First-time Homebuyer Guide - Before Making An Offer On A Home

 

When you've located the property you'd like to put an offer on, you've most likely been exploring houses and enlisting a real estate agent to assist you.

However, making an offer and negotiating to ensure it is accepted could be difficult. Here are a few steps to help you through the entire procedure.

3 Steps Before Making an Offer On a House

When you finally find the perfect home, you'll be pressured to make an offer as soon as possible to secure the property, particularly in a booming housing market. Here are a few points to consider before submitting an offer.

Do Your Homework

Find out everything you know about your property before and then consider its value and how it compares to similar properties in the same area. Ensure you have a clear idea of what it is likely to value, as that will be the most crucial aspect to consider when obtaining the mortgage and negotiating a final price.

Spend the time to study the essentials to get financing and obtain an approval letter. Part of this will involve finding a reputable mortgage broker or a lender open to discussing your closing costs and financing time frame.

Additionally, you should work with your realtor to learn the seller's top priorities and where they may agree to negotiate prices, repairs, or closing costs.

Be Honest With Yourself About What You Can Afford

It may sound like common sense, but it's not. However, educating yourself about the reasons you'd like to purchase a home (or the house you're interested in) will determine the kind of offer you make. Make sure you know the amount you can afford and the length you're willing to go into negotiations.

However, first, make sure you know the amount you can afford for the down payment, any other closing costs, such as your real estate agent's commission, and any other repairs you might require as soon as you get your dream home.

Doing this before time is essential if you're participating in a bidding war. You must know the level you're willing to go and when you are ready to quit.

Get Preapproved Before Making an Offer

It isn't required, and it doesn't mean having the mortgage is guaranteed; the seller will be more confident about the legitimacy of your offer if it is pre-approval for the loan from the mortgage lender. It also means that you will know the maximum amount you can borrow compared to what you need to fund the home's cost.

Making an Offer on a House

Suppose you notify your realtor that you're considering making an offer. In that case, the agent is accountable for drafting the price of the offer, getting an original copy of your agreement letter (if you already have one), establishing the proposed date for closing the deal, and identifying the conditions that the purchase must go through, and describing the much you'll have to pay as an earning money deposit.

Ways to Make an Offer on a House

The amount of bargaining power you have will determine the final outcome of the price you are willing to offer. However, there are many methods to present an offer.

• A cash-only deal. These offers typically are the most powerful bargaining tool since you don't require a loan or a mortgage and can close the deal quicker. However, most people can't purchase a home with cash, particularly in an area where housing costs are rising.
• Offer some contingencies. If sellers are willing to reduce your price, you may add certain conditions, such as requesting to cover any repairs suggested to the appraiser. A reduction or several in the repair of the property typically means less overall expense for you when buying the property.
• Choose to go high or low. If you're purchasing the property as a first home or one you intend to live in for a short time, you should make an offer that is less than or equivalent to the asking value based on the market's competitiveness. If you're looking to remain in the house for a long time, it's usually ok to offer close to or even higher than the asking price since the property will likely increase in value over time.

How to Make a Successful Offer

If you are planning to make an offer for a house, it is essential to collaborate with your agent to figure out the best strategy for negotiation. This could include:

Understanding the seller's needs and the buyer's priorities

Is this a popular property due to its price or other characteristics? If yes, it'll likely be a target for many bids and will not be able to last for long on the market. If the seller is motivated, for example, to sell the house to finance the purchase of a different property, the seller may be more open to negotiations and move faster.

Other important questions: Has the home been at the bottom of the pile for months or weeks? Do the sellers require the time to leave after the sale?

Intel like this can inform your bid on the price and what potential contingencies (or not) can make your offer more appealing.

A Good Realtor Makes a Difference

This is why the presence of a reputable realtor can prove beneficial. They can collect background details on what's most important for the seller, such as the amount their listing price is important (do they desire the highest price that they can? ), how cautious the seller is toward first-time buyers as opposed to an investor making cash offers, and the speed at which they would like to close.

The agent will also be more likely to determine whether the seller is more inclined to provide certain contingencies even though they disagree with the sale price.

What to Know During the Bidding Process

There are a variety of essential factors that can aid you in your bidding procedure.

• You must have an earnest money deposit. It indicates the seriousness of your intention to buy the property while showing your financial resources. A higher-paying money deposit could give you an advantage over the other buyers.
• The amount of the down payment. The seller is more inclined to take a favorable view of an offer that has a substantial down amount (usually 20 per cent or more) over the minimum of 3.5 per cent since it shows your desire to purchase the house and also your financial strength. This can make sellers more confident that you'll be able to obtain an unsecured mortgage loan to finance the cost of buying.
• Submission of an offer with an expiration date. This is a risky option, but it could provide greater certainty about how long you're willing to stay before making your move. It could also exert pressure on the seller to make them less likely to drag you around in the hopes that a better offer will come in.

Reducing the Burden on the Seller Can Help

Sellers are more inclined to select a buyer with fewer conditions in their offer, mainly if the price is comparable to other bids. This is a good thing in a crowded housing market.

If you make an offer without the assistance of an agent, it lowers the cost of the transaction for the seller since they'll have to pay their agent or not pay agent fees if they don't have one.

Contingencies to Include, or Not, in an Offer

Beyond the price you negotiate, other contingencies are worth contemplating to improve your bid.

• Inspection contingency. The inspection is usually conducted when an offer is accepted. Most often, there's a condition that states that the seller has to either correct any problems discovered in the inspection or consider the cost by reducing the cost to the buyer. If they don't, the buyer can leave with their deposit. The buyer can opt to waive this clause to increase the value of their offer. While this can be attractive, it also means that you'll have to pay all the expenses if the home requires significant repairs.
• Financing contingency. This means that your property purchase is contingent on obtaining the mortgage. This clause is designed to keep you from being held accountable should the lender decide not to fund the purchase. Waiving this condition is only possible after consultation with your mortgage broker, realtor, loan agent, and mortgage agent.
• Appraisal contingency. This condition lets you choose to withdraw from the contract if the property isn't appraised at the price you agreed to pay without putting your money deposit at risk. You can opt not to agree to appraise if you are planning on paying cash or making your offer stronger. You can also include a pledge to pay a percentage higher than the appraised value if it is less than the sale price.

Dos and Don'ts When Making an Offer

Making an offer on a house is an important decision that will affect your life today and in the future. Therefore, you must be vigilant throughout the whole process.

Do Read Everything and Ask Questions

If you're working with a realtor, ensure that you review the deal before it's made, and make sure that you understand what obligations you have to meet. It is not a good idea to miss crucial deadlines or accept contingencies you can only afford if conditions are fulfilled. This is even more crucial when you're not working with an agent and are dealing directly with the vendor or agent. They will be watching their own interests, and you need to ensure that the terms are also in place to protect you.

Don't Get Fatigued by the Process

Avoid the temptation to hand over all decision-making to your agent—be active and inquire about the details. After the offer has been submitted to you, endorsed, and accepted, you are accountable for the entire terms of the offer, and you must double-check the small details.

Refrain from being pressured by any real estate agent to proceed with the purchase if you are not financially satisfied with the conditions.

Coordinate With Your Lender on Making an Offer

Consult with your lender or mortgage broker before making an offer. Securing a mortgage loan could consume much of the time needed to buy a house. Your offer's amount, which requires financing, and how you plan your contingencies are crucial to the financing process.

Additionally, submitting all the information required to your lender before time will allow you to get a quicker closing time to provide the seller, increasing your chances of getting your offer approved and accepted.

Work With a Reputable Lender

Choosing an experienced lender operating within the market you're buying from is also essential. The real estate market is a highly localized industry, and a buyer's agent will trust the bid if they are working with an institution or individual they've previously worked with or are known through reputation. You can ask the people in your neighborhood, relatives, or friends who have had positive house-buying experiences to determine who they would prefer to work with as the lender. Similar research can be conducted and is often crucial when looking for a reliable neighborhood real estate professional.