You’ve found the home of your dreams, and you’re ready to make it your own. Here are the steps to take to have this real estate transaction go as smoothly as possible.
Know What’s Included
A standard house offer includes a home’s address, the sale price, financial terms, a seller’s promise to provide a clear title, the amount of earnest money deposit accompanying the offer, the method by which real estate taxes, rent, fuel, water bills and utilities are to be adjusted between buyer and seller, and provisions about who will pay for title insurance, survey, termite inspections and closing costs. The offer could also include the type of deed to be given, a provision that the buyer may make a last minute walkthrough inspection of the property just before closing, a target date for closing, a time limit after which the offer will expire and contract contingencies.
Determine Your Financing and Your Own Personal Limit
Buyers need to get a pre-approval letter from their lender that states you have enough funds to meet the seller’s list price. And before you even make an offer, be conscientious that if you’re going up against multiple buyers, you could be tempted to offer a higher price if you suddenly find yourself engaged in a bidding war. Know your budget, however, and remind yourself of the expenses you’ll have in addition to the monthly payment, including utility bills, property taxes, a security system, assessments if you live in a condo, etc. You don’t want to stretch yourself too far with your monthly payment, or incur too much debt that you’re not able to enjoy living in a home once you purchase it.
Examine the House Carefully
You’ll need to clearly understand any major improvements or renovations the house will need to undergo before you determine your first offer. If the home or condo has been previously owned, make note of normal wear and tear issues. Also look out for more serious problems like moisture in basements or the outside of the home, turned up edges in wood flooring, ripples in the carpeting and loose handrails on stairs. Estimate how much it will cost you to fix everything, or if you want to include a condition in your offer requiring the seller to make or pay for the repairs.
Make A First Offer
The first offer is determined by not only the dollar amount you as the buyer would like to pay, but also by doing a comparison of the listing price and final sales price of other comparable homes in the area. Buyers typically initially offer 5-10% below the list price so that the seller is inclined to seriously consider the offer. Do not make an extremely low offer, known as lowballing, unless you are prepared for an outright rejection of it.
Decide On Earnest Money
A seller sometimes determines a buyer’s ability to back up their offer by their earnest money deposit: The cash you have included with your offer as a show of good faith. The deposit is later used toward the down payment. A general rule of thumb is that the deposit is 1-2% of the purchase price.
Consider Your Contingencies
A contingency is a condition that the purchase offer will only go through if certain issues or demands are met. If a condition is unmet, the buyer’s offer can be withdrawn without penalty. Common contingencies are that the house must pass a professional home inspection, the seller must repair any damages or issues discovered in the home inspection or the buyer’s current home must be sold first before they can purchase the one in question.
Once you submit your first offer, often times you can expect a counteroffer, in which the seller will raise the price or change some terms of the contract. The counteroffers both buyers and sellers make can go back and forth until both parties agree upon a deal that satisfies their needs. So be patient! If you’re over anxious, you send a signal to the seller that you’d be willing to go higher with your offer.