Finding the right home is not an easy task because there are so many factors that have to come together for you to select the right house. You’ve spent many weekends and even weekdays looking at houses after work. When any new listing hits the market, you run out there to take a look to see if it’s the right house. 

Now that you’ve found the right house, the next step is how do you get this house. Many questions are running through your head. How can I get this house at a good price, but at the same time don’t offend the seller, and what happens if he doesn’t respond or counter my offer?

Making an offer on a house can be very challenging because you have to know what has sold recently and the conditions of those homes, the neighborhood, and what other competing buyers are doing. 

We will show you how to make an offer and highlight important factors to consider so you don’t have to lose out on a house you really want. 

Process

After you have found a house, an offer is made. You and your broker will talk about the terms related to the offer and agree to those terms. Next, your broker will draft up the Purchase and Sale Agreement and the contingencies. 

The offer will then be submitted to the seller to review. The seller will review the offer based on the offer expiration date or the review date. If the seller likes your offer, he or she will sign the offer and send your broker the mutually accepted offer. The seller can also counter the offer, and this process will go back and forth until the minds meet, or the offer can fall apart because both sides can’t come to an agreement. 

Purchase & Sale Agreement Terms

The purpose of the Purchase and Sale agreement is having the terms of the real estate agreed upon by the seller and buyer in writing. A contract will have a lot of terms, but here are some important terms in the Purchase and Sale Agreement. 

  1. Price
  2. Offer expiration date
  3. Included items
  4. Title & Escrow Officer and Company
  5. Closing Date & Possession Date
  6. Earnest Money

Price is the amount you would like to pay for the property. The amount may change depending on the negotiation. 

The offer expiration date is the date on which your offer will expire. This is helpful when you’d like the seller to reply by a certain date. 

Included items are items that you would like stay after you close, such as appliances or anything else you would like to be left behind. Don’t assume the item is going to be left behind. Always put it on paper.

Title will be the company reviewing your title report for issues with liens, or property line disputes.

Closing date will be when the seller will sign the closing documents and your name will be recorded on the new deed. The possession date is different from the closing date. This date is when you move into the property. Sometimes sellers need a few days to move so the possession date might be one or two days after the closing date. 

Earnest money is the money the buyer will put as a deposit for escrow to hold so that the buyer can perform certain actions within the contract. If the buyer defaults, then the earnest money will be transferred to the seller.

Contingencies

A contingency is a condition put in a contract that has to be met for the contract to be binding. In other words, these are contracts rights to perform a certain action or protect the buyer in the case of an event. The most common contingencies are Financing, Inspection, Title, and Home Sale contingency. 

1. Financing Contingency

This contingency protects the buyer if for any reason the bank doesn’t loan you the money to buy the home. For example, when you submit an offer with a financing contingency, you are allowed a certain time frame to get your paperwork to the bank for a preapproval. Also, in the case of failed financing, the earnest money is returned to the buyer.

2. Inspection Contingency

This allows you to do an inspection on the home. Within a set time, you can hire an inspector to inspect the home and reply back to the seller if you want to move forward after the inspection.

3. Appraisal Contingencies

This protects you from a low appraisal when you’re borrowing money from the bank. The bank will hire an independent appraiser to appraise the home. If the appraiser thinks the price you offer on the home is higher than what it’s actually worth based on market data, then they will issue you the loan to close on the home. In this case, if you didn’t have an appraisal contingency, you would have to come up with the difference. 

4. Home Sale Contingency

A home sale contingency allows you to be under contract with the new home but the sale will only go through if you sell your old home. For instance, this would cover you if you need the proceeds from your old house to buy your new house. 

Amount of Offer

This is the most important factor when it comes to making an offer on a home: the price that you offer. If you offer too low, you might miss out on the home all together. And if you offer too high, you can lose thousands of dollars.

The amount that you should offer depends on so many things – the real estate market as a whole, if there are a lot of homes available, If there are other buyers competing for the home, the neighborhood, the school district, the recent homes sold, and the conditions of the homes. 

If you don’t look at homes day in and day out, it becomes very difficult to determine the price of a home. For example, consider two identical homes in the same neighborhood. The first home sold a few weeks ago for x amount. The second home can be sold for more based on the market’s current condition. This is just to show you how dynamic the real estate market is. 

You should make an offer on the home based on the condition that it is in. If the comparable has a newer kitchen while the home you are making an offer on has an older kitchen, then make an offer based on what it would cost for a newer kitchen.

The homes can be in the same neighborhood, but if the other house across the street is in a better school district it can go for much more money. 

Making an offer on an overpriced listing can often be very challenging. It might take a while for the seller to realize his home is overpriced. 

Mistakes Buyers Make

1. Thinking getting the pre-approval is not important

A good amount of home buyers go searching for a home and then when they’ve found the home and offers are reviewed in a few days they scramble to get the laundry list of documents to the lender to a pre-approval. Lenders need time to give you a great pre-approval letter. What’s a great pre-approval, you might ask? Yes, there is a difference between a great and a bad one. 

A bad one is when a lender checks nothing and just emails you one. That is something you don’t want. Great listing agents will look into this further to find out, and when they do find out, you might not get the house because you weren’t ready. And we get it, we are all busy, and it’s more fun looking at houses than just gathering up paperwork and submitting them to the lender, but this needs to be taken seriously. 

2. Having the seller’s agent write up the offer for you

The listing is there to represent the seller and his interest. The seller’s main priority is the home for the highest price and best terms to close on time. You might as well have someone represent you with your best interest in mind and that is to have your own buyer’s agent. 

3. Offering a ridiculously low price

This can backfire on you as buyer and cause the seller to not respond. We’ve seen this happen many times, and we’ve seen this both while we are representing the seller and also while representing the buyer. The seller will get mad and choose to not respond to the buyer’s offer. They won’t even counter the offer, resulting in tougher negotiations when the buyer decides to come up in price. 

If you don’t want to lose out on a house, then you should offer based on the facts, not wishful thinking. Have a Comparative Market Analysis done when making an offer. If you don’t have facts, you might lose out on the house altogether. 

4. Afraid of paying over list price

Sometimes buyers are hesitant to pay over list price because they think that they are overpaying. For example, you’re in a multiple offer situation and 4 other buyers have submitted an offer on the same house. If they would have paid a little bit more money, they would have gotten the house. They are not overpaying for the house. The amount they are paying is actually the market price where the demand dictates the price. 

5. Forgetting to think from the seller’s perspective

Coming from a seller’s perspective, of course the price is the most important factor when it comes to selling. However, the highest offer that will not close, where the transaction falls apart, means nothing. 

Also, some sellers have lived in these homes for years. This might have been their first home, and a home they raised their kids in. A home is a sentimental thing. So, they want someone who will take care of the home and cherish it. 

In a competitive market, making an offer based on your time and price will cause you to lose out on the home. Sometimes buyers forget that the seller also has goals they want to achieve for their family. They might have to close on this home to get the net proceed to close on their next home. 

So, by accommodating those concerns, you have a better chance of winning the offer. This is just one of a few examples, but overall put yourself in the seller’s shoes and make your offer around that. 

6. Forgetting to Trust The Person Fighting for You

Your buyer’s agent is there to get you the best price, but also not lose out on a good house. 

I know there are bad buyers’ agents out there. They tell you what to offer but present no facts or just repeat what they have heard on the news about the real estate market, seeming to have no knowledge of their own about the local real estate market. A good buyer’s agent will present you the facts and make sure that you are making a good decision. 

Backup Offers

A back up offer is commonly used in a multiple offer situation, or when there is already another accepted offer on the house that is currently pending or pending inspection. 

All homes that have received an offer and move on to be pending will end up closing. The buyer might not be able to get financing to purchase the home, so then the transaction falls apart.

The seller will then have to put the property back on the market as active and look for another buyer. 

The advantage of having a backup offer is the seller can’t put the property back on the market because your offer is next in line. This means you won’t have any other buyers competing for the home. Your offer will be the one pending and under contract. 

The backup offer doesn’t work all of the time, but when you don’t have many homes to choose from and you’ve been losing out to other buyers 5 other times or more, you take every chance that you can get.

Let’s say that you have a backup offer on a house. It doesn’t mean you have to stop looking for a home. You can still look at other homes while you have the backup offer. You can rescind the backup offer at any time. The seller can’t back out from a backup offer, but you can. So, this means you have a chance with the back up offer and the home that you’re looking for. 

Negotiation

So, you and your agent write up the offer and submit the offer to the seller. The seller will have a couple of days to review your offer.

If they have received a full price offer with terms and conditions that they can accommodate, you can expect a signed offer and the home goes pending.

If they have received an offer below list price, then you can expect the seller to counter a price that is closer to list price. If the buyer and seller can’t come to an agreement, then the home doesn’t go pending. 

Negotiations happen all throughout the transaction, not just with price. Most of the price and the terms of the contract are agreed at mutual acceptance, but that can all change. For example, the closing date might change because of loan stipulations that needs to be resolved. 

After the home inspection, there will be more negotiations. n the case of a low appraisal, more negotiations will take place. So, just be aware that there will be a lot of issues that can come during the transaction and prepare for those situations.