Once you’ve found the right home, it's important to know how to put together an offer to purchase the property. It's normal to feel a mix of excitement and nervousness during the negotiating process.
When making an offer on a house, seek guidance from your real estate agent and trust your instincts, as the decision ultimately rests in your hands. Here are some general tips to consider.
Make sure you've done your homework. Verify the school information, property boundary lines and more. Visit the home and the neighborhood at different times of the day. Scour local news sources and talk with your real estate agent or local officials regarding any pending changes to or near the property. You want to avoid finding out after closing that a factory or a four-lane highway is going up nearby.
See what your agent can learn about the seller's motivations. Motivated home sellers often seem eager to cut you a deal or speed up the process, but their reasons for doing so aren't always altruistic. Are they looking to sell because of significant changes coming to the area? Or they may be taking a new job and are desperate to unload the property.
Every seller's reasoning is different, but getting insight into their mindset and motivation can help strengthen your negotiating position.
Before making an offer, you'll want to compare the sales prices of similar homes. Your real estate agent will handle the number crunching and prepare a "Comparative Market Analysis" (CMA). The CMA compares and contrasts the characteristics and sales prices of similar homes. The CMA also looks at how long the property has been on the market and what the sellers paid for it originally. It's an educated estimate of the fair market value of your future home and an excellent tool for picking a starting point for negotiations.
You've already determined exactly how much you're willing to spend on the home. Protect your financial future by sticking to this figure. Remember that a first offer is seldom accepted, so you'll want to leave some wiggle room between your initial offer and your total housing budget.
Find a middle ground for your initial offer that you feel comfortable with. Of course, you want to avoid overpaying for the home, but you also don't want to start with a lowball offer and risk offending the sellers. And, as always, rely on your agent's guidance.
To show that you're a serious buyer, it's a good idea (and a legal requirement in some places) to include a deposit with your offer. This deposit is known as "earnest money" and, if agreed upon in the contract, can be refunded to you even if you walk away from the sale.
Ask your real estate agent for advice on how much earnest money you should put down. Some agents suggest depositing a small percentage of the sales price, while others recommend a flat amount ranging from $500 to $2,000.
Home purchase contingencies are your way of saying, "I want to buy this house, but only if X, Y and Z happen." Contingencies are negotiations that need to be agreed upon by the buyer and the seller before they can be included in the contract. Your agent will have a good handle on what contingencies and specific requests you should include.
Let’s take a look at some of the most common contingencies:
Although it only comes into play once your offer is accepted, getting a seller to pay your closing costs is one of the most common contract contingencies, as it can save you from having to come up with cash at closing. Closing costs are the costs and fees associated with originating and finalizing your loan. Sellers often agree to pay some or all of a buyer's closing costs.
On a VA purchase, buyers can ask the seller to pay all of their mortgage-related closing costs and up to 4 percent of the purchase price in concessions, which can cover things like prepaid taxes and insurance, paying off a buyer's collections or judgments and more.
With good negotiating skills, patience and a bit of luck, you will successfully reach mutually agreeable terms with the seller and proceed to the final stages of purchasing your dream home.