Better Homes and Gardens Real Estate Life

Tag: Making an Offer

  • Step 5. Real Estate Contract Negotiation

    As a buyer, finding the perfect home in a realistic budget can be one of the most exciting purchases in a lifetime. Now that the desired home has been found, it’s time to create a contract in coordination with the buyer and their agent. A contract, or purchase offer, is a legal transaction that outlines how much you want to pay for the home, all terms and conditions of the purchase, and legal requirements based on state and local laws. Buyers, sellers, agents and the chosen title company are all involved in the coordination of the successful accepted offer.

    You will work with your agent to determine what is an acceptable offer on the property. Trust the agent’s advice as they know the area extensively and can dictate if the asking price for the home is above the value of the home. Hot markets may also require a higher offer price dependent on bidding wars. No matter what your proposed offer is, consider these tips and questions when making an offer on a home.

    • Condition of Home: Does the home need minimal or extensive renovations? Are these renovation projects something you can handle as the buyer? Will you need to hire contractors? These questions should affect the offer to the sellers.
    • Are there HOA limits? There may be numerous renovations that could improve the home, but these must fall within HOA guidelines. This can affect the price presented as some restrictions may increase or decrease the value of the home.
    • Pet Laws: Consider if four-legged friends are accepted in the community or neighborhood desired. Many breeds such as Pit Bulls, Dobermans, Rottweilers and Chows are restricted. Weight limits can also be an issue.

    Research Contract Language

    As with any contract, the language within can be confusing for even the most knowledgeable of buyers. Research and ask your agent to explain standard stipulations in a real estate contract to help make the decision quick for contract offers. For example, in many areas a home inspection must occur within 14 days unless otherwise mentioned in the contract. Who pays for this home inspection is something that can be negotiated and must be mentioned in the offer.

    Speaking with a real estate attorney is another option for those that wish to be 100% sure that an offer is legal, fair and beneficial. Don’t be afraid to ask the agent or real estate lawyer any question. No question is silly when making such a large purchase.

    Set The Price

    The offer price is the final number brought to the seller for the property. As mentioned above, work with the agent to determine a fair price for the home. Is the area a buyer’s market or a seller’s market? Have homes sat on the market for extended periods of time? Will this home require serious renovation? Is the asking price set to the comparable market value for the area?

    Down Payments

    The lender can help determine an acceptable down payment on a home based on how it affects the mortgage payment and what is an attractive escrow amount for the seller. In previous years, a FHA or Conventional loan down payment was as high as 20%. After the market drop, this has decreased significantly. In 2017, the median down payment was 10%. A down payment is not required with VA loans, but VA funding fees will be required at the closing which can either be rolled into the mortgage or paid at closing. The types and requirements of loan options can be confusing, work with your lender to find the option best for you.

    There are also payment assistance programs available that assist homeowners in specific areas, incomes, ethnicities and additional criteria with providing funds for down payments on homes. To determine what the monthly mortgage payment will be based after the down payment, ask the lender to run the numbers, and/or use mortgage calculators to determine the estimated payment per month.

    Earnest Money Deposits (EMDs)

    An Earnest Money Deposit (EMD) is an initial deposit submitted with an offer to show a seller that the buyer is serious about purchasing the home. This can range between $1,000-$10,000 depending on the price of the home and the area. This deposit will be held in escrow by the title company and go towards the closing of the home. Note: If the buyer backs out of the deal, the buyer may lose this deposit. Choose wisely and read the contract carefully.

    An Offer is More Than a Number

    A final number is extremely important to an offer, but other stipulations and instances affect whether an offer is in favor of a buyer or seller. Here are some additional items to consider when providing an offer.

    • Form of Payment: All cash offers are extremely attractive to sellers as this removes lender contingencies and takes the concern away from the seller as to if a buyer can truly qualify for the loan.
    • Clear Title: If a home does not have clear title, outstanding permits and/or code enforcement issues, this can take additional funds to clear. The contract should dictate in the additional terms who will take care of these issues, whether the buyer or seller. Usually buyers ask sellers to fix and provide an asking price that reflects the headache.
    • Outstanding Taxes/Utilities: If taxes or utility bills are outstanding, this should be reflected in the contract as well.
    • Deeds: There are numerous types of deeds including: General Warranty Deeds, Special Warranty Deeds, Deeds Held by Trusts and Deeds Executed by Courts (Foreclosures). Each has their own pros, cons and headaches. Discuss these differences with the agent and lender and adjust the price dependent of the situation.
    • State Specific Clauses: Each state has their own rules regulations to follow for transactions. Discuss these differences with the agent before submitting a final offer.

    Contingencies

    Contingencies are steps or provisions that must be met before the final transaction goes through (they keep the seller and buyer accountable and protected). Each agent (buyer & seller) should hold each other accountable to ensure that these are done in a timely manner as discussed in the contract and by the appropriate party. These seem like easy steps, but can hold up a closing more often than expected.

    Other Contingencies:

    • Financial: Missing Lender Docs
    • Appraisal: Delayed Production of Docs
    • Clear Title: Title Company Misses Information
    • Home Sale: Seller Needs More Time to Vacate, Buyer’s Current Home Sale is Delayed

    Fine Print: Understanding the contract is so important. Be sure to read over all the fine print and discuss with the agent to not miss any discrepancies.

  • Making an Offer on a House in a Seller’s Market

    Making an offer on a house can be one of the most stressful aspects of the home buying process. Even if you think you’re making a strong real estate purchase offer, another buyer can still end up outbidding you, especially if you’re trying to buy a home in a seller’s market.

    A seller’s market describes an area where there are more people looking to buy homes than there are people who are selling their homes. In this type of environment, sellers are more likely to receive multiple bids, increasing the level of competition between buyers for a particular home. Fortunately, there are several strategies potential homebuyers can implement to boost their bargaining power when they’re making an offer on a house.

    Pay With Cash

    Not many homebuyers have enough cash to completely pay for their homes without the help of a mortgage loan. However, if you have enough cash to pay for a house outright, you’re likely to be one of the few – if not only – all cash bidders who are trying to purchase that particular house, which makes you a more attractive candidate for many homeowners.

    Cash offers are more appealing than financed offers because a financed offer has the potential to fall through during the mortgage approval process. When a buyer comes to the table with cash, there are fewer stumbling blocks that could slow down or derail the closing process. Because there’s less risk involved, some sellers may even accept a cash offer that’s lower than competing financed offers.

    Get Pre-Approved

    If you aren’t able to pay cash for your home, getting pre-approved for your mortgage is another way to make your real estate purchase offer more appealing to home sellers. Being pre-approved for a mortgage means that a loan officer has reviewed your credit, income level and other qualifying information and has certified that you will be approved for specified loan amount.

    Having a pre-approval letter shows sellers that if they accept your bid, there’s a stronger chance that your final loan application will be go through without any issues. Sellers usually have more confidence in pre-approved offers, giving you an edge over potential buyers who haven’t gone through the pre-approval process.

    Make a Fair Bid

    Many homebuyers are understandably interested in securing the best purchasing price for their new home. However, placing a lowball bid may not be the best strategy in a seller’s market. In a market that’s likely to bring multiple bidders to the table, you’ll have a higher chance of success if you place a bid that matches the asking price or exceeds the asking price. Your real estate agent can give you even more expert guidance on what the best bidding level is for your desired property.

    Make an Offer with Fewer/No Contingencies

    Almost every real estate purchase offer will include certain contingencies. Contingencies give you the option of nullifying the real estate contract under certain conditions, such as if the new house is appraised at a lower value than the purchase price. Some contingencies are fairly standard – such as specifying that the house has a satisfactory inspection report. However, additional contingencies may make a seller think twice about choosing your bid if he has other competing bids that don’t include as many contingencies. Carefully consider what contingencies are important to you, and only include the ones you think are absolutely necessary.

    Making an offer on a house is a strategic process and your approach is even more important when you’re operating in a seller’s market. Talk to your Better Homes and Gardens real estate agent about which strategies will give you the very best chance at closing on the house of your dreams.

  • What do in a real estate bidding war

    Bidding wars are common occurrences in the real estate market, especially when it comes to high-end properties in desirable locations. However, regardless of the property or the amount of money involved, it is always a good idea to be prepared for a bidding war.

    Make your offer more appealing
    Generally speaking, you should consider yourself in a real estate bidding war if one or more competitor puts in an offer for a home against yours. There are a number of ways to better your odds in this situation. While focusing your strategy on the price of the home is one method, another approach is to adjust the terms of the agreement. In other words, simplifying the terms of your offer can appeal to a seller if your competition has put in a bid at the same price. In such a case, the seller is likely to choose the buyer with the most agreeable terms, which are also usually the most simplified terms. This could, for instance, include adjustments like limiting the terms that require the seller to cover costs associated with the real estate transaction (e.g. costs of inspections and home improvements).

    Have proof of financing at your disposal
    One of the strongest bargaining chips that you can use to win over your seller is proof of financing. Home sellers would much rather enter into a sales agreement with a buyer who has the funds to make the purchase immediately. Regardless of how much you offer to pay for the home, the seller is more likely to choose a buyer who is actually ready to make the purchase. Unless you’re making an all-cash offer, you should think about shopping for a mortgage months ahead of time. Getting pre-approved for a mortgage is a must if you want to have a chance at a bidding war.

    Contact your seller personally with a letter
    Another tactic when making a bid on a house is to contact the seller personally. This is typically done by writing a letter to the seller with the purpose of convincing them that you should be the new owner of the house as opposed to the other buyers who are involved in the bidding war. This letter is typically delivered by the real estate agent you are working with for the transaction. They will provide a delivery service of sorts to the seller, which is often the best option considering most sellers prefer reading the letters in private.
    Hire a real estate agent who knows how to negotiate

    Lastly, a skilled real estate agent can be an invaluable resource when you find yourself in the midst of a bidding war. They will provide you with their negotiation skills as well as expert advice on how to edge out other prospective buyers. A real estate agent among other industry professionals can provide you with all the necessary tips to not only win a bidding war, but to do so in the most advantageous way. In case you do not win the bidding war, they will be able to provide you with the best actions moving forward. You will have a distinct advantage over other buyers when making a bid on a house by working with an agent you can trust.

    Enter into the market prepared for any situation, including a bidding war. Overall, buying a home can be an exciting experience as long as you are well equipped.

  • Making an Offer on a Home Purchase

    One of the most exciting parts of purchasing a new home is finally making an offer on a home that you have picked out. Making an offer should only be done after careful consideration of all the factors that go into making a home purchase and with the help of your Better Homes and Gardens ® Real Estate agent.

    Deciding what to offer on your home purchase is an art form. Many factors go into what a home is worth and therefore what you should offer for the home. The market itself will play a significant role when it comes time to making an offer. In a seller’s market, for example, you may need to start with an offer that is at or above the asking price. Buying a home is a lesson in basic supply and demand. When there is very little supply, and considerable demand, the seller knows that he or she can likely get full price–or more– for the home.

    On the other end of the spectrum, when supply is high, and demand is low, a buyer’s market is created. In this case, you may be able to start well below the asking price and wait to see if the seller counters your offer.  If the home has been on the market for a considerable amount of time, or the seller is otherwise motivated to sell , the seller may very well accept a relatively low offer without a counter offer .

    When the market is not clearly tilted to one end of the spectrum, you may decide to go in at the asking price if you feel there will be some competition for the home purchase. Making an offer at full price may give you a better chance of getting the home of your dreams without paying too much.

    Along with the asking price, there are other terms of an offer that are negotiable, such as who will pay the closing costs, whether or not a home warranty is provided and the targeted date for closing on the property. Sometimes, you may decide to offer more but ask the seller to pay closing costs. If you are not in a hurry to take possession of the property, you may negotiate a later closing date and offer less for the home. All of these are negotiable and should be discussed at length with your Better Homes and Gardens Real Estate agent prior to putting an offer in writing to make sure that you fully understand each aspect of the offer.

    Once you have submitted the offer, be prepared to wait and to negotiate. Even 24 hours can seem like forever when you are waiting for a response. Don’t be alarmed if your first offer is not accepted as is — most sellers want to negotiate. With the help of your real estate agent, your dream of owning a home will soon come true!

     

  • What a New Home Buyer Should Consider When Making an Offer

    Home buying, for anyone, is usually a complex and lengthy process. If you are a new home buyer, meaning you have never been through the process of purchasing a home before, it can be a bit intimidating – particularly when it comes time to make an actual offer on a home. Although each home search is as unique as the buyer who is home buying, there are some factors that are frequently considered by both a veteran and a new home buyer when drafting an offer to purchase.

      • Fair Market Value – The fair market value, or FMV, of a home is an estimate of the home’s value based on what a knowledgeable, willing, and unpressured buyer could/would pay in the current market. Various factors will go into determining the FMV such as what similar homes in the area have recently been sold for or are currently listed at.
      • Comparative Market Analysis – This is usually done by a real estate agent for a seller before the home is listed for sale. A Comparative Market Analysis examines real estate that are all comparable in their lay out, size, and condition. Depending on how long the home has been on the market, the CMA may not reflect the current fair market value (FMV) of the home. Moreover, because a comparative market analysis will likely be done by the seller’s agent, it may reflect a “top of the market” price, not the price that a buyer should use to begin negotiations.
      • Terms of Your Offer – Before you sign on the dotted line, make sure you understand everything that is stated within the offer to purchase. This is of particular importance if you are a new home buyer. Once the seller accepts your offer, you should probably expect to close on the purchase agreement and seal the deal.  To avoid entering into a binding agreement that you will regret, you want to consider working with a real estate agent when drafting your offer.  Also, note that most offers include several contingency clauses (contingency clauses require that certain conditions must be met in order for the transaction to become final). Common contingency clauses include: financing, inspection, clear title, and appraisal contingencies.
      • Inspection – In order to protect yourself from buying a property with major structural or functional issues, you want to have the home inspected. Many buyers include an inspection contingency clause in an offer to purchase and have the inspections after the home seller accepts the offer. This allows the buyer to be released from any legal obligation to purchase the home if an inspection shows significant problems with the property.
      • Financing – Before submitting an offer to purchase, a buyer should consult with a lender to be certain that he or she will qualify for the financing necessary to complete the purchase.
      • Possession – Not only must you decide when you need to take possession of the property, but also when the seller can actually give you possession. Sometimes, for instance, a buyer needs to get into a home on a date prior to when the seller is able to vacate the home, which may require the buyer to make temporary housing arrangements or require some flexibility on the part of the seller.
      • Flexibility of the Seller – Determining how much flexibility a seller has prior to making an offer can maximize your chances of closing the deal. For example, is the seller being relocated by his or her employer and, therefore, in a situation where he or she must sell the home immediately? Are you operating in a buyer’s market, meaning that the seller likely knows that he or she needs to be flexible when reviewing and negotiating an offer?

       
      By taking the time to contemplate each of the above-referenced factors prior to making an offer to purchase, your home buying experience should be smoother and, ultimately, more beneficial both financially and personally.