Tip for Buyers – Making an Offer

Tip for Buyers – Making an Offer

You are so excited! You’ve met with a mortgage professional, supplied data and paperwork and received your pre-approval. You know how much you can spend, what level of taxes you can afford, what kind of loan you will be using, and whether you need a seller concession or not. In addition, you’ve interviewed and selected a real estate buyer agent to help you with your search. And now you’ve house shopped and have found the home of your dreams.

Your next step is to make an offer on the home. The negotiation process will probably be one of the most nail-biting times during your home purchase. Here’s some information about what is entailed.

Determining what to offer

At a minimum, your offer will need to address price, timing and contingencies. There may be other bits of information that need to be included based upon your location and real estate brokerage. But the most critical items are:

Price: Now that you’ve selected a home to purchase, your agent will pull together a comparable market analysis (CMA) for the property. The CMA may consider recent sales and homes under contract in the area to determine a market based price range. It will be up to you to select where in the range you would like to end up. There are a lot of factors your agent will assess. Is the listing price reasonable? What have similar homes in the area been selling for? Is it a seller’s market, buyer’s market, or balanced market?

Then there are things you will have to decide. How does the price you want to offer match your comfort level in terms of what you want to pay per month? How much can you put down? Are you convinced this is THE house? If yes, you want to make a strong price offer. If it is a seller’s market, where multiple offers are common and prices are increasing, you need to ensure your offered price is your best offer. If it is a buyer’s market, where buyers have more leverage, there may be more flexibility for your pricing strategy.

Part of the price discussion is also related to whether you need a “seller concession.” Basically, this is a way to finance your closing costs. If you offered, for example, $300K and asked for a seller concession of $10K, the house would have to appraise at $300K, but the seller would only get $290K. The mortgage company must allow concessions (not all loan types do) and the seller must agree. Some sellers object to the idea of concessions since they feel they are giving up money. So if it is a seller’s market and you don’t need a concession, now is not the time to ask for one!

Now that you have the price offer figured out, it’s time to look at the other parts of your offer.

Timing: There are several different aspects to be considered regarding timing. When do you want to close? When can you reasonably expect to close? In the Monroe NY area, the time from an accepted offer to contract signing is usually about three weeks. The mortgage process starts after that and can take six or more weeks. So a reasonable request for a closing date could be two months from the date of your offer. That being said, there may be reasons why you’d like to request a quicker date or one that is further out. Maybe you’d like to time closing with a retirement or the last day of school.

Please note that in New York, the closing date is just a request and unless specifically defined as such, there is no “time is of the essence.” In other words, you can expect your closing to happen somewhere between the date you request and thirty days in either direction. But selecting a good target date is important, especially because the seller may have a totally different expectation in terms of when this deal will close.

Contingencies: There could be many items you may wish to include in the contingency section. A strong offer in a hot market will contain as few contingencies as possible. That being said, these are the ones that are most common to include:

Inspection: If you include an inspection contingency, that means you have the ability to have an inspector take a look at the home and provide you a report of their observations. If you find the home has structural or safety issues of some sort, you may negotiate repairs with the seller. You may also cancel your offer if there are too many potential problems with the home. Almost all buyers should request this contingency. You will want to know what you are buying!

Mortgage: If you are purchasing the home using a mortgage, you’ll need to include a financing contingency. If you cannot, for any reason, get a mortgage then you won’t have to complete this home sale. If you are purchasing with cash, then of course this specific contingency is not needed.

Included items: In our area, the MLS specifies what appliances and fixtures stay and which do not. However, there may be other items in the home that you would like to be included. For example, the fantastic riding lawn mower, the children’s playground equipment, or the car lift in the garage. If there is anything that you would like to specifically request, it should be in your offer.

Home Sale: Do you have to sell your existing home in order to purchase a new home? This particular sale contingency can be most difficult for a seller to accept. The process for selling an existing home and purchasing a new one could fill an entire blog post as well! If you do have to sell your existing home, be prepared to explain exactly where you are in your sale process. Is the home under contract? Has a closing date been set? Is it still unlisted?

There are many other possible contingencies, but these are the most common. Once you have identified which are important to include in your offer, your agent will get the offer ready. Offers are submitted in writing so there may be multiple forms you will need to sign. Once the offer is prepared, your agent will submit to the listing agent, along with your pre-approval letter or proof of funds.

And then you wait for a response…

Potential seller responses

Once an offer is submitted to the seller, there are various responses you could get.

The seller could accept your offer as written. This is really the best of all situations. Although you may wonder if perhaps you should have submitted a lower offer (because after all, they just jumped on it!), getting an accepted offer right off the bat does not mean your offer was too high. It means your offer was a strong one, with terms the seller wanted. You cannot ask for a better response.

The seller could deny your offer with no further discussion. There is no rule that indicates a seller must counter an offer. If a seller deems your offer to be too low, in their minds, they may not want to respond. Selling a home can be quite emotional for some sellers. If, for whatever reason, their feelings are hurt by the offer, they may just say No. You could then either submit a higher one and see if they would be willing to counter that one, or continue your home search.

The most common response from a seller though is a counter-offer. The counter could, and usually does, address every aspect of the offer. The seller might want to shoot for a different closing date, or they may want a different amount of money. Perhaps they want you to put down a bigger down payment so you have more “skin in the game.” Getting a counter offer means the seller is open to negotiating, and would like to reach an agreement with you. At this point, your agent and the listing agent will manage the negotiation process and hopefully you will wind up with an accepted offer. Keep in mind if this is a house you truly want, it is important to remain flexible and open to the seller’s responses. You wouldn’t want to lose out on the perfect $400K home over a $500 gap in price for the “principle.”

Sealing the deal

Once you have an agreed-upon offer, you can take a deep breath, smile, celebrate, and get ready to move on to the next steps. In the NY area, that means getting the deal under contract, and starting the mortgage process. More soon on these steps!

If you are looking for a home in the Monroe NY or Orange County area, I can help! Feel free to contact me on 914-419-0270 or kat@thehousekat.com.

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