Contrary to popular belief, the home buying process doesn’t start with the first offer. It actually starts with you finding the right house. But we’re going to skip that one and instead focus on how to make an offer for the listing you like.
There are many steps when it comes to buying your dream home. Due to the sheer amount of things involved, the home buying process is actually a very difficult one. But it can be done if you follow our quick 4 steps guide. So with all that said, let’s start.
Before You Make an Offer
You’ve probably found the house you like, but there are other things we need to take into consideration before you submit an offer. The first and probably most important, and one that greatly impacts whether or not your offer gets accepted or rejected, is getting pre-approved.
Getting pre-approved for a mortgage loan makes you seem very serious in the eyes of the seller. More so, it means you have the financial side of things taken care of. All that’s left is for your real estate agent to then contact the seller. And that puts us nicely to the second thing you should take care of before you make an offer.
Getting in touch with a real estate agent is a very smart move. It is in fact something that everyone should do before they make an offer. A real estate agent knows the ins and outs of the industry. They know what you need to do to land your dream home and they know how to do it for you. Instead of you taking care of the paperwork, a real estate agent will handle it for you. Considering that there’s quite a lot of paperwork to go around, it makes the job more important if the right person handles it.
So these are the two things every home buyer should have taken care of before making an offer. Now, let’s look at how to actually do that.
Step 1: Decide How Much You’re Going to Offer
This is the first step when it comes to making an offer. But how do you know how much to offer for the desired property? Well, this is where the real estate agent comes into play. No doubt you have a budget in place, and you need to make sure not to go over it. Going over will result in some financial implications, but going greatly under will result in your offer getting thrown out the window.
Your best bet is to go slightly below what the seller asks. But there are three things you should always consider before you decide.
The first is to consider how long the home has been on the market. If the seller has trouble selling it, then they might be more motivated to go below the asking price. If the home is freshly added, then chances are your offer will get rejected if you try to lowball.
The second thing to consider is the market. This is where the real estate agent will greatly help you. Since a real estate agent understands the current market and the housing costs, they will create a comparative market analysis that takes multiple things into consideration. Based on these factors, they will recommend a price similar to what the seller asks.
And the third thing to consider is, of course, your budget. We mentioned this but you should never go above your budget. You will need to offer an amount that you will be comfortable repaying with monthly mortgage payments.
While these three factors are important, your real estate agent is there to assist you throughout this step.
Step 2: Decide How Much Earnest Money To Offer
Earnest money is making a cash deposit that is typically around 1 to 2% of the total valuation for the home. We make an earnest money deposit to tell the seller that we’re serious about buying the property. The deposit sits in escrow and will be then used for a mortgage down payment. While the seller doesn’t receive any of the earnest money, remember that it puts you in good light and tells the seller that you have the finances to back the deposit.
Step 3: Write an Offer
This is the part where you make the offer. Although you’re not making it, you’re actually writing a letter. If you’re going with an agent, then they’ll be tasked with making the offer. Writing an offer letter isn’t easy, and you’ll most likely struggle to do it yourself. This letter is quite complex and contains information such as the home you want to buy (address), your name, the amount of money you offer, contingencies, earnest money deposit, mortgage preapproval letter, and the date you wish to close on the loan.
Step 4: Negotiations
Once you make the offer or send the letter, you’ll enter negotiations on the final price and terms of sale. But before that, the seller can either accept your offer, make a counteroffer, or reject you. Depending on what happens, you’ll have to send a new offer, make a counteroffer to their counteroffer, or walk away from the deal.
Your real estate agent will be there to assist you throughout the process, and they’ll be tasked with opening channels of communication.
While we’ve put it in quite simple terms, making an offer for a house is a very long process. With plenty of things to take into consideration, the home buying process can be frustrating if you don’t make the right offer. Thus, you’ll have to be smart but careful not to disrespect the seller and end your chance of buying your dream home.