MAKING AN OFFER
When you have found the home that combines the best
of your dreams with the realities of your financial situation, it's time to
make an offer.
For information, continue
reading or follow one of these links:
How
Much Should You Offer?
Earnest Money
The Sales Contract
Counteroffers
Contingencies
How Much Should You Offer?
While you don' have to offer the seller's asking price,
if you put in a lower bid for the home and someone else makes a higher offer,
you could lose it. I can help you come to your decision, but ultimately the
decision is yours.
You'll
need to consider several factors:
- How much can you pay? It's easy to be caught up
in the emotion of the moment and decide that you want the home at any
price. If you buy the home, however, and later lose it because you really
couldn't afford it, you'll be in much worse shape - financially and
emotionally. Review the steps you took when you were pre-approved for a
loan to determine what you can really afford.
- How much should you pay? Even if you can afford
more than the asking price for a home, you should not pay more than the
home is worth; you want to be sure that someone else will pay at least
what you paid for the home when it comes time to sell. To determine the
fair market value of the home, I will search the MLS for sales of
comparable homes in the area. Knowing what they sold for will give you
some idea of what the market will bare. Sometimes, however, it may be
difficult to find comparable sales (in a new development or in an area
that's being revitalized, for example). In this case, you may want to ask
for an independent appraisal, and make your offer contingent on the
appraised value being in line with the sales price. In Indiana that is an automatic
contingency and stated in every sales agreement.
- How badly do you want the home? Other factors
might influence your decision of when and how much to offer: How long have
you been looking? What other viable options do you have? How quickly do
you need to make a move? If any of these factors are weighing heavily in
your decision, you may want to offer the list price (or more earnest
money, but more about that in a moment) in order to speed up the process.
You
might consider offering the full price of the home if;
- You think the house is accurately priced or
under-priced.
- The house is just what you have been looking
for, and there are few other houses on the market that meet your needs.
- The owner does not appear to be in any hurry to
sell quickly.
- The house has just come on the market and
similar houses have recently sold very quickly.
- You have inspected the house thoroughly and
there are no indications of any problems.
- You can afford the home.
BACK TO MAKING AN OFFER
Earnest Money
When you submit an offer,
you must include a cash deposit, called earnest money. This deposit indicates
to the seller that you are serious in your intent to purchase the home.
There is no specific
required amount, but general practice says that it should be enough to
discourage the buyer from defaulting, compensate the seller for taking the
property off the market, and cover any expenses the seller might incur if the
buyer defaults. As the buyer, on the one hand, you don't want to put all of
your savings into earnest money; you'll need to save some for other expenses.
On the other hand, if you really want the home and have reason to believe that
the seller may receive other offers, a higher offer of earnest money might sway
the seller in your direction. I can help you to determine a fair amount.
Earnest money is generally
given to the listing agent who places it in an escrow account where it is held
until the closing (or until the transaction falls through). At closing, the
deposit becomes part of your down payment.
If the transaction never
makes it to closing, the earnest money is either returned to you or given to
the seller. You will get the deposit back if;
- The seller fails to live up to the terms of the
sales contract,
- An inspection reveals major defects in the home
that the seller is unwilling to repair or replace,
- You cannot obtain financing, or the home does
not appraise at the agreed upon sale price
- If any specific conditions in the sales contract
cannot be fulfilled.
If you fail to live up to
the terms of the sales contract, the seller can keep the earnest money.
BACK TO MAKING AN OFFER
The Sales Contract
An offer to purchase spells out all of the details
of the transaction. If, for example, you want to be sure that the washer and
dryer are included in the sales price of the home, that intention must be
specified in your original offer. A verbal agreement is not enough.
An offer to purchase typically includes;
- The buyer's name and statement of intent to
purchase the property
- The address of the property
- The purchase price and how it is to be paid
(e.g., amount of earnest money, where it will be deposited, amount of down
payment, amount of mortgage, terms of the loan, etc.)
- A provision for the closing of the transaction
and the transfer of possession of the property to the buyer by a specific
date
- A provision for title evidence
- A provision for the completion of the contract
should the property be damaged or destroyed between the time of signing
and the closing date
- A statement of remedies available in the event
of default
- Dated signatures of all parties
- An expiration date and time (at which point the
offer will no longer be valid if the seller has not responded with either
an acceptance or a counteroffer)
- All contingencies (e.g., no major defects
uncovered by an inspection or title problems discovered in the title
search)
It may also include;
- Personal property included in the transaction
(e.g., refrigerator, dining room chandelier, storage units in the garage,
etc.)
- Any real property to be removed by the seller
before closing (e.g., a storage shed)
- The transfer of any applicable warranties
- The identification of any leased equipment that
must be transferred to the purchaser or returned to the lessor (e.g., a
water softener or security system)
- Closing or settlement instructions
- The transfer or payment of any outstanding taxes
or special assessments
- The buyer's right to inspect the property
shortly before closing
Any offer may be revoked at any time before it has
been accepted. Once the seller acknowledges acceptance of the offer by signing
it, the offer to purchase becomes a valid sales contract.
BACK
TO MAKING AN OFFER
Counter-Offers
Just as you don't have to offer the list price for
the home; neither does the seller have to accept your offer. Most home sales
involve a process of offers and counteroffers until both parties are satisfied
with the price.
A counteroffer is a new offer, and it voids most of
the terms of the original offer. The buyer may then accept or reject the
counteroffer. He/she can continue the process with another counteroffer.
During this process, I will serve as your advisor. Be
careful not to reduce your negotiating power by revealing too much (e.g., how
badly you want the home, how high you are willing to go, etc.)
Like the original sales contract, all counteroffers
should be submitted in writing with a specified expiration date and time. They
may be revoked at any time prior to the other party's acceptance and become
valid contracts when they have been signed by both parties.
BACK TO MAKING AN OFFER
Contingencies
Contingencies are additional conditions that must be
satisfied before the contract is fully enforceable. They include;
- The actions necessary to satisfy the contingency
- The time frame within which the actions must be
performed
- Who is responsible for paying any costs involved
The most common contingencies are;
- Mortgage contingency-protects the buyer's
earnest money until financing can be arranged
- Inspection contingency-the buyer may request
inspections for termites, lead-based paint, structural and mechanical
systems, sewage systems, and radon or other toxic materials
- Survey contingency-a survey confirms lot
boundaries and reveals any zoning or code violations associated with the
property (e.g., is the property in a flood plain-which will require
additional insurance?)
- Property sale contingency-the buyer may make the
sales contract contingent on the sale of his/her current home to ensure
the availability of cash for the purchase. Likewise, the seller may accept
the offer contingent on their purchase of another home.
Sometimes a seller will accept an offer with
contingencies but will include an escape clause. This clause permits the seller
to continue to market the property until all of the buyer's contingencies have
been removed. In this case, the buyer should retain the right to eliminate the
contingencies if the seller receives a more favorable offer.
BACK TO MAKING AN OFFER