Making An Offer On A Listed Property For Sale
When you are standing in the home that just feels right, like it’s meant to be, that’s when the time has come to make an offer! When choosing a home, you can let your emotions take a front seat. However, when writing an offer, emotions must go in the trunk to allow for the brain to drive. A good offer is written from the perspective of a keen, realistic businessman.
An offer consists of three components
- PRICE: The right price reflects the market value for the home you want to buy. Use a comparative market analysis (CMA), a set of MLS records of recently sold homes or “comparables” similar to the one you want in size, condition, location, and amenities. This will give you the best market insights. Smart sellers look through similar comparisons to price their homes fairly.
Word of Advice: Lowballing, or offering a value way under the listing price, is not always productive. Instead of finding a deal, one may lose their dream home due to a competitive market. BE CONSCIOUS of how many people you are competing with when you make an offer.
- TERMS: This refers to the details of the deal made between the buyer and seller, including when the deal will close; if the seller will keep any of the décor, furnishings, or appliances in the house; and who is paying closing costs. A WIN-WIN is the result of a flexible negotiation of terms.
- Schedule: including all events that must happen before closing.
- Response time of the seller to the offer
- Subject to or contingency clauses to protect the buyer from being locked in until everything checks out
- SUBJECT TO INSPECTION
- SUBJECT TO MARKETABLE TITLE
- SUBJECT TO FINANCING CLAUSE
- Expiration – Requisition Date – day before a deal must be closed; 30 to 60 days after the contract is accepted; there is a possibility for extension, but no guarantees
- Occupancy/Completion Date – “move in” date – some buyers want to take occupancy on the closing date
Word of Advice: “Leasing back,”or allowing the seller to rent their home and stay in it after closing, can be a risky decision for buyers.
- Conveyances: the personal property/items that stay with the home when the seller leaves; this includes anything not permanently attached to the home that was owned by the seller and left for the buyer.
Word of Advice: Everything is NEGOTIABLE. If you like the window treatments, the carpet, or the custom bookshelf that fits the basement niche perfectly, ask if they come with the house and if the answer is “No,” ask if that can be arranged.
- Commission: This is mainly a seller’s concern, but it is important as a buyer to understand the broker’s mission and how they make their money. If you ever worked in retail, you will understand the goal: SELL, SELL, SELL!
- Commission is the compensation paid to a real estate broker for services rendered in connection with the sale or exchange of real property. The broker must be state licensed, have a written employment agreement (listing) with the seller, and sell the property/execute a solid contract of sale. Commission rates are negotiable and not fixed by law; therefore, they differ for larger transactions and leasing. No monetary compensation is received for time and expenses involved with showings that DO NOT produce a sale. Once a seller accepts an offer, they are obligated to the broker to pay FULL commission, regardless of whether or not the purchase ends up reaching completion. However, if the offer is made subject to a condition, or if the broker should have known the buyer couldn’t support the deal, his or her commission could be withheld.
- THE KEY TO EARNING COMMISSION: the broker has to produce a RAW buyer, a ready, able, and willing buyer. Also, it is important to note that brokers will share commission if they collaborated on a transaction.
Word of Advice: Buyers usually pay their agents separately, but it CAN be arranged to have the seller pay them, or to roll them into your loan if it becomes included in your contract.
- Home Warranty: Sellers usually provide a one-year warranty, which functions differently from insurance. This warranty covers repairs or the replacement of appliances and major systems within the home, including issues concerning—but not limit to—the roof, plumbing, siding, and wiring.
Word of Advice: READ OVER THE WARRANTY CAREFULLY and soon after inspection, to allow time for any necessary revisions.
- Earnest Money: a.k.a. Bargain Money, Caution Money, Hand Money, or a Binder. This refers to the cash deposit (sum of initial and additional deposits/a percentage of the property’s total price) paid by the prospective buyer of real property as a symbol of good-faith intervention to COMPLETE the transaction. It actually allows the buyer additional time when seeking financing on a real estate deal.
- Earnest money is not essential to have in order to make a purchase agreement binding, but it helps. This protects the seller from the buyer pulling out of the deal. When both parties agree on the binder, the contract is generated and the deposit is held in escrow by the seller’s attorney in an interest-bearing account for the buyer’s benefit. It is then added to the down payment at closing. If said deal falls through, earnest moey commonly becomes “lost money.” At closing, once the transaction is complete, the money transfers from the buyer’s property to the seller’s.
- CONTINGENCIES: This refers to the conditions, or “escape clauses,” that allow you to exit a deal if the house has a problem that didn’t exist—or about which you were left “unaware” of—when you first went under contract.
Word of Advice: Be sure to discuss with your agent which clauses are already included in and what additional clauses need to be written into your contract due to many variations in basic contractual language. Remember: your agent is supposed to have you best interests in mind. These clauses are added for your protection as a buyer. Many of them enable you to legally renegotiate or walk away from a contract when and if necessary.
- Financing Clause: This is handy if you cannot qualify for a mortgage or if your loan paperwork comes in with an unfavorable mortgage/too high of an interest rate.
- Inspections Clause: This offers protection from paying too much for a home with big, hidden PHYSICAL problems: failing foundation, out-of-date wiring, and non-functional plumbing. It is HIGHLY DOUBTFUL that you would still want to pay the amount you agreed upon, of if you still want to buy at all.
- Clear Title Clause: This protects against purchasing a property with LEGAL issues. You do not have to buy a home whose ownership status is uncertain or that is subject to a lien to pay off seller debt.
- Condition at Delivery: The seller must leave the home vacant and in GOOD CONDITION. This deters the seller from leaving behind trash and unwanted items, and also covers you in case of fire, water, or other physical damage to the residence before closing.
- Community Restrictions: Many of the newer homes on the market are in neighborhoods that require a Home Owner’s Association Membership. This clause allows potential buyers to review, discuss, and agree or disagree with the community organization’s rules and regulations before they sign any binding paperwork.
Now, to reach an agreement!
Submit a great offer; it might be accepted on the spot. More often than not, however, the road to closing is not that smooth. A buyer’s offer is usually followed by a seller’s counteroffer, asking for changes to be made to the contract, such as a higher price or a closer closing date. Counteroffers continue until a compromise is made.
Word of Advice: The key to achieving a WIN-WIN agreement is NEGOTIATION. Be sure to choose an agent you feel has good instincts and would fight for what you want and need! The process may seem rather scary and stressful, but it is for this reason that the buyer and seller agents function as the negotiators, forming a buffer between the clients.
Once an agreement is made and the contract is signed by both parties, you are almost there. Next, to “go under contract,” a buyer’s check for earnest money or deposit is commonly required and place in the hands of an escrow agent of a neutral third party, who hold it until closing day. Once all contingencies are eliminated that stand between you and the completion of your purchase, you are ready to CLOSE!
STORY TIME: Donna & Drew
The One that Slipped Away
The moment has come to make an offer. Think of house hunting as fishing. There are tons of fish in the sea, just as there are many houses on the market to choose from. A buyer submits an offer, or baits his line. It is then sitting pretty in the wide, open waters, sometimes amongst other offers, until the selling snags the offer he finds most appealing. The only difference is that fishing is a blind sport; you don’t choose the exact fish you will catch, while the seller has opening pickings when it comes to offers. You must submit an offer in confidence that you can cover it, and hope that the seller decides to keep the offer and now throw it back in the sea, hoping to catch something bigger and better. Usually, fishermen throw back any fish they catch that are too small in size or not to their preference.
Submitting a great offer can secure a property instantly. However, most of the time this occurs if the buyer offers a little over the asking price. There are a few buyers, however, who are sticklers when it comes to spending money and try to cut costs wherever they can. Donna, an expectant mother of twins, fell in love with this adorable Victorian home, priced at $699,000. Her budget-conscious husband, however, despite having enough money in the bank for a decent down payment and great credit that bought them a great loan package, decided to “lowball” when he first made an offer, thus going against his agent’s advice. His judgment was impaired, clouded by the looming weight of closing costs, commission rates, etc. He offered the seller a value way under the listing price, at around $499,000. For a recently updated home—with all new stainless steel countertops, a finished basement, a decent amount of decorative and/or useful home items being left behind for the new owners, and freshly-varnished wood floors throughout the home’s two main levels—this undercutting of the listing price can be described as nothing but a silly error. By offering such a value, he was hoping to start negotiations and scoop up a good bargain. Unfortunately, Drew underestimated the market he was in and, instead of producing a counteroffer, the seller decided to simply go with a different buyer. It was a gorgeous home and a great find, but apparently, they weren’t the only buyers who thought so. Drew’s stubbornness to save money and his ignorant mindset when it came to the real estate market caused him to lose his wife’s dream home.
Donna was distraught that within about five hours of having submitted their offer, she learned that another couple beat them out for the house. No apology could rectify this situation. Drew let his cheap nature spoil his wife’s dream. However, one cannot cry over spilt milk. Instead, the hunt continued. It was back to the open water, in search of a better home. The moral of the story is that before you make an offer, make sure you are informed of the market you are playing in, confident in your finances, willing to negotiate, flexible in outlining the terms of one’s contract, and quick on your feet. All of these qualities will help you snag the home you have set in your sights.