You’ve found the home you want to buy. Now you need to make an offer on the house. Here is are some tips on making an offer on a house that you want.
How The Home’s Price is Determined
The home was listed for a certain market price, determined by the seller’s agent based on factors contained in a CMA, or comparative market analysis. The analysis presents a price range, rather than a specific amount, and is based on some or all of these factors:
- The current inventory of similar-sized homes in the area;
- The floorplan and size of similar houses;
- The age and overall condition of the house;
- The active listings in the area;
- The pending listings (those under contract but not yet closed);
- The sold listings in the last six months;
- The canceled/expired listings (didn’t sell and were removed from the market);
- Similar upgrades and amenities; and
- Location of similar listings.
Each of these factors play a role in the agent determining the price range in which to list the house so that it sells as quickly as possible while being fair to both seller and buyer. Once this range is established, the selling agent then sets a price that may be considered “fair market value” for the house. However, this isn’t static – based on the amount of time the house is for sale and the amount of interest, the price may be changed up or down while it’s on the market.
Negotiating the Best Price for All
The beneficial part of being the buyer is that you make the initial offer on the house, and you can start a negotiation with the seller. Once you determine an offer to make (your agent can help formulate this with you), a legal document is sent to the seller and the seller’s agent determining the details of the offer. This will include, but is not limited to:
- Offer price
- Terms – all-cash or subject to obtaining a mortgage
- Target date for closing
- A time limit on the offer
- What the seller agrees to pay, what the buyer agrees to pay
- Contingencies (proper financing, a clean home inspection)
There are many other legal things to be included, many of which are required by laws in your state.
Once the seller has this offer, it is up to the seller to accept all of the terms of the offer, or the seller may make a counter-offer, which will look similar to the original offer but will have adjustments, like price or who pay for what (termite inspection, title insurance, etc.). Then the ball is in the buyer’s court to accept the counter-offer as is, or submit another counter-offer with suggested changes. Once an agreed-upon “best price” is achieved on the house, there is an acceptance of all of the terms of the most recent offer, and a purchase contract is then prepared. This will be the contract that both buyer and seller will sign at closing, reflecting all necessary terms of the accepted offer, plus details of the home inspection and other items (termite inspection, etc.).
Keep an eye on the contingencies – if, for example, the sale is contingent on a home inspection, and the inspection turns up problems, the buyer may walk away from the contract and reject any counter-offers. Another contingency might be the buyer securing proper financing. If a mortgage falls through for the buyer, the seller cannot hold the buyer to the contract, and might walk away without any counter-offers. Those contingencies are important to protect both buyer and seller.
Your agent will walk you through this process and will actually serve as your representative in the negotiations, usually with the seller’s agent via phone calls, e-mails or in-person meetings. This process could take just a few days or a few weeks, so patience on your part is paramount. And don’t give in – it is better to walk away if the seller is not negotiating in good faith or isn’t willing to negotiate at all. Most importantly, do not get so emotionally involved in a house that you negotiate outside of your budget.
Making Offers In A Buyer’s Real Estate Market
In a buyer’s real estate market, it is often not advised to offer a price on par with the listing price (unless you want it REALLY bad). The point of any negotiation is to start low and build your way up so that both sides can meet in between. However, keep in mind that if you are making a lowball offer on a short sale or foreclosed house, you better be prepared to wait awhile to hear a counter-offer. Anything that puts the bank at risk of losing money will take a long time to go through. But it may very well be worth it.