Making a Successful Offer, 101
New real estate buyers like you and I might be a little intimidated by the thought of making an offer on a house. The amount of money alone can stun us, and the process at first appears an elaborate dance with unnecessarily complicated steps. But an offer is actually a contract, set up to protect both you and the seller. On both ends of the deal, education is key. So today, ZipRealty continues its buyer series with Making a Successful Offer, 101.
What Is an Offer, Really?
Since an offer is a contract, first time home buyers are best served by working with an experienced, local Realtor ® who can make sure the most up-to-date state and city laws concerning home purchases are covered in the document. The most common aspects of the offer include:
- The money: The amount you are offering, the amount of your down payment, and the amount of earnest money you’re putting up
- Contingencies: because inspection happens after you make an offer, the contract allows you wiggle room if you discover anything about the home that warrants renegotiation or even walking away from the deal.
- Conveyances: What do you want to come with the home? Furnishings? Appliances?
- An expiration date for the seller’s response: If the seller fails to meet the deadline, your offer expires.
- Any concessions you want to ask the seller to make, such as helping with closing costs
When you make an offer on a home, you’re saying you’re serious. You show this by including with your written and signed (and you will sign many, many times!) contract a check for “earnest money.” Earnest money, the amount of which varies from house to house and location to location, is generally a few thousand dollars, and represents a deposit, one that—if your offer is accepted—holds you and the seller in contract with one another.
Like paying for home inspections before owning the home, putting up a check for thousands of dollars on a home before buying it can be difficult for new buyers. Is there a chance we could lose this money?
The short answer is “probably not,” at least, not if your real estate agent has thoroughly prepared the offer with needed legal contingencies that allow you to walk away if the deal breaks down. You will, for example, get your earnest money back, post-home inspection and due diligence, if you discover something about the house that changes your mind about buying it: a hole in the sewer; a lien on the home’s title; a faulty foundation. If the seller can’t or won’t fix these issues, you have the legal right to break the contract, and will be fully refunded your earnest money (though not, unfortunately, your home inspection fee).
But the contract serves the seller as well, so if you breach it in some way, you could lose your earnest money; another reason why understanding the offer process benefits you so greatly.
Buying a home could hardly be called a “negotiation” if every offer were accepted, every time. Most sellers will counter your offer unless you offer a great deal more than the asking price. You should consider your offer as in invitation to begin negations, so you aren’t discouraged or offended when the seller counters. And keep in mind: you can counter back with a revised offer. Neither of you has to stop the negotiation until you both feel you are getting a fair deal.
Using the Offer to Gather Information
Sometimes Realtors ® share information with each other and with their clients that can illuminate the offer process. For instance, in my case, my agent happens to know the seller of the home my husband and I want to buy. He found out the seller needs to sell the house by a particular date because of financial issues, and he also found out she needs to clear a certain amount of money on the sale. With that information, we were able to make a very intelligent offer that was countered reasonably and from there, was one we could all agree on.
But sometimes sellers won’t be so forthcoming, so the offer can provide some insight you can’t get otherwise. If, for example, if the seller refuses to come down in price, then you could surmise the seller isn’t overly motivated to sell/move. Conversely, if sellers respond quickly with a counter that isn’t far off from your original, you may feel confident that their motivation works in your favor when deciding whether to accept, reject, or counter-offer.
Setting Smart Deadlines
The window of time you make legally available to the seller to respond to your offer speaks volumes. You and your agent want the seller to believe you are serious, qualified, and ready to buy this home. You also don’t want to lose the home to someone who sneaks in at the last minute and offers more. You’re in a better position then with a fairly tight deadline for the seller to respond to your offer.
What Happens Next?
Once the seller agrees to your offer, you begin your discovery period: home inspections and gathering title information, home appraisal and, if needed, renegotiation based on what you discover during this process The seller cannot, during this time, entertain other offers, so use the time well.
No Need to Panic
If the worst happens and the whole thing breaks down, you do have options. We’ll be back Wednesday with advice on how to pick up from a failed escrow. In the meantime, you’re more than ready to search homes for sale that you might want to make an offer on. Get started with ZipRealty.