-day close.
Providing the right offer is one of the most critical decisions in real estate. Be sure that you’re adequately prepared. Know what you’re willing to pay for the property, and be firm in not going over that. A trusty real estate agent is extremely valuable during the negotiating process, an agent with extensive experience should be able to predict what will happen, and will adequately advise you.
Once your offer is accepted, it becomes a binding contract, so be sure to include the necessary contingencies. Contingencies are clauses that, if not met, will render the contract null and void. Common contingencies are the sale being subject to approved financing, the sale of an existing home and/or a satisfactory home inspection.
Proceed to the next section of the Buyer's Guide - Real Estate Inspections
