So you’ve made the decision to purchase a home? Congratulations on choosing a great time to buy! Check out my blog series about Buying A Home In Today’s Market for more information. This is part 2 of a 5 part series detailing the general steps to purchase a home. If you missed it, review Home Buying Step 1: The home Search for more information. In this episode I’ll share the step by step process to write a great offer with the highest chance for acceptance by the sellers.
By this point you’ve most likely been qualified by a lender, and through your search you’ve located a home that meets your criteria. We’re going to review the items and terms that make up an offer, adjusting the offer based on current market conditions, and how terms can impact your “net price” by thousands of dollars.
A purchase offer includes the initial price, loan terms (or cash), and negotiation of the individual terms and fees. The offer presents an initial price that may be higher or lower than the currently listed price of a home. It then details the amount of the down payment, some general loan terms, and the amount of the new loan. The loan terms can also impact desirability of an offer. A Conventional loan with a large down payment over 20% is much more desirable than a VA (Vetran’s Affairs) offer with 0% down. Other financing options include Hard Money, FHA, Down Payment Assistance (DPA), and USDA loans. The purchase contract will also designate which party (Buyer or Seller) is paying certain fees and closing costs. Lastly, the contract will also designate all the time periods for the real estate sale. Time periods include the escrow period (length of time to close), home inspection period, appraisal period, and the loan financing period. (we’ll go into more detail on these items in a future segment)
Have you heard the terms Buyer’s or Seller’s Market? It is a term used to indicate the current bias of the supply/demand curve. If there is limited inventor and buyers are motivated by low prices and low rates (2012-2014) then the Sellers are in a position of power, and it is referred to as a Seller’s Market. If there is a surplus of available inventory and sellers have to compete for buyer’s attention (2008-2011), then it is referred to as a Buyer’s Market due to the control position of the Buyer. Currently we’re seeing a Seller’s Market slowly shifting toward a balanced market. Price increases have slowed buyer demand, and more home sellers coming to the market has increased available inventory. All this information can dictate the type of offer/terms necessary to get a purchase offer accepted by a seller. In 2008-2011 buyers could offer less than the list price, ask for thousands of dollars in closing costs, and still get a great deal. In 2012-2014 buyers had to give up the closing cost credits, and in many cases had to offer OVER the list price just to get their offer accepted if the home was priced competitively.
Dont make the mistake of ignoring all the small terms and conditions throughout the contract. The cost of recording, inspections, appraisal, home warranty, transfer tax, regional transfer fees, and title/escrow fees can add up to serious money! Knowing what is “traditional” for your area will help to write an offer sure to catch a seller’s eye. Remember to look at the NET of the offer. For example, assume Offer 1 is written at $405,000 (over list price) asking seller to pay ALL transfer/closing costs and providing a 1% credit to the buyer. Offer 2 is written at $400,000 (at list price) with area traditional transfer/closing costs and no extra credit to the buyer. Although offer 1 appears higher, the net to the seller after all the fees may actually be lower by a few thousand dollars. Keep this in mind and consult with your agent.
If you’ve ever heard the term “play the man, not the odds” you know where we’re headed with this segment. Over the years I’ve learned to play the man (Sellers or the Listing Agent) in certain situations. Sometimes a little extra information goes a long way! Was there a recent job relocation that is forcing the sellers to move quickly? Is there a looming financial issue? Are the sellers in a time sensitive situation? Is the other agent a poor negotiator? Use that information to adjust your offer accordingly. Sometimes the situation will allow you to make a much lower offer and play hardball, and sometimes it means you have to give up more than normal just to get a home. My suggestion is that you remember there is more to making an offer than just one dollar amount on a piece of paper.
I hope this information helps answer some questions about how to make a great offer. Check back for Home Buying Step 3: Negotiation as we continue to move through the process. If you have more specific questions I would be glad to talk with you directly.