Tuesday, January 9, 2007

Adventures in First-Time Homebuying #7: How to Make An Offer They Don’t Refuse

Author: Nick
Category: Money

the next day, somebody woke up with that piggy bank in his bed

All the pieces are starting to come together now. You’ve secured the financing, and your real estate agent has shown you some fabulous homes. Once you’ve picked one out that’s just right for you, it’s time to put on your best poker face and grab that house for as little of your money as possible.

If you took my advice and obtained the services of a real estate agent (it probably won’t cost you a dime!), he or she will help you determine an amount to offer the sellers for their property. But in case you’re going it alone, or you want to do your own research, you’ll want to keep in mind the following when writing all those zeroes.

Questions to Ask Yourself When Making An Offer on Real Estate

  • For how much have other comparable homes sold? This should be the #1 factor in helping you make your offer. Look at nearby homes of similar size and adjust accordingly for anything your property of interest has extra or lacks. The best “comps” are those that have sold in the last few months.
  • What else is for sale in the neighborhood? If three out of ten homes on the block are for sale, for example, the extra competition in your immediate line of sight puts extra pressure on the seller. The opposite is also true; houses in rarely-available neighborhoods can go quickly and at high prices.
  • How’s the market? A buyers’ market enables you to throw out offers that would normally make sellers laugh at you. “Who’s laughing now, seller? Here’s 50 bucks… now gimme your house!”
  • How badly do you want this house? Will your spouse nag you for years if you let this one slip between your fingers? Just don’t let personal feelings push you into offering a ridiculous sum.
  • How badly do you think other people want this house? If you had to shove your way into the open house, and you spotted people carrying large briefcases full of money, you might be in for a bit of competition. Price to win, but don’t be afraid to lose. There are other houses, of course.
  • Is the seller looking to sell quickly? See below for more details on this.
  • What’s the list price? I don’t know why they bother putting prices up with real estate listings. Sometimes sellers purposely price very low, while others price high to start and drop later if needed. You’ll have to guess which one of these your sellers are doing and see through to the real price they have in mind.

How to Spot Eager Sellers

We spotted eager sellers right away and priced accordingly. Here’s how you can save thousands on a home by spotting sellers who need your money now.

he obviously did not see the movie

  • Moving truck in the driveway. If only it were always this easy. Sometimes you’ll luck out and walk into an already-packed house, or the seller’s agent will hint that they’re looking to sell quickly. The bad news is that other prospective buyers will also be clued in to this information, so it might not help you that much.
  • Sale contingencies. Requests for rent-back (a period of time after the property becomes yours when the sellers remain on the property and pay you rent) or other sale-related contingencies might hint at the seller’s future plans.
  • How’s the market? If it’s a buyer’s market, the sellers may have little trouble locating a new home. Now they just need to ditch their old one, and that’s where you come in to help them… and yourself!
  • Condition of the house. A home with numerous problems might indicate sellers who want to have nothing further to do with it.
  • Ask the neighbors. See if the sellers have any enemies in the neighborhood who know that, for example, they’re leaving the country in three weeks. Just be sure to thank them appropriately when you move in so you don’t get similar treatment when you’re ready to sell.
  • Nuances in the disclosures. This is where we caught our sellers. One page of their house’s disclosures was dated months before the house went on the market–a sure sign that they were waiting to sell until they had a contract on a new home. We spotted this right away and submitted an offer that our agent said would’ve been beaten easily if they had more time to wait.

What’s In An Offer?

I hope you’re not the type who hates paperwork because here comes a million more pages just for you! It might seem overwhelming, but almost all of it falls into one of these categories:

  • A whole lot of lawyer talk. You’d think you were buying a child with all the legal mumbo jumbo in the papers you fill out to submit an offer. Don’t worry; most states have a standard template for real estate offers, and your agent will fill it out for you. That doesn’t mean you shouldn’t still read it…
  • Contingencies. You’ll probably want to add contingencies for the house to pass inspection and a search on its title history. Also add one for your mortgage approval in case something goes wrong and you can’t secure the loan after all.
  • Extras you want/don’t want. The seller probably listed all the items in the house they’re leaving behind (appliances, fixtures, etc.), but if something not listed catches your eye, you’re allowed to ask for it to be included. You can also ask for unwanted items to be removed, like that “decorative” pile of bees listed as a “free honey source.”
  • Deadlines. Some pertain to you–how long you have to secure financing, perform inspections, etc. Others pertain to the sellers, including the deadline for them to respond to your offer. If a deadline passes, the other party can break the contract without penalty. So do stuff on time!
  • Dollar signs. First and foremost, there’s the price you’re willing to pay.
    You might also ask the sellers to throw in some cash to help with closing costs.

Offer Submitted. Now What?

somebody needs to read this guide again

Your agent will fax the offer to their agent. Their agent must present them with all offers submitted, even if the offer is stupid (i.e. “will trade cat for house”). The sellers will mull the offer over and get back to you, hopefully before the deadline. A few things might happen.

  • Your offer will be ignored. WTF? Ignore my offer? I kill you! I KIIIIIILL YOU. Okay, maybe it got lost in the fax machine. Or maybe it really really sucked. Try again if you dare.
  • Your offer will be accepted. Aw yeah! Barring any legal hurdles or unmet contingencies, you’ll soon be a proud homeowner.
  • You’ll receive a counter-offer. The sellers want something more from you–probably more money, but they might want to tack on contingencies or ask you to waive some of yours. Consider their counter-offer and either accept it, reject it, or counter it.
  • Your offer will be rejected. Your offer sucked hard, and the owners want you to know it. In fact, it was so bad that they didn’t even present a counter-offer! Submit a second offer if you like, but be prepared to cough up some extra pocket change.

Don’t freak out over rejected offers. You can always submit another, and there are other houses out there. You’re bound to have an offer accepted eventually, and that’s when things get really interesting…

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