When you have found the home
that combines the best of your dreams with the realities of your financial
situation, it's time to make an offer.
Once again, you can read the
text straight through or follow these links:
Much Should You Offer?
Much Should You Offer?
While you don' have to offer
the seller's asking price, if you put in a lower bid for the home and
someone else makes a higher offer, you could lose it. I can help you come
to your decision, but ultimately the decision is yours.
You'll need to consider several
- How much can you
pay? It's easy to be caught up in the emotion of the moment and
decide that you want the home at any price. If you buy the home, however,
and later lose it because you really couldn't afford it, you'll be in
much worse shape - financially and emotionally. Review the steps you
took when you pre-qualified for a loan to determine what you can really
- How much should
you pay? Even if you can afford more than the asking price for a
home, you shouldn't pay more than the home is worth; you want to be
sure that someone else will pay at least what you paid for the home
when it's time to sell. To determine the fair market value of the home,
I will search the MLS for sales of comparable homes in the area. Knowing
what they sold for will give you some idea of what the market will bear.
Sometimes, however, it may be difficult to find comparable sales (in
a new development or in an area that's being revitalized, for example).
In this case, you may want to ask for an independent appraisal, and
make your offer contingent on the appraised value being in line with
the sales price.
- How badly do you want
this home? Other factors might influence your decision of
when and how much to offer: How long have you been looking? What other
viable options do you have? How quickly do you need to make a move?
If any of these factors are weighing heavily in your decision, you may
want to offer the list price (or more earnest money, but more about
that in a moment) in order to speed up the process.
You might consider offering
the full price of the home if
- You think the house is accurately
priced or under-priced.
- The house is just what you
have been looking for, and there are few other houses on the market
that meet your needs.
- The owner does not appear
to be in any hurry to sell quickly.
- The house has just come
on the market and similar houses have recently sold very quickly.
- You have inspected the house
thoroughly and there are no indications of problems.
- You can afford it.
When you submit an offer, you
must include a cash deposit, called earnest money. This deposit indicates
to the seller that you are serious in your intent to purchase the home.
There is no specific required
amount, but general practice says that it should be enough to discourage
the buyer from defaulting, compensate the seller for taking the property
off the market, and cover any expenses the seller might incur if the buyer
defaults. As the buyer, on the one hand, you don't want to put all of
your savings into earnest money; you'll need to save some for other expenses.
On the other hand, if you really want the home and have reason to believe
that the seller may receive other offers, a higher offer of earnest money
might sway the seller in your direction. I can help you to determine a
Earnest money is generally
given to the listing agent who places it in an escrow account where it
is held until the closing (or until the transaction falls through). At
closing, the deposit becomes part of your down payment.
If the transaction never makes
it to closing, the earnest money is either returned to you or given to
the seller. You will get the deposit back if
- The seller fails to live
up to the terms of the sales contract,
- An inspection reveals major
defects in the home,
- You cannot obtain financing,
- If any specific conditions
in the sales contract cannot be fulfilled.
If you fail to live up to the
terms of the sales contract, the seller can keep the earnest money.
An offer to purchase spells
out all of the details of the transaction. If, for example,
you want to be sure that the washer and dryer are included in the sales
price of the home, that intention must be specified in your original offer.
A verbal agreement is not enough.
An offer to purchase typically
- The buyer's name and statement
of intent to purchase the property
- The address of the property
- The purchase price and how
it is to be paid (e.g., amount of earnest money, where it will be deposited,
amount of down payment, amount of mortgage, terms of the loan, etc.)
- A provision for the closing
of the transaction and the transfer of possession of the property to
the buyer by a specific date
- A provision for title evidence
- A provision for the completion
of the contract should the property be damaged or destroyed between
the time of signing and the closing date
- A statement of remedies
available in the event of default
- Dated signatures of all
- An expiration date and time
(at which point the offer will no longer be valid if the seller has
not responded with either an acceptance or a counteroffer)
- All contingencies (e.g.,
no major defects uncovered by an inspection or title problems discovered
in the title search)
It may also include
- Personal property included
in the transaction (e.g., refrigerator, dining room chandelier, storage
units in the garage, etc.)
- Any real property to be
removed by the seller before closing (e.g., a storage shed)
- The transfer of any applicable
- The identification of any
leased equipment that must be transferred to the purchaser or returned
to the lessor (e.g., a water softener or security system)
- Closing or settlement instructions
- The transfer or payment
of any outstanding taxes or special assessments
- The buyer's right to inspect
the property shortly before closing
Any offer may be revoked at
any time before it has been accepted. Once the seller acknowledges acceptance
of the offer by signing it, the offer to purchase becomes a valid sales
Just as you don't have to offer
the list price for the home, neither does the seller have to accept your
offer. Most home sales involve a process of offers and counteroffers until
both parties are satisfied with the price.
A counteroffer is a new offer,
and it voids most of the terms of the original offer. The buyer may then
accept or reject the counteroffer. He/she can continue the process with
During this process, I will
serve as a go-between. Be careful not to reduce your negotiating power
by revealing too much (e.g., how badly you want the home, how high you
are willing to go, etc.)
Like the original sales contract,
all counteroffers should be submitted in writing with a specified expiration
date and time. They may be revoked at any time prior to the other party's
acceptance and become valid contracts when they have been signed by both
Contingencies are additional
conditions that must be satisfied before the contract is fully enforceable.
- The actions necessary to
satisfy the contingency
- The time frame within which
the actions must be performed
- Who is responsible for paying
any costs involved
The most common contingencies
- Mortgage contingency-protects
the buyer's earnest money until financing can be arranged
- Inspection contingency-the
buyer may request inspections for termites, lead-based paint, structural
and mechanical systems, sewage systems, and radon or other toxic materials
- Survey contingency-a survey
confirms lot boundaries and reveals any zoning or code violations associated
with the property (e.g, is the property in a flood plain-which will
require additional insurance?)
- Property sale contingency-the
buyer may make the sales contract contingent on the sale of his/her
current home to ensure the availability of cash for the purchase. Likewise,
the seller may accept the offer contingent on their purchase of another
Sometimes a seller will accept
an offer with contingencies but will include an escape clause. This clause
permits the seller to continue to market the property until all of the
buyer's contingencies have been removed. In this case, the buyer should
retain the right to eliminate the contingencies if the seller receives
a more favorable offer.
on "Buying Your First Home"