Making an Offer

You have found the home for you. Finally, after narrowing down your search based on what you need and want from a home, as well as considering the factors that influence the investment value of your home, this is the one for you. What happens now? You're so close to being a homeowner you can taste it, but tread carefully and heed the following advice.

If you immediately determine that this is the home for you, do your best to keep the seller from knowing it. Now is the time for your best poker face. Buying a home is all about negotiation, and if the seller is aware of your desire for his or her home, your negotiating power is compromised right off the bat. OK, you're maintaining your composure but you're ready to make an offer. What do you do first?

How much should you offer? The first thing you need to do is decide how much you should offer the seller. Very importantly, the offer should never be based on the asking price alone or sometimes at all. A seller's asking price may be on the high side and they are basing the value of their home on their personal attachment to it. The offer you make on a home should be based on a comparative market analysis (CMA). A CMA is based on the selling prices of similar homes in the same area you're buying into. The key word here is "similar."

The offer you make should go up or down depending on whether a home is on a prime, bigger lot, or if it's a condo on the top floor of a building with a breathtaking view, or if it's a home in need of serious repairs. If the latter is the case, along with your lower offer, you may want to give the seller or their representative a list of the repairs that need to be made and how you arrived at your offer price. If a seller is working with a real estate broker, chances are good that the asking price of the home is within the right range. An agent would more than likely have an independent appraisal done and is aware of the CMAs for the area. It's in the best interest of an agent that a home be realistically priced or it will be difficult to sell.

Tip An owner's sentimental feelings about their home may color their sense of what it's really worth and they may insist on listing it for too high a price, sometimes even contrary to a real estate agent's advice. While you should be on the lookout for this, be careful that you don't lower your offer for features that aren't truly repairs. If a house is painted pink or has a green color scheme for the kitchen, including its appliances, these are matters of personal taste. Needed repairs that could justify lowering a home's asking price generally include such items as a leaky roof or a faulty septic system.

Something else to keep in mind is that you generally won't be able to lower your offer for a home based on expensive features you're not interested in. For example if a home is priced higher than you'd expect based on the CMAs because it has a gourmet kitchen or a huge swimming pool, just because you're not interested in these features doesn't mean the owners won't expect a higher price for their home. However, if a home doesn't sell after awhile because it's priced higher, you may want to make a lower offer based on the CMAs. Sometimes enhancements made by sellers don't pay off when they sell their home no matter how expensive they are.

When it's time to make the offer. Now that you have decided what your offer is, it's time to make it. You should put your offer in writing. You may also want to submit a deposit with the offer if you want to add a further incentive to the seller to accept your offer. The seller will either accept your offer, flat-out reject your offer, or submit a counter-offer. A counter-offer may remove an unacceptable clause from your offer or submit a higher amount as a purchase price. The ball is then in your court as to whether you accept the seller's counter-offer or make another offer of your own based on the counter-offer.

If your offer is rejected without comment, which is unlikely if it is a reasonable one, if you're still interested in the home, you may want to ask the seller or his agent if there is any negotiating room. You may have to accept that sometimes there is no negotiating to be done--either you purchase a home on the seller's terms or you don't purchase it at all. At this point, it is a personal choice as to how badly you're interested in this home.

Including contingencies in your offer. As part of your offer, make sure you make the purchase of the home contingent upon, at the very least, three items. The first is that the seller has clear title to convey, meaning that he or she legally owns the home and that there are no encumbrances on the seller's ownership of the home other than any that will be removed at the closing, for example, paying off a bank mortgage. The second item you should insist upon is a satisfactory inspection report of the home by a qualified inspector. You don't want to be obligated to purchase a home if an inspection turns up significant problems. Which leads us to the third item you should make the purchase of the home contingent upon--that the seller disclose any material defects. For example, if the seller knows that the home was built upon a sinkhole and doesn't disclose this fact, but you find out later down the line, you will not be obligated to go through with the purchase.

Many prospective homebuyers also make whether they are able to obtain financing and/or whether they are able to sell their present residence part of the contingencies upon which the purchase of a home is based.

Tip Many buyers and sellers use attorneys when making offers or accepting offers. This is a really good idea, because you're dealing with large sums of money and you do not want to unknowingly enter into a contract or give up any of your rights. While real estate agents can be somewhat helpful in this respect, the money spent on an attorney at this stage of the game can be well worth it in terms of dollars and aggravation saved down the line.

Your offer is accepted. What if the seller accepts your offer? Congratulations, you now have a contract to purchase a home! Your deposit, if you made one with your offer, is usually kept in the real estate broker's or an attorney's escrow account to keep it secure.

Now you are ready to take the next step toward owning your home, obtaining the financing.