Writing an offer on a house can be a nerve-wracking experience, particularly in a competitive market. However, with the right knowledge and guidance, you can craft a winning offer that puts you in the best position to secure your dream home.
Here are some tips and cautions to keep in mind when writing an offer:
Include Key Contingencies
Contingencies protect you as the buyer and ensure that the transaction moves forward smoothly. It's important to include an inspection contingency to allow you to have a professional inspection of the property and negotiate any necessary repairs or credits with the seller. A financing contingency is also essential to protect you from any unforeseen financing issues that may arise during the home buying process. If either of these contingencies are not able to be met and therefore cancel your transaction, having them in the contract ensures the return of your earnest money.
Give Yourself Enough Time To Work Through The Contingencies
Your agent will know the best timeline for these contingencies due to their experience with the current market. Depending on demand the length of time will vary. They should know the availability of having an inspection done and report provided. Depending on the overall condition of the home seen during your showing, your agent may determine extra time for additional inspections, such as roof or foundation inspections. If buying an acreage property you may need time for secondary inspections for well, septic and survey. Your agent will also time the ordering of the appraisal. If ordered before the inspection you risk paying for both even if the inspection reveals deal breakers that prevent you from closing.
Offering Less Than The Asking Price
Negotiating price is a common part of making an offer. While it's always a good idea to negotiate, when offering less than the asking price there are a few tips to getting it accepted. The first thing your agent should determine is whether or not they are asking for the right price. Running a few comps to see what other comparable homes are actually selling for can strengthen your position when presented to the listing agent. If the home has been actively listed with more than the average DOM (Days On Market) the seller may be more inclined to take a lower offer. They may even have a marketing plan in place to reduce the price at certain times that you can take advantage of depending on the timing of your offer. If you offer too low or seemingly without any other reason than to just get a good deal, you risk offending the seller and this can damage your negotiating position.
There Is More To Negotiate Than Price
Keep in mind that the purchase price is not the only thing you can negotiate. You could have the seller contribute to your closings costs or a rate buy down, or both. The benefit of this contribution is that it reduces the amount of cash you need at closing. Consider this difference, reducing the price of the home by $5,000 may only save you $25 a month on your mortgage payment (Estimate $5 per $1000) but $5,000 in your hand at closing is enough for new furniture or appliances or even a repair or renovation you are considering.
Offer Over Asking
While it's tempting to offer a high price to secure your dream home, be cautious about offering too high. Overpaying for a property can cause issues with the appraisal, which can impact your financing and ability to close. It is good practice to incorporate verbiage in the contract that states what will happen if the appraisal comes in low. The options would be that you come in with the cash difference, the seller can reduce their price to appraisal value, or you can meet somewhere in the middle. The key take away is that if you do not include a protocol upfront you risk the deal falling through if you and the seller cannot agree. Remember at this time, you will have paid for an inspection and will need to pay for the appraisal as well. Also, consider the length of time you are wanting to live in your new home and the equity that you will gain over that time. Home values are always increasing and decreasing with the market. If you plan on selling in two years, when capital gains are no longer a concern, offering well over asking could put you in a difficult position when it comes time to sell.
Add An Escalation Clause
An escalation clause can be added as a condition in your offer. It will state that you, the buyer, are willing to raise your offer on a home should the seller receive a higher competing offer. The clause will state how much more than the highest offer you are willing to pay. An escalation clause can be a powerful tactic in a competitive seller's market, but use it with caution. There are multiple ways to do the escalation clause and wording is important. Be sure to set a maximum price that you're comfortable with, and consider how much you're willing to pay over the highest competing offer. Keep in mind, escalating your offer will most likely raise the purchase price above what it will appraise for, the difference is expected to be paid in cash. It is also imperative that the Listing Agent provide proof of the highest offer. And discussing the coming offer with the listing agent can be very helpful. Not every seller is open to accepting an offer with this clause, especially when the market is seeing a lot of offers being presented this way.
Work with your agent to craft a competitive offer
Your real estate agent can help you determine what specific provisions are necessary to protect your interests and ensure a successful purchase. They can also contact the listing agent to gather information about what the seller is wanting or needing and would be most likely to accept. Lean on their experience with the current market to do what is best at that time.
In summary, crafting a winning offer on a house requires careful consideration and attention to detail. By including key contingencies, and avoiding offers that are too low or too high, you can put yourself in the best position to secure your dream home. Remember to work closely with your real estate agent to ensure that your offer is competitive and reflects the current market conditions. At House of Palmer, we have all the market information and experience to write a great offer that will give you the best chance of success.