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Part four of a five-part series created from an article by Michelle Higgans, staff writer at The New York Times covering Real Estate, Travel & Consumer Trends.
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MAKING AN OFFER
Once you find a home you want to make an offer on, don’t delay.
FINDING “THE ONE”
Did you walk into an open house and get goose bumps? Did you finally find the home that has everything you’re looking for? Did you and your partner sit down and weigh the pros and cons of three homes and finally come to an agreement? However you came to a decision on the home you want to buy, the next steps you take are crucial.
1. ANALYZE YOUR MARKET
Look for comparable homes of a similar size that have recently sold nearby to help determine a fair offer. A good real estate agent will pull such “comps” for you, talk through pricing and market dynamics, and work with you to come up with an offer strategy with room for negotiation.
If the home you fall in love with happens to be listed with your real estate agent, he or she may offer to cut the commission and represent both parties. While such dual agency arrangements can work out fine, there is the potential for a conflict of interest. Negotiating involves lots of give and take, and this can get tricky if your agent is also representing the seller. For peace of mind, it’s O.K. to find another agent to represent you.
2. BE WILLING TO NEGOTIATE
Understand that making an offer on a home is sometimes the start of a psychological game. You likely want to get the home for as little as you can without losing the house outright. The seller wants to maximize the selling price of the home without scaring you away. Where should you start with your first offer?
Conventional wisdom says to begin at 5 percent below the asking price, but market conditions will largely determine how much wiggle room you have. In a soft market, where listings have been sitting unsold, you will have more negotiating power. In a rising market, prime listings will command the full asking price or more. Either way, keep your budget in mind when you make your first offer and set a cap of how high you are truly willing to go.
3. BE PREPARED FOR A BIDDING WAR
In a highly competitive market, where attractive listings are scarce, you can forget about getting a deal. While the highest offer often wins out, being the first to make a solid offer can give you an edge in a bidding war.
Things that can help you stand out to a seller in the middle of a bidding war:
• Try writing a personal letter about why the home is
perfect for your family.
• Raise your down payment.
• Be flexible about the closing date.
4. MAKE A FORMAL OFFER
Once you and the seller agree on a price, your agent will draw up a formal offer for you to review and send it to the seller’s agent for review. If the offer is accepted, a cash deposit, also known as “earnest money,” is often required to show good faith. (This money will be held in an escrow account until closing, and will ultimately go toward your down payment.)
While the specific process and legal requirements vary in different parts of the country, the formal offer should spell out terms and conditions of the purchase, including how you plan to pay for the place along with any contingencies, which give you an out if something unforeseen arises. It’s typical to include a home inspection contingency, which gives you the right to conduct a professional inspection within a certain timeframe and to back out of the deal or renegotiate if the report comes back unsatisfactory. A mortgage contingency gives buyers the option of pulling out of the deal if they can’t obtain financing within a reasonable amount of time. And if you need to sell your current home to afford the new one, you should make your offer contingent on the sale of your own home.
In a tight market, where multiple buyers are competing for a dearth of listings, buyers may feel pressed to waive contingencies. But unless you have the cash to cover your losses, it’s not a good idea. Without a mortgage contingency, for example, you will lose your deposit if the appraisal comes in low and you are unable to make up the difference, or if the bank finds something wrong with the apartment building and will not lend the money.
5. DON’T FALL IN LOVE
This may be the hardest step in the process of buying a home. Be prepared for disappointment. Counteroffers are common. So is rejection. Keep in mind that even if the seller has orally accepted your offer, he or she may still be able to entertain and accept other offers (it may depend on your state). And even after you have a signed contract, issues can arise. If you’re buying in a co-op for example, the co-op board could decide to turn down the sale.
