Now that you and your real estate agent have found a home, it's time to make an offer. Taking into account recent sales of homes in the neighborhood which are similar in size, quality, conveniences, and amenities, what are you willing to pay? Your real estate agent will consult with you and advise you on how to create an offer that will have the best chance of being accepted.
Your agent will ensure that you have everything down in written form—no verbal agreements, putting your offer in a written contract that meets all the legal requirements according to local and national guidelines. Your agent will then present the seller with a written document detailing what needs to be done by both parties to execute the transaction. The contract should protect the best interests of all parties involved and should be comprehensive in nature. Your agent will also ensure your financial position as the buyer by including any necessary contingencies, which would protect you if a particular requirement were not met. Once the seller accepts it, it may be too late to make any changes.
The contract, though not limited to this list, should include the following:
- A legal description of the property
- The offering price
- The down payment
- Financing arrangements
- A list of fees and who will pay them
- Amount of the deposit
- Inspection rights and possible repair allowances
- The method of conveying the title and who will handle the closing
- A list of appliances and furnishings which will stay with the home
- The settlement date
- Any relevant contingencies
Remember that the legalities of this phase are very important. If you have any questions or concerns, they need to be addressed right away. No one has ever said at their closing, "I wish I had asked fewer questions."
NEGOTIATE THE OFFER
Once your offer is made, you and your real estate agent may need to enter some negotiation in order to reach an agreement. Keep in mind that almost everything is negotiable when you are buying a house. This can give you a great deal of leverage in the buying process—that is, if you have adequate information and you use it in an appropriate manner. Your agent will have the market knowledge and negotiating expertise necessary to make sure that your offer is accepted at the best price and terms possible for you.
Some of the things that you may have to negotiate are:
- Closing costs
- Repairs that need to be done
- Appliances and fixtures
- Occupancy time frame
The key to successful negotiating is keeping in mind that the end result must make both you, the buyer, and the seller happy. Otherwise, negative feelings will persist throughout the remainder of the process and someone may walk away feeling that they were not treated fairly.
Remember that a sale commitment depends on negotiating a satisfactory contract with the seller, not just making an offer.
HOW DO I DETERMINE THE INITIAL OFFER?
Unless you have a buyer's agent, remember that the agent works for the seller. Make a point of asking him or her to keep your discussions and information confidential. Listen to your real estate agent's advice, but follow your own instincts on deciding a fair price. Calculating your offer should involve several factors: what homes sell for in the area, the home's condition, how long it's been on the market, financing terms, and the seller's situation. By the time you're ready to make an offer, you should have a good idea of what the home is worth and what you can afford. And be prepared for give-and-take negotiation, which is very common when buying a home. Both buyer and seller often go back and forth until they can agree on a price.
WHAT IS EARNEST MONEY? HOW MUCH SHOULD I SET ASIDE?
Earnest money is money put down to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price (though the amount can vary with local customs and conditions). If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal, you must forfeit the entire amount.
WHAT ARE "HOME WARRANTIES" AND SHOULD I CONSIDER THEM?
Home warranties offer you protection for a specific period of time (e.g., one year) against potentially costly problems, like unexpected repairs on appliances or home systems, which are not covered by homeowner's insurance. Warranties are becoming more popular because they offer protection during the time immediately following the purchase of a home, a time when many people find themselves cash-strapped.