Once you have found the house you want, you need to make a written offer to buy it. There are many things to consider before you write the offer. You will need your pre-approval from your lender, an earnest money check( an amount of money you put down when making an offer to demonstrate your good faith, usually $1000 or more based on the price of the home) and a written offer to purchase that you will complete with the help of your Realtor. Obviously, the price you wish to offer is an important consideration but there are many other factors that may affect whether or not your offer is accepted. These other factors are called contingencies and they may sometimes be as important to the success of your offer as the price.
If you are obtaining a mortgage to purchase the property then your Realtor will want to include a financing contingency. The bank will normally also require an appraisal of the property to be completed and therefore you will also need an appraisal contingency. If you are paying cash, you will need to decide if you wish to have an appraisal done, since it is not required. In the financing contingency, you will need to include the type of mortgage you are obtaining( conventional, FHA, VA, etc.) and the date by which you will be providing the seller with your final loan approval (typically 30 days or so). If you have already been pre-approved, the bank should have all the required documentation from you and will just need a copy of the final purchase contract and the completed appraisal. You will also need to decide if you will be asking the seller to pay any of your closing costs. Keep in mind that if you request this in the offer, it will reduce the amount of proceeds the seller will net. For example, if you are offering $100,000 on the property and asking the seller to pay $5000 in closing costs, the seller will see the offer as $95,000 not $100,000. This will weaken your offer if you are competing with another buyer who offers $100,000 and does not ask for closing costs. If you have an appraisal contingency in your offer, the property must appraise for at least the amount you are borrowing or the bank will probably not make the loan.
If you need to sell your current home in order to buy this one then you will need a home sale contingency. This is a contingency that allows you to make an offer to purchase a new home contingent on the sale of your current home by a specified date. If you can sell your home on or before that date, then you can remove this contingency and proceed with the purchase. Keep in mind that you could be ìbumpedî by another offer that does not contain a home sale contingency. If this happens, you will have a small window of time
( typically 48 hrs or so) to decide if you wish to remove your contingencies and proceed with the purchase. You should have already discussed this possibility with your lender so you know if you can qualify for the new loan without the sale of your current home, otherwise you will not be able to remove your contingency and the new buyer will be able to purchase the home. Offers containing home sale contingencies are usually less desirable to sellers, so if you must make an offer contingent on selling your current home the offering price should be as attractive as possible to the sellers.
There are also other contingencies you may want to include such as home inspection contingencies, radon testing contingencies and attorney approval contingencies to name a few. It always my recommendation to do a home inspection when purchasing any property. Home Inspectors are licensed and are thoroughly trained to inspect all aspects of the home and give you a clear picture of itís condition. If you have a home inspection contingency and the inspection turns up a serious issue that the seller is unwilling to fix, you are not obligated to proceed with the purchase. Keep in mind that having an inspection does not insure that the seller will fix everything the inspector finds, but it does allow you an out if a serious problem is found. Inspections typically run around $300 and are well worth the money considering the sizeable investment you are about to make in a home.
It is also highly recommended that you retain an attorney to represent you in your purchase. Realtors are not attorneys and cannot give you legal advice. An attorney will review your contract and your closing documents to insure everything is in order for your purchase. Again, considering the large investment you are making to purchase a home, it is well worth retaining an attorney to represent your interests.
Now, we come to price. Many factors need to be considered when deciding how much to offer on a home. Your Realtor can provide you with comparable sale information to help establish market value for the property. You also need to consider what contingencies you will need to put into your offer as they will also affect the price you are offering. What personal property if any are you asking for? Are you flexible with your closing date? Do you need to ask the seller to help with closing costs? Every seller wants a cash offer with no contingencies and if you are able to make such an offer, then you have a much better negotiating position. If you are asking for a lot of contingencies and have no flexibility as far as a closing date, then you will need to offer a price that makes it worth it for the seller to accept your offer. If you are making an offer on a foreclosure or bank owned property, keep in mind that there is usually not a lot of negotiating room on the price. Typically theses homes are priced to sell quickly and to minimize the loss the bank has to take. Our market in this area has stabilized and most homes are priced pretty close to market value. We have not seen the big jump in pricing that some other areas of the country have seen where they are having bidding wars. There is, however, a large market for well priced homes in good condition so you may be competing with other buyers. Only you can decide how much you want this home and keep that in mind when making an offer. The ìcleanerî (lack of contingencies) the offer, the more desirable to the seller. You may only get one chance to make your offer, so make I the most attractive offer you can and you will have the best chance at having the winning offer. Next month I will address the final step in the process: the closing.