You will only buy a home a handful of times in your lifetime. The process is long, complicated, and certainly confusing. There are a multitude parties involved and a ton of paperwork to sign. The process of making an offer on the home is one of the most critical elements of purchasing the home. It is also a place where a lot of mistakes are made that end up in either no deal or a bad deal for the buyer.
How to Make an Offer on a House
Here are some recommended steps for making an offer on a home.
Find a house to purchase
First you need to find the house. Don’t rely solely on your real estate agent for this. You want a great agent, but despite getting a recommendation from your best friend’s mother, it might not be the absolute best. You need to take your home search into your own hands. Use online tools like the local MLS to find new homes for sale when they first get listed. Do research on the surrounding area by looking at Google Street View or Bing Map’s angled aerial view. This will give you a better feel for what is around the house – and tell if you there is a factory just the next hill over.
Tour the house
Once you’ve found a home you are interested in, you need to set up a tour quickly. Yes, we’re in a poor real estate market, but good homes at great prices do not stay available long. You don’t want to rush into anything, but if you really like the home you can’t be lazy. There is no substitute for going to the house in person, walking its halls, and smelling its odors. Don’t take anyone else’s word for it – see it yourself. Look for flaws and be very meticulous as you walk the home. It is easy to fall in love with a house, but you must keep yourself balanced, if not a little negative as you look for flaws.
Look at the comps
Before making an offer on the home you like, you need to look at “the comps”. Comps stands for comparable homes. This means homes in your target home’s area (not necessarily just the neighborhood) with similar square footage, number of rooms, and lot size. If homes in a 5 mile radius are all selling for about $95 per square foot, you might be able to get $91 or $93/sq. ft. but it will be rare to get one for $50/sq. ft. Knowing what other similar homes have sold for will help you craft your first offer.
Know how much you can afford
Also before making your first offer – and really, before you start your real estate search at all – is knowing how much you can truly afford. Go through the complete qualification process with a lending company so you have a set amount you know you can pay for a home. This will help you avoid the emotional response of latching onto a really nice home that you can’t really afford but try to buy anyways.
Make your first offer
Now you are ready to make your first offer. Remember those comps? You can try undercutting them a little bit, or offering 10% to 15% less than the current asking price of the target home. Your agent will be able to help tell you how low to go, but remember they get paid based on the sales price of the home as well so they have a little bit of a bias to encourage you to offer a higher amount. At the end of the day your agent’s job is to put in your offer at whatever price you want, not what they want. When you put in the offer make sure it is in writing and on a state recognized real estate contract. Your agent must keep excellent documentation to make a sale happen and you can avoid a legal battle with another buyer if there is confusion around who sent which offer first and when an offer was accepted.
Remember key negotiation tactics
When you are buying a home you must remember some key negotiation tactics. You can’t put in an offer so low that you insult the sellers into not even responding to your offer. Make a fair but advantageous offer for yourself. Keep the lines of communication open and let them counter-offer back to you. If they don’t have room for as much of a price cut as you’d like, you can still come out ahead by negotiating on items in the house. Get the buyers to throw in a home warranty and let you keep their TV, refrigerator, and washer and dryer units. The key to a great negotiation is a result that benefits both parties: they get to sell the house at a fair price, you get to buy it at a price you can afford, and you can work out the details of keeping certain items in between. Don’t let your emotions and falling in love with a home convince you to buy at a price you can’t afford. If the sellers are unwilling to bend then they probably aren’t going to sell the house any time soon. Move on and find a better house with better sellers.