Thinking about buying a house, but you're a bit intimidated by the process of making an offer? You're not alone. The process of buying a house has a lot of elements to consider, so it's easy for first-time homebuyers to feel overwhelmed by the process. You can dodge offer paralysis and throw your hat into the ring for your future home by following a few simple steps.
Read on for some key tips to help you navigate the offer-making process.
1. Study the Steps
After submitting an offer on a house, any number of things can happen, and it's important to be prepared so that you can respond to the changing events in a timely manner. The process usually looks something like this:
- Your agent submits your offer to the house's seller on your behalf
- The seller responds to the offer, either by accepting it, declining it or submitting a counter-offer with different terms.
- If the seller submitted a counter-offer, you can respond and begin further negotiations.
- Once an agreement has been reached, each party signs a purchase agreement for the property. This is referred to as being "under contract."
- The agreement now enters what is called a "contingency period," where the home is appraised and inspected. If the inspections and appraisals do not align with the details of the purchase agreement, then the buyer could walk away from the deal or the purchase agreement could be renegotiated.
2. Pick the Price
In a competitive market, the price you decide to offer can make or break your chances of getting the house. When considering the purchase price of a property, it's important to consider what the property is worth, what you can afford and what prices will be competitive with other offers. If the market is not competitive and no other offers have been made on the house, then it may be possible to buy the house with an offer that comes in below the asking price. If the market is competitive, you may need to offer more than what the seller is asking for in order to beat out other offers.
3. Draft the Details
Some of the most important elements of an offer are the contract contingencies. Simply put, a contingency clause allows for one or both parties in a sale to back out of the purchase agreement under certain, pre-defined circumstances. For example, a buyer could make an offer contingent upon his or her ability to obtain financing for the agreed-upon purchase price. In this situation, if the appraisal on the property came back lower than expected, it's possible that the buyer would no longer be able to obtain the financing needed to buy the property, and the purchase agreement would be void.
Before drafting up your offer, it's important to first meet with your mortgage lender so you can gain a better understanding of the amount of mortgage for which you'll qualify. This is a necessary step in every purchase, so taking care of the details ahead of time will better prepare you to make an offer. Getting pre-qualified for a mortgage also allows you to make an offer more quickly in a competitive market where houses are bought and sold rapidly.
Purchase agreements generally include details relating to what are called "earnest money deposits." An earnest money deposit is money that the buyer puts down to demonstrate his or her commitment to the purchase. If the buyer backs out of the purchase agreement for any reason outside of those allowed by the contract, the seller gets to keep this deposit. An earnest money deposit is usually around one to three percent of the home's purchase price. Once the money has been deposited by the buyer, it is put into an escrow account—a bank account where neither the buyer nor the seller can access it until the after the purchase agreement is complete.
4. Make it Memorable
Inexperienced homebuyers often think that the only important detail of a purchase offer on a home is the price. This is not the case. Sellers consider a wide range of elements when deciding which offers to accept for their properties. Some sellers may be highly motivated, so they'll be more likely to accept offers from people who can close on the deal more quickly. Ultimately, the seller's priorities guide his or her decision-making process, so making a good offer can depend upon your ability to interpret what is most important to the seller and appeal to that in any way you can. For added points, you can submit a personal letter with your offer that speaks to who you are and why you want to purchase the property. This personal touch can also be the convincing factor for some sellers.
5. Send and Stand By
Once your real estate agent has submitted your offer and offer letter to the listing agent, you simply need to wait to hear back. This may be a good time to refresh yourself on the steps listed above, so you can be prepared to respond to a counter offer.
As with any major decision, buying a house has a lot of moving parts to consider. By keeping these key considerations in the back of your mind throughout the purchase process, you'll feel more prepared to make an offer on your dream home—whenever it comes on the market.