This is the seventh installment in an on-going series of posts dedicated to helping 1st Time Home Buyers successfully achieve their home purchasing goals. We have been identifying and discussing, in chronological order, key events in the home buying process.
In our last discussion, we offered some practical advice on what to do when going out to look at potential homes in a post entitled, Tips for Home Tourists.
This time we’ll talk about the key ingredients to a well-drafted offer in a article entitled, “Make Them an Offer They Can’t Refuse!”
Okay, so you’ve found just the right home that is perfect for your needs. Now, you’re heading back to your Agent’s office to write up an offer. Drafting a good, reasonable offer is crucial to achieving your home-buying success. Since there are so many variables, rely heavily upon your Agent’s knowledge and expertise to best counsel you during this stage of the process.
Here are a few basic points when putting together your offer
Current market conditions. In most areas, the market has recently slowed significantly. For several years, it has been a Seller’s market. Properties have been selling relatively quick and usually for full price. In many instances, there were multiple bids. In a slowing market, there are more homes available, prices start to drop slightly, and Sellers become more motivated and willing to negotiate. Your Agent will know the dynamics of your particular market intimately, and will be able to explain the best strategies.
Days on market. How long has the house been on the market? Was it just recently listed? Again, your Agent will know the average “Days-On-Market” (the average amount of days a home is on the market until it goes under contract) for a specific area. Obviously, if a house has been on the market for an excessive amount of time, the Sellers might be more willing to negotiate.
Fair market value. Is the house worth what they are asking? Is the house priced according to current market value? Your Agent can do a quick analysis of recent sales in the immediate area to determine if the asking price is reasonable and warranted.
Low price offers. The first thing you need to ask yourself is, “Why do we want to offer less?” Is it because you don’t think the house is worth what the Sellers are asking? (refer to your Agent’s price analysis). Perhaps you simply want to save money. The key to writing a lower offer is to do so without greatly insulting the Seller. Remember, in most instances, this has been their home and they may have some very strong attachments to it. At the very least, your offer should be enough to attract their attention, encourage reasonable consideration, and evoke a counter. Before submitting your offer, find out if there are any additional considerations that are important to the Sellers - when would they prefer to close? Where should you direct title and escrow? Try to accommodate the Sellers preferences in other areas.
Multiple bid situations. In some instances, you may find yourself competing with other parties for the same house. This is especially true in a fast, Seller’s market. Some Buyer’s do not want to get caught up in a bidding war, and will simply bow out. Others may really like the house and are motivated to jump into the fray. Once again, rely on your Agent’s knowledge and expertise. In some cases, you may want to include an Escalation Clause or Addendum along with your offer. Think bidding on eBay. You determine your ‘ceiling’ high dollar offer, and specify an incremental bid amount. Your incremental bid amount keeps going up until you pass your closest bidder by that amount, or you reach your ceiling. The key in this process is to simply identify the maximum amount you’re willing to pay for the house. If you’re the successful bidder, the Listing Agent is normally required to provide a copy of the competing offer. Added concern may be warranted for the subsequent appraisal coming in at value when sales prices are exceeded.
Strengthening your position. Do everything you can to convey yourself as a strong, viable Buyer. Have a loan pre-approval letter from your lender that is specific to the property address. If you know that this is the house for you, put down as much earnest money as you can. Remember, earnest money is one of those elements that you can control and it communicates the seriousness of your intent to purchase. The more money, the more solid your offer. Your Agent can also draft an effective cover letter to accompany your offer that introduces you to the Sellers. It helps to make things more personal, and puts “flesh” on your offer.
Keeping it clean. Try to make your offer as neat, simple, and straightforward as possible. Avoid using too many contingencies, handwritten changes or modifications to the standard forms.
Accomodating the Sellers. This is especially important in multiple bid situations. Prior to drafting an offer, a good agent will ask the Listing Agent if there are any aspects to the offer that might be in the Seller’s best interests. Some Sellers may want a quick closing, or an extended closing with a rent back. Drafting an offer that takes into account the Sellers needs and wishes will have a better chance of acceptance.Â
Items conveyed with the property. Your Agent should have an MLS printout of the home that states which items (washer, dryer, refrigerator, etc.) are being conveyed along with the property. Make sure these items are included and specified in your offer.
Legal description. Ensure that a full, complete legal description is included as part of your offer (attached as an “exhibit”) and that it requires both Buyer’s and Seller’s signatures. The address is simply a means of identifying where the Post Office delivers your mail. A title company or county records should be able to provide you with the full legal description.
Equipped with this information, and the expert counsel of a professional real estate agent, you’ll be better positioned to successfully achieve “Your 1st Time Home Buying Adventure!”
