Finding the perfect house is a big enough job. But then you have to put together an attractive offer in order to be the winning bidder so that you can actually purchase that dream home. And there is a lot more to putting together an offer than just settling on the price you’re willing to pay. You also have to consider things like presenting yourself as a serious buyer and the various contingencies. To make things just a little easier for you, then, here are 6 tips for putting together an offer for a house.
1. Get Pre-Approved But Be Careful
Putting together an offer for a house begins long before you even begin house hunting. Before you even start looking at listings, you need to figure out how much house you can afford and then get pre-approved. With pre-approval, you will be seen by sellers as a serious buyer who will actually have the money at closing.
“So before you hit the streets, get a pre-approval letter from one or more lenders, not a pre-qualification letter. A pre-approval letter confirms that you’ll be able to borrow X amount based on that lender’s evaluation of your credit score, assets and income.” Remember, pre-qualification simply means a lender has provided an estimate of what you can borrow – it’s not a commitment to loan you a certain amount as with pre-approval. The pre-approval process takes a little more effort and time, but it’s definitely worth it.
But just because you can borrow a certain amount (as shown by your pre-approval letter) doesn’t mean that you should borrow that much. In fact, real estate pros point out, savvy “sellers and agents get nervous when buyers bid the full pre-approval amount.” This is because if something happens along the way, say, interest rates go up, you may no longer qualify for that amount.
2. Research Market and Seller
Another important preliminary step in putting together an offer for a house is researching both the market and the seller. You need to know what similar homes in the neighborhood are and have been selling for. Otherwise, you may offer too much or make a lowball offer that gets rejected out of hand. Your local real estate agent can be a great asset here by performing a comparative market analysis. (To find out more about this, call 866-593-7012.)
You should also do some digging to find out as much as you can about the seller and her motivations for selling. “For example, you might learn that the seller is being relocated and needs a quick closing – faster than other buyers are willing to accept. Or, you might learn that the seller hasn’t yet found a home and may want to delay closing. Armed with this information, you can craft a more tempting offer than your rivals for the same price (or less).”
3. Determine a Price
Having done the first two things, you can set about determining your price – or, rather, your opening bid. Your offer will include your offer price, but that price will typically be below the seller’s list price. And the negotiations process begins.
Your agent will have helped you figure out the fair market value of the house by performing a comparative market analysis (CMA) and whether the list price is low or high or in the middle. Then, on the basis of that and several other factors, you can set your offer price. These other factors include such things as:
- How long the house has been on the market
- How fast the seller needs to close
- Whether the market favors buyers or sellers
- Whether the seller has received other offers
4. Present Yourself as a Serious Buyer
If you appear to be a serious buyer, then your offer will be all the more compelling. We’ve already touched on getting pre-approved, but there’s even more you can do to present yourself as a serious buyer.
One of the most effective strategies here is to make a substantial earnest money deposit (EMD), typically 1% to 3% of the sale price. This is genuine evidence for a seller that you are indeed serious about buying the house. And if the sale goes through, the EMD will be applied to payment at closing. Just be aware that if you back out of the deal, you may lose that EMD – unless you have a clause in the offer the provides for this contingency.
5. Use Contingencies Strategically
Speaking of contingencies, be careful how much you request in the offer and use them strategically. Contingencies are “provisions that must be met before the transaction can go through, or the buyer is entitled to walk away from the deal with their EMD.” For example, when putting together an offer for a house, you may have a home inspection contingency, which is pretty common. Such a contingency states that if the inspection turns up problems, the buyer can back out of the deal. A more common outcome, though, is that the seller agrees to make the repairs or reduce the price.
Contingencies are a good idea as a way to protect you as the buyer. But you do need to remember to look at the bigger picture, to see the whole forest and not just individual trees. You shouldn’t, for example, let a $500 repair make you lose out on a great deal. In addition, while “contingencies can offer protection to buyers, they can also make offers less appealing to the seller because they give buyers legal ways to back out of the sale without any financial repercussions. So, if you’re going up against multiple offers, making an offer with fewer contingencies can potentially give you an edge over the competition.”
6. Listen to Your Agent
Ultimately, in putting together an offer for a house, you as the buyer will decide what your offer will be. You have the final say because you’re forking over the money. But if you rely on yourself alone, you may not make a good offer owing to inexperience and emotions clouding your judgment. Your agent, however, and help you look at things objectively, help you craft a winning offer, and assist you in getting the deal that’s best for you.