Make an Offer Like a Boss.
The more intentional you are about your offer, the better your chances of making a successful bid. These 10 money-and time-saving steps can help you craft a winning bid.
#1 Know Your Limits
Your agent will help you craft a winning offer. You can trust their advice on price, contingencies, and other terms of the deal: it’s a mutually beneficial relationship. The more collaborative you are with your agent, the more quickly you’ll be able to move.
But ultimately, it’s you who decides what the offer will be — and you who knows what your financial and lifestyle limits are. Buying a home means mixing strong emotions with business savvy, so now is also a good time to reflect on your “musts.”
Have a top limit to your offer price because you’re also saving for retirement and love beach vacations? Stick to it.
Want a vegetable garden or to paint your home’s exterior purple? Make sure your homeowners association rules permit it.
Want a dog-friendly community? Make sure there are no neighborhood pet weight limits or preventing you from co-habitating with your (extra-large) canine bestie.
#2 Learn to Speak “Contract”
Essentially, an offer is a contract. The documents and wording vary across the country. In the spirit of due diligence, take time to review purchase and sale forms with your agent before you’ve found a house. If you’re high-maintenance, a real estate attorney can explain the documents to you so you’re familiar with their vocabulary when you’re ready to pull the trigger on an offer with your agent. Your agent will have offer forms for your state.
#3 Set Your Price
Homes always have a listing price. Think of it as the seller’s opening bid in your negotiation to buy a home. As the buyer, your offer will include an offer price. This is the first thing home sellers look at when they receive a bid. Your agent will help you determine whether the seller’s listing price is fair by analyzing comparable sales.
Several factors can also affect your bargaining position and offer price. For example, if the home has been sitting on the market for a while, or you’re in a buyer’s market where supply exceeds demand, the seller may be willing to accept an offer that’s below the list price. Or if the seller has already received another offer on the home, that may impact the price you’re willing to offer. Your agent will help you understand the context here.
#4 Figure Out Your Down Payment
To get a mortgage, you have to make a down payment on your loan. For conventional loans, making a 20% down payment enables borrowers to avoid having to pay private mortgage insurance (PMI), a monthly premium that protects the lender in case the borrower defaults on the loan.
But 20% isn’t always feasible — or even necessary. In fact, the median down payment is 10% according to the National Association of REALTORS®. Your lender will help you determine what the best down payment amount is for your finances.
You can use an online mortgage calculator to see how different down payments would affect your mortgage premiums and how much you’ll pay in interest.
#5 Show the Seller You’re Serious: Make a Deposit
An EM — short for earnest money deposit — is the sum of money you put down as evidence to the seller that you’re serious (read: earnest) about buying the house. If the seller accepts your offer, the earnest money will go toward your down payment at closing. However, if you try to back out of the deal, you might have to forfeit that money to the seller.
A standard EM is 2% to 3% of the sales price of the home (so, that would be $18,000 to $27,000 on a $900,000 home). But depending on how hot the market is where you live, you may want to put down more earnest money to compete with other offers.
In most cases, the escrow company is responsible for holding the earnest money in an escrow account. In the event the sale falls through, the escrow company will disperse the funds appropriately based on the terms of the sales contract.
#6 Review the Contingency Plans
Most real estate offers include contingencies — provisions that must be met before the transaction can go through, or the buyer is entitled to walk away from the sale with their EM.
For example, if an offer is contingent upon a home inspection, the buyer has a set number of days after the offer is accepted to do an inspection of the property with a licensed home inspector.
If something is wrong with the house, the buyer can request the seller make repairs. But most repairs are negotiable; the seller may agree to some, but say no to others. Or the seller can offer a price reduction, or a credit at closing, based on the cost of the repairs. This is where your real estate agent can offer real value and counsel on what you should ask the seller to fix.
In addition to the aforementioned home inspection contingency, other common contingencies include:
- A financing contingency, which gives home buyers a specified amount of time to get a loan that will cover the mortgage.
- An appraisal contingency, where a third-party appraiser hired by the lender evaluates the fair-market value of the home to ensure the home is worth enough money to serve as collateral for the value of the mortgage.
- A clear title contingency, where the buyer’s title company verifies that the seller is the sole owner of the property and can legally convey ownership to the buyer.
- A home sale contingency, where the transaction is dependent on the sale of the buyer’s current home.
Although contingencies can offer protection to buyers, they can also make offers less appealing to the seller because they give buyers legal ways to back out of the sale without any financial repercussions. So, if you’re going up against multiple offers, making an offer with fewer contingencies can potentially give you an edge over the competition.
In other words: A chill offer is an attractive offer. But keep in mind you have to be comfortable with the risks that come with this strategy. If you don’t have a financing contingency, for example, and you can’t get a mortgage, you’d likely lose your earnest money deposit since you’re on the hook. (An outcome that’s decidedly un-chill for you.)
#7 Read the Fine Print About the Property
The sales contract states key information about the property, such as the address, tax ID, and the types of utilities: public water or private well, gas or electric heating, and so on. It also includes a section that specifies what personal property and fixtures the seller agrees to leave behind, like appliances, lighting fixtures, and window shades. This can be another area of negotiation.
Carefully reviewing the property description also helps you know, for example, if the seller plans to take that unattached kitchen island with them when they move. (Stranger things have happened.)
#8 Make a Date to Close
The sales contract you submit to the seller must include a proposed settlement date, which confirms when the transaction will be finalized. The clock starts as soon as the purchase agreement is signed. Once the sales contract is signed, the parties can change the settlement date only if they both sign an addendum specifying the new day. If you don’t close on time, the party that’s responsible for the delay may have to pay the other party compensation for an extension of the closing date or worse, risk losing the house if they don’t agree to extend.
A 30- to 40-day settlement period is common because it gives the typical home buyer time to complete a title search and obtain mortgage approval, but settlement periods can vary. Some sellers, for example, prefer a longer period so they have more time to move or look for their next house. Being flexible, with respect to the closing date, could give you more negotiating power in another area of the deal.
One thing that’s the same no matter where you live is that you’ll have a three-day period prior to settlement to review the Closing Disclosure, or CD — a five-page form that states your final loan terms and closing costs.
#9 Write a Fan Letter to the Seller
Want to make a truly compelling offer? Pull on the seller’s heartstrings by attaching a personal letter to the bid documents. Tell a compelling story about your family and your connection to the area. Get deep about your roots.
Also, sincere flattery can go a long way. Compliment the seller on how their kitchen renovation looks for instance, or how the succulents in their landscaping remind you of a resort in Palm Springs.
Your agent can help you gather background on the sellers (e.g., are they crazy about their labradoodle, like you are about yours? Did they run a small business from the home, like you dream of doing?). And you should — of course — refer to information you gleaned during the open house or private showing. Use this intel to write a message that really speaks to the seller, and it may very well seal the deal.
#10 Brace Yourself for a Counteroffer
If you’re making a lowball offer or going up against multiple offers, the seller may decide to make you a counteroffer — a purchase agreement with new terms, such as a higher sales price or fewer contingencies.
At that point, it’s up to you to accept the new contract, make your own counteroffer to the sellers, or walk away.
Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.
Making an offer involves so much more than coming up with a good offer price. Often, the winning offer is one that perfectly complements the seller’s needs, such as a free rent-back period after closing or a release of the earnest money deposit to the seller after contingencies are removed. Still have questions? Contact one of our knowledgeable brokers for assistance with how to determine your best sale price based on both the average and median price trends.
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© Copyright 2019. Information and statistics derived from Northwest Multiple Listing Service.