Finding Your Dream Home Step 3: Making an Offer

Making an Offer on a Conventional Property (In Illinois)
First of all, do not fall in love with your Dream Home. This may seem a strange bit of advice, but here’s why. If you are not able to walk away from this home, your agent loses all power to negotiate. If you have a couple of top choices that you can go to next, however, it affords you a much greater leverage during the negotiation process.

Now is also the time to contact your real estate attorney. Note the usage of “real estate” in front of “attorney.” If your uncle or family friend is an attorney but does not have experience in real estate law, we recommend asking them for a referral of someone they know with the proper credentials, rather than using them. Real estate is a time sensitive affair and you need someone with experience who understands the circumstances or you could jeopardize your offer, or worse yet, your earnest money. 

Your agent should provide you with a list of recently sold comparable units either in the building or area of the subject home you are interested in. These comparables (prices that similar homes have sold for) will help you determine an appropriate offering price.

The next step is for your agent to prepare the paperwork and then walk you through the contract line by line. You should feel comfortable every step of the way. By this time you should already be pre-approved and have a letter from your lending institution stating as much. You can even have your lender provide a letter that is property specific without a dollar amount on it. In other words:  Jane Doe is approved for 123 Chicago Street Unit 101. This way you are not showing all of your cards (your final approval amount) to the listing agent. This isn’t a must, just another advantage for your agent.

Next you will need a copy of your earnest money check. For a conventional loan this can be a personal check or any type of certified funds such as a cashier’s check. Talk with your agent about what an appropriate amount of earnest money is based on the value of the home you are bidding on. This amount can often tell a buyer how serious you are. Remember that just like everything else on the contract, this is negotiable and you may receive a counter on it.

After you sign the contract your agent will submit it to the listing agent. You should receive an answer with in a day or so (deadline is stated on the offer). Given that your agent is on the ball they will most likely be phoning the listing agent by the following day if they haven’t had a response. The beautiful thing about Illinois (and many other states) is that the rest of the negotiations are verbal until the terms are agreed upon (meaning you do not need to keep re-submitting your offer back and forth in writing). Once your agent submits an offer they can call the listing agent, get their counter and then run the number by you all by phone.

As soon as there is a meeting of the minds, one more written contract – typically an edited copy of the first page – will suffice. After the contract is signed by both parties it is known as an executed contract. At this point your agent has 24 hours to get the initial earnest money to the listing agent. Make sure your attorney gets a copy of the contract ASAP.

Making an Offer on a Foreclosure Property (In Illinois)
Foreclosures and short sales (distressed properties) are a bit trickier and we will discuss them one at a time. Assuming you have narrowed your foreclosures down to your Top One or Two, it is time to act!

Typically the banks price these properties to sell and they can go quickly. In fact, the goal of many of these brokers is to list the property so cheap that they encourage a multi-offer situation. This is similar to a silent auction in the way that others will be bidding on the same property but you don’t know what they’re bidding. The difference will be that once the bank has decided to stop taking bids it will send around a call for “best and final offer.” This will give everyone who bid another chance to up their bid to make sure they come out victorious. This step can be tricky for you and your agent because you may be the highest offer already. In essence, you could be bidding against yourself.

What you and your agent have to decide is whether your bid was good enough to begin with. It is common to bid higher than listing price and still be out-bid. There is no clear-cut advice that can be honestly given to navigate a “win” in this situation. Study the comparable properties, talk with your agent and go with your gut. If you’re not comfortable bidding more, don’t.

Ask your agent to call the brokerage after the best and final bids have all gone through and ask them to let you know if you are not the top bidder because, if not, you’d like to move on. Sometimes this works and sometimes it doesn’t. But it’s worth a try and can save you some waiting time.

As you may have guessed already, the final step on putting in an offer on a foreclosure is to wait. Sometimes this can be a week, sometimes a month or more. The silver lining is that it is not in the bank’s best interest to hold on to this property and they want to sell it as much as you want to buy it.

Making an Offer on a Short Sale Property (In Illinois)
If you need to close on a deadline, do not pursue a short sale! Despite its name, a short sale is the longest type of property purchase. When thinking about buying a foreclosure or short sale, make sure you have an agent that has references for successful completion of these.

What is a short sale? When a homeowner gets into financial trouble for whatever reason and realizes that they can no longer afford their mortgage, one option before being foreclosed upon is to contact their bank and ask them if they may sell their home short of what they owe in hopes that they will not have to foreclose. This is attractive to lenders because oftentimes they will get more for a home in short sale than they would in foreclosure. Plus the seller is doing most of the work.

The problem is many agents, on both sides of the transaction, are under-educated about short sales. More often that not, the seller and listing agent have no idea what the bank will accept for the home. So when they list the property online it may be a shot-in-the-dark at what they feel the bank would agree to, mixed with how much of a loss the seller is prepared to absorb. Even if a buyer makes an offer over the asking price it can still be declined by the bank – only it’s not that simple. If a bank gets an offer from a buyer that is below what they are willing to take they will not simply say “no” or counter your offer. They will sit on your offer for one, two, three months to a year (no joke) waiting for a better offer to come in. When it gets to a point that they do not feel another better offer is coming, assuming you haven’t pulled out by then, they will counter your offer and the negotiation process will begin.

One last thing – Since short sales and foreclosures are often not in the best condition, you had better have a strong down payment and good credit because your lender’s appraiser will be very picky about whether or not they will approve you for a loan on this type of property.

Bonus Step: The Cover Letter
This is for any one of the three types of properties listed above.

Something we have found to be useful in a multi-offer situation is a Cover Letter. A cover letter explaining your situation could make all the difference when a seller is looking at a bunch of offers that are all similarly priced.

Here’s an example: One agent included a cover letter with the offer explaining that the seller’s home was close to his clients (a newly wed couple) mother and where they grew up. He went on to say that now the couple wanted to return to their home town and be close to relatives because they’re going to be adding a little one to the family and would love to be close to grandma, etc. You get the picture.

Some sellers are influenced by the fact that their home is going to be handed over to someone who will really appreciate it. The cover letter, even if your story is not as sappy as the above example, will show that you are serious enough about this home that you took the time to go the extra mile. Similar to a sizeable earnest money offer, a cover letter tells sellers that the prospective buyer is invested in buying this property and won’t likely back out on them and waste their time.

Stay tuned for Step 4: Offer Accepted, Now What?

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