Tuesday, March 11, 2008

What To Do When Its Time To Make An Offer....Besides Get Nervous and Throw Up!

So You've Found The House You Want, Now What?

After consulting with your Realtor, driving around and finding the neighborhoods you like, discussing financing option, having your real estate agent show you some properties, and finally finding a home you like, the next step towards making it yours is putting in an offer to purchase the property.

What is an offer?

An offer is actually a proposed contract to the seller of the real estate. In California, it is a ten page document called the Residential Purchase Agreement which will outline the terms of the sale including price, close of escrow, down payment, and all the other details. There will be a multitude of other disclosures and advisories that will all need to be reviewed and ultimately signed by you, the buyer.

In real estate, offers will need to be in writing in the form described above to be considered legitimate. Many people new to the home buying process will want to make a verbal offer in an attempt to find the lowest price the seller will accept. We call this fishing and a savvy real estate agent will warn their sellers against the dangers of answering these flimsy offers.

How do I make an offer?

For you, the buyer, its really easy! All you need to do is tell your Realtor that you'd like to make one and they will, or should, help to fill out all the paperwork for you. All the buyer has to do is decide on an offering price, terms of sale, and then sign the documentation.

How much should I offer?

We'll just get right down to the million dollar question. The answer is simple, offer as much as you are comfortable with or maybe a little less. But bear in mind one thing, the fact that you are comfortable with the price does not have any affect on whether you will actually obtain the property for that price.

To get an idea of what a fair price for the property would be, your real estate agent should conduct a quick market analysis to go over what has sold in the neighborhood within the past three months. You'll need to accurately compare all of the features and conditions of the property to accurately determine how the one you are interested in will stack up.

This knowledge is combined with the general trend of the market to determine a fair asking price. Be warned that the most important properties to be considered in the analysis are ones that have been sold in the last three months, and of those, the ones that most closely resemble the one you are purchasing. Again, your Realtor will play a very important role in this analysis so choose agents wisely.

Your goal as a home buyer is to purchase a home that you like, for a fair price that you can afford. Many home buyers will offer extremely low initial offers (low balls) on their first offer because they fear leaving money on the table. This is a practice that can be dangerous to home buyers because these offers are ignored and somebody else often snags the property before they even have a chance to get serious.

What else will I need to do to write an offer?

Beside signing all the necessary paperwork and figuring out the terms of your offer, there are a few more items you'll need that will make your offer stronger.

Deposit Check - Include a copy of the deposit check. This amount varies from 1-3% of the purchase price here in California. We find most deposits to be about 1% on average although a little more never hurts. You'll need to give a check made out to the Brokerage, in our case that will be Fullerton Century 21 Discovery, directly to your agent for holding. They will then present a copy of this check to the seller of the home and their agent. Always ask you agent for a copy of the check and make sure they notify you when/if it is going to be cashed. They are usually not cashed until the two parties have reached an agreement and the deal goes to escrow so you may have a little time. Should a deal not come together, or the property does not pass your requirements during inspection, the deposit check is fully refundable if you stick to the terms of the contract.

Pre-approval Letter - Most sellers will want to see that you've already talked to some lender about getting a home loan and that you have been given the green light. All lenders will provide you with a pre-approval letter for the amount you qualify for after a brief discussion with them and a careful analysis of your financial situation.

Proof of Funds - If you are planning on making a down payment part of your offer to purchase or you will be paying your own closing costs, a savvy listing agent and seller will need to see some documentation that you have the money necessary to close escrow. Home buyers can black out their account numbers but will need to have some type of statement from the financial institution with both their names and the dollar amounts in print. Bank statements are a perfect example of this.

What happens after I offer on the property?

Once you've submitted your offer you can relax a little because now the ball is in the sellers court. They have these four basic options:

Accept The Offer - If they accept the offer, you can smile and go smoothly into escrow. This would be the best result for your offer.

Reject The Offer - If you receive the offer back and it has been rejected, chances are the seller does not think the offer is even close to what they want for the property. You can either wait, look at other homes, or try again with a new offer.

Make A Counter Offer - Many times prospective buyers will receive back a counter to their offer. In this, the terms of sale are usually modified to terms the seller would find acceptable. An example would be the seller specifying a new price, not as low as your offer but not as high as their asking price. This stage of the game is a negotiation and once you receive a counter offer, the ball is again in your court.

Ignore The Offer- If you've made an offer and you just aren't hearing anything back, you can almost bet that the owner is not terribly happy with your offer. If you have confirmed that the seller received it, no response usually indicates a lack of interest in the price you are offering. You now have the same options available if your offer had been formally rejected.

Whatever happens after you write an offer, the same values continue to be of paramount importance; a realistic attitude and a healthy dosage of patience. People would be surprised just how many times a seller will come back to a buyer they previously ignored after they've had a few weeks of their home just sitting unsold on the market. Conversely, prospective home buyers should listen to their agents advice when they tell them a home is a good deal because the good ones are often gone before most buyers have a chance to put in a good offer.

Want To Write An Offer Or Just Learn More?

Writing an offer on a piece of real estate can be a very nervous time for many home buyers but it really shouldn't be. If you remain calm and understand all the parts of the offer process, it will seem like no big deal in no time. If your interested in writing an offer of your own or you just want to learn more about the process, please feel free to contact us with any of your questions and if you get lucky and your offer is accepted, you'll need to read this escrow tutorial.

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