Making an Offer

Basics of Purchase Offers

Typically a seller lists his or her home for more than the expected net price, because he or she expects to have to bring the price down some. The only true way to figure out an ideal offer is to learn by experience, but researching the local market is a good place to start.
First, look at a number of comparable homes in the area that recently sold. Pick out the sales closest to the home you’re planning to make an offer on, and try to match the number of bedrooms, baths, amenities, pool, garage size, and so on. This should help you get a better idea of a price to offer.
Also be aware that a good offer:
  • Has a realistic offering price, based off of available data
  • Has terms of finance that factor in current market conditions
  • Does not hold unrealistic expectations about the seller’s part, such as requiring a blank check for repairs

To Lowball or Not to Lowball

Undoubtedly you want to get the best bargain you possibly can for the house you’re interested in, but too low of a bid could turn away the seller. A rule of thumb for lowballing is to offer 25 percent (or more) less than the asking price.
Your best option is to lowball your offer based on the previously mentioned rule combined with the evidence from comparable homes–just be aware that you could lose the property if the number is too low. You want to offer enough to keep the buyer interested and possibly provoke a workable counteroffer.
If, however, you think that the home is absolutely perfect and you don’t want to risk losing it, then avoid lowball offers completely. You could offer slightly below asking price, but don’t gamble on a home you don’t want to lose.
The Ultimate Lowball Offer:
Sometimes buyers will make a very low offer, usually to test the seller’s limits and see how far he or she is willing to drop the price. Although this strategy can work at times, it is an action you should take at your own peril. It could either insult the sellers or, if accepted, secure you a great deal.

Middy’s Buyer Tip:

Consider including a deposit when you submit an offer. It’s not required, but it shows the seller that you’re genuinely interested because you’re willing to hand over money to substantiate your claim. Of course, the deposit amount can vary depending on what your agent advises and what you think is smart.

Why Your Agent Comes in Handy

This phase of buying a home is one that you certainly want an agent for if you’re a first-time home buyer. A real estate professional is uniquely qualified to do a preliminary analysis of the home price and guide you through a thorough evaluation of the seller’s disclosures.
To adequately evaluate the property’s worth, your agent will assess:
  • Market conditions (how many days local properties are typically on the market, number of committed offers, etc)
  • The condition of the home
  • Comparable homes on market in the area
Following these evaluations, your agent will give you an estimate of what your offer should be. But don’t just take his or her word for it–do your own research as well.
Remember that your agent is trying to make money off the sale, so of course he or she wants the higher commission that comes with a higher price.

Middy’s Buyer Tip:

Don’t try to write up your own offers or counteroffers unless you’ve had experience doing so before. Even then, have your agent or attorney look it over and get their expert opinion. Offers require very particular wording, and a mistake could cost you your deal.

How to Make an Offer

An offer can be as unofficial as the back of a receipt as long as it states the address in question, the offer price, and the date on which closing would occur.
The preferable choice is to go with an official form available from your broker, of which there are two options: the offer to purchase and the contract to purchase.
Offer to Purchase:
Typically states the basic information relevant to the offer, such as the offering price, property, parties involved, proposed close date, and so forth. The beginning of an offer to purchase is formatted much like a formal letter, and the remainder goes over the basic offer information.
Contract to Purchase:
Also known as a purchase agreement, this document gets into the nitty-gritty details of the offer and includes a description of the property, legalities for the property transfer, rights to sue, brokers’ fees, and more.

Things to Keep in Mind When Making an Offer

If you’re a first-time buyer and don’t know a lot about offers, there are a number of points to keep in mind.
The preferable choice is to go with an official form available from your broker, of which there are two options: the offer to purchase and the contract to purchase.
Don’t Share Your Maximum Price:
Don’t tell your agent your price cap for a home purchase. If an agent knows this number, he or she will work with it and pay less attention to your desired price point. It’s in your best interest to keep this to yourself and only commit to such a price if you’re absolutely sure that the home is worth it.
You Can Withdraw Your Offer:
Just because you submit an offer does not mean that it has an indefinite termination date. You’re allowed to set a time restraint for your offer (i.e. tell the seller they have two days to accept before you withdraw).
Along the same lines, it’s perfectly acceptable to withdraw your offer if you find a better home for a better price or unexpectedly come across a situation where you can no longer afford to buy a home. In fact, you don’t even need a reason–it’s your money and you can terminate the offer if it looks like things are going nowhere.
Try Talking to the Seller:
Even though you primarily deal with the seller’s agent during the negotiations, there’s no “rule” that says you can’t contact the seller directly. Ask the seller what the lowest he or she is willing to sell for. The worst that can happen is all you get in response is “Talk to my agent–I’m not discussing the sale.”
Read Everything from the Seller’s Agent Carefully:
Often the agents of sellers will respond to the potential buyer by saying that the offer was accepted with a few minor changes. Don’t let this fool you– any changes to your offer makes it a completely new counteroffer, and you have no obligation to accept.
Don’t Let Agents Bully You:
An agent may urge you to give him or her more time–say a few extra days or even a few weeks–to convince the sellers to sign. This is not in your best interest and not something you need to agree to. It really only makes sense if the seller is out of town. Remember that the more time you give a seller to think about your offer, the more time they have to find things wrong with it.

Contingencies: Don’t Forget Them

A contingency is your form of a safety net–it protects you from harmful unforeseen circumstances and subpar homes by allowing you to back out of a contract if a certain situation occurs.
Contingencies are one thing you don’t want to leave out of your offer, because they’re your best option to safeguard your own interests. Two common contingencies that appear in almost all offers are financial and inspection.
A financial contingency specifies that you can back out of a deal if your mortgage application isn’t approved. An inspection contingency allows you to cancel the contract if you disapprove of the inspection reports or if you and the seller don’t agree on who will cover the necessary repairs.
You may or may not seek other contingencies to protect against complications such as:
  • Low appraisals
  • An illegal sale with someone who does not own the deed
  • Buying a new home if your old property hasn’t sold
  • Buying the home if you don’t get approved by the board (i.e. with a co-op or condo)
In your offer, include a clause that states all contingencies must be removed in writing to ensure that you and the seller hold the same understanding about whether a contingency is satisfied.

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