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Considerations When Making Your Offer

So…you found the house you want to make an offer on…now what?

There are many things to consider other than just the purchase price.

  1. Having said that…the first thing we might talk about is the purchase price. After we have reviewed comps and pending sales, we need to come up with an offer price. Depending on the market…and how realist the sellers were when listing…that offer MAY BE full price. There are times that we are seeing multiple offers on many homes. When inventory is low it happens. When the banks have a lot of foreclosures to get off of their books it happens as well because they price them with the INTENTION of generating multiple offers. If this is the case, they typically get OVER list price.  It is a common practice of the banks to collect offers for a few days…or even a week…and then come BACK to all the buyers and ask for “highest and best” giving everyone one last chance to change their offer and put their best offer on the table. So…if we see a bank owned home that has been on the market only a few days…there is an actual field now in our MLS system where the listing agent is SUPPOSED TO indicated that they have received offers and they are being reviewed by the bank. If this is the case…and you want the home it might be best to offer over the list price. If you are financing your purchase, you have the protection of the appraisal that you will not pay more for the home than it is worth. (this will be covered in a later section) Conversely, if the home has been on the market for say… 100’s of days…the seller…or bank if that is the case…may be more willing to deal. We can start lower with the expectation of a counter offer and see what happens.
  2. The next consideration is closing costs. It is not unusual for sellers to contribute to the costs associated with the buyer new loan. An example of this is as follows: If you make a $200K offer on a home…and ask for the seller to pay 3% towards YOUR loan costs…that is effectively an offer of $194K. (200K x 6% = 6K…so it would be 200K – 6K = 194K) The seller sees this as an offer for $194,000…even though your purchase price offer was actually $200,000. Remember…the seller is going to review your offer very carefully as this is JUST as big of a decision for them as it is for the buyer. (maybe NOT the case with bank owned homes…but FOR SURE the case with owner occupied properties).
  3. Then we have personal property.  It is not appropriate to put personal property in the purchase contract…with the exception of the washer, dryer and refrigerator as they actually are part of the pre-printed verbiage in our standard contracts. Why? For one reason the lenders have an issue with that. How much value is attached to these items? They look at it as being part of the LOAN…and that is not real property. If the seller’s give the buyer’s a 10 year old BMW, or a 60″ flat screen TV if they buy the house…the lenders DO NOT want to see this on the offer. Make a separate agreement outside of the transaction between you and the seller.
  4.  Close of escrow date. This is another thing that can be of vital importance to the seller. They may not know where they are going. After all, most people can not afford to buy a new home until they sell their existing one…so they will often feel a sense of …well…in some cases real fear. They KNOW they have to move…but not knowing where you are going is daunting. It is sometimes in the buyers best interest to be as flexible as possible with regard to this if the sellers are anxious about it. A typical close time however is 30-45 days.
  5. Finally, it is not uncommon for the sellers to provide a one year home warranty for the new buyers. The policy typically covers the major trade items of the home like the AC unit and other mechanical items. If buyers ask for this…it is another consideration for the sellers bottom line net figure.

Another item that is rather important is the amount of earnest deposit. As a buyers agent I would like to see you put as little money at risk as possible, but enough to let the sellers know you are serious. It is rare…but occasionally there is a dispute during the escrow process…the least money you have at risk…the better. BUT…large deposits do impress the sellers…and you may find that you can get them to take a lower offer…with a higher earnest deposit.

Also, please keep in mind that the lender will be requiring an appraisal to be done on the home…and this is typically an upfront cost to the buyer. The home MUST appraise at the purchase price for the lender to make the loan. If it does not appraise the buyer has the right to cancel. Again, each transaction is different…but sometimes the seller will lower the sales price…and once in awhile the buyer feels it is worth it to come in with a bit more money at closing to get their dream home. But know this. You will retain the right to cancel the transaction if you are getting financing and the appraisal does not come in at least at purchase price. You will not be obligated to pay more for the home than the appraised value.

Next…How the actual offer process works