It’s one thing to idly scroll through online house listings. It’s something else entirely to make a real offer to buy a home, even now when the purchase process has taken on an entirely new form combining online shopping, social distancing open houses, and video consultations with realtors and mortgage providers.
Making an offer on a home is serious business. A purchase agreement is a legally binding document. Once you’ve submitted an offer to the seller, the earnest money deposit that you are required to make upon acceptance is the primary thing to lose (other than not getting the home) if things fall through with the deal later on in the process, so it’s important to get it right.
We’ve got a rundown of the steps in the offer-making process, and some tips for making an offer the right way.
1. Making an Offer: the Basics
The actual offer process for buying a home is pretty straightforward.
As the buyer, you make a written offer. Then, the seller reviews your offer. Your agent and the seller’s agent are typically both involved in helping frame this contract to give you the best chance of getting the deal done.
The seller may have several offers to review at once: they might wait a few days or weeks to see if additional offers come in. Or, the seller could respond to your offer right away depending on the intensity of the local real-estate market and their eagerness to sell.
The seller can choose to accept your offer, reject the offer, or send you a counter offer, but coming prepared with a well constructed pre-approval and start-to-finish financing plan can dramatically help your chances in getting yours accepted. This is also particularly true in the COVID-19 climate when sellers are more wary to sell and the proof of financing needs to be ironclad.
If the seller accepts the offer, you move forward with closing. In most parts of the country, you as the buyer would need to put a good faith payment or earnest money into escrow.
Then, you’d move forward with securing your mortgage financing, and your real estate agent and mortgage professionals would get to work ordering appraisals and title searches and scheduling final closing details. This is where things start to pick up and happen quickly. Our goal at Morty is to make this process easy, manageable, and understandable for the borrower.
If the seller sends you a counter offer, it would be your turn to review the counter offer. You can decide whether to accept it, reject it, or negotiate further. Negotiations can continue until you and the seller reach a mutually acceptable agreement, in which case, you would move forward with buying the home.
Or, you and the seller could fail to reach an agreement. In that case, it’s back to house-hunting until you find another home for which you’d like to put in an offer.
While the offer process itself is pretty simple, it can be a little intimidating, especially for first-time homebuyers. So we’ve got a few tips for how to put an offer together well.
2. Do Some Research Before Offering to Pay the Asking Price
A home is not a pair of shoes at a department store. You don’t have to pay the price listed on the tag. The seller’s asking price is just a starting point for negotiations: when you’re making your offer, you can choose to offer more or less than the price on the listing.
Of course, deciding on a fair price for your offer can be a bit tricky. Offer too little, and the seller could dismiss your offer outright. But if you offer too much, you could wind up agreeing to pay more than you needed to, or even worse, more than an appraiser will say the home is worth.
Your best bet? See what you can find out about similar recent home sales.
Have other homes in the neighborhood sold quickly for more than their initial asking prices? Then you should probably be prepared to offer more than the listing price, too. Have similar homes languished unsold for months and months? Then an offer well below the listing price might not be out of the question.
Home listing sites online can help you look at recent sales figures, but we’d recommend taking the time to solicit the help of a professional. Discuss with your realtor or your mortgage advisor about what trends they’re seeing in your area. Your mortgage provider is a great resource because they can give an objective lens on what’s happening in your area as well as the broader housing market without the same incentives to push an individual home. Only you can ultimately decide what you’re willing to pay, but getting some advice on what to consider can make that decision easier.
3. Get Pre-Approved for Your Mortgage Before Making an Offer
Sellers don’t want to spend weeks and months working with a buyer only to discover down the road that the buyer can’t come up with the funds to buy the home. (Trust us: it happens.)
That means that along with your offer, you’ll want to demonstrate that you can get financing for your home purchase. Plenty of seller’s agents won’t accept offers without proof of eligibility for financing.
Getting pre-approved for your mortgage can be quick and pretty easy. So when you’re getting ready to make an offer, go ahead and take a few minutes to get pre-approved. A pre-approval letter in-hand can show the seller that you are, in fact, serious and qualified. It also helps to consult with your mortgage advisor when you’re ready to make the offer. They might be able to help add additional info to the approval, restructure the mortgage to help you make your best offer, and get ahead of the craziness that ensues once the offer gets accepted⏤this is true now more than ever!
4. Be Strategic About Contingencies
Contingencies are a big part of any offer. Essentially, contingencies are conditions that buyers and sellers need to meet for the deal to go through.
For example, most property purchasing agreements include a contingency that states that the sale is subject to a property appraisal. If the property appraises for much less than the agreed-upon selling price, a mortgage lender won’t be willing to loan you as much money. (Plus, you probably don’t want to spend more on a property than a professional says it’s worth.)
It’s also pretty common to include a contingency stating that the deal is off if you, the buyer, can’t obtain financing. That way, you don’t wind up obligated to buy a property if you have trouble securing a mortgage.
Buyers can include all kinds of contingencies in their purchase offers. You can request repairs be completed or paid-for by the seller before the sale is final. Buyers can also make an offer that depends on the buyer’s ability to sell their existing home first: that way, they’ll have the money from the sale of the previous home to purchase this new home.
As a buyer, it’s best not to get too carried away with contingencies. In tight real estate markets, lots of contingencies can remove your offer from the running outright. If everything else is equal, most sellers will choose deals with fewer hurdles to clear. A tip most buyers don’t know? Your mortgage advisor can be a great resource for constructing these contingencies. The quicker certain things can get done, the stronger your offer. So it pays to catch up with the lender of choice to customize your closing experience to match the contingencies put in place before they get finalized.
5. Get A Professional to Look Over the Paperwork
So, how should you decide which contingencies are worth including? What terms and conditions belong in your offer? How do you protect yourself from shady sellers or too-good-to-be-true deals?
Putting together an offer is one situation where professional help is really valuable. Yes, you can find listings for homes all by yourself. But getting someone, like a real-estate agent, who knows what they’re doing in your local market to help you draft and submit an offer is a smart move. Having an objective third party⏤like an independent mortgage advisor⏤review the purchase contract is also an overlooked but valuable resource. They do not have the same incentives or connections to real-estate agents on the transaction and they can help spot unusual requirements that are tucked into the fine print of a purchase contract.
6. Be Ready for a Counter Offer
Right now, most American cities are facing a bit of a housing crunch on the affordable, first-home end of the market; adding that to the uncertainty around selling a home in the midst of a global pandemic means there are more folks interested in owning a home than there are homes to go around. Since that is the case, many sellers are able to be a little bit choosy about what offers they’ll accept. So it’s not uncommon for sellers to respond to buyer’s offers with their own counter offers.
Just like buyer’s offers, seller’s counter offers can include adjustments to just about any aspect of the proposed deal. Perhaps the seller is just really attached to the refrigerator, and can’t bear the thought of leaving it behind. Or maybe the seller would like to make the deal, but wants to wait to transfer possession of the property until the end of the school year, so the kids won’t need to move mid-semester.
The most common counter offers concern price.
As a buyer, you’ll want to be prepared for counter offers from the seller. It can be easy to get emotionally attached to a particular home, but don’t lose sight of your budget in the process. Sometimes, an extra few thousands dollars really is more than you can do. Don’t be afraid to walk away from a counter offer if you can’t swing it.
That being said, you can strengthen your offer without increasing price (i.e. contingencies or stronger upfront approval that can make a quick close a reality) to combat a counter offer. Being flexible where you can might also give you a leg up on other would-be buyers. A few month’s difference in your ideal move-in date shouldn’t prevent you from buying a home you plan to live in for the next several decades.
7. But Also: Be Ready for an Acceptance
Remember: real life is not an HGTV home-hunting program. Yes, bidding wars happen in tight real estate markets. Yes, buyers and sellers can go back and forth on contingencies and price and move-in timelines. But if you put in an offer to buy a home, you should absolutely be ready for that offer to be accepted straight away.
Many homebuyers are a little surprised when a seller accepts their offer. If you can avoid being one of them, you’ll have a less stressful home buying experience.
So for example, if you know you’ll need to cash-out some investments for your earnest money or your down payment, get that ball rolling now. Turning less liquid assets into cash can take some time. You’ll need to be able to access those funds as soon as the seller accepts your offer.
Do some research and ask for recommendations for home inspectors or contractors early, so you’ll have names and numbers to call when you get the green light.
8. The Best Way to Be Ready for an Accepted Offer
If you’ve already started the mortgage process, then you’ll be in great shape to quickly move forward in locking a rate and working towards your final approval. (Yet another reason to get a head start, even just with a quick mortgage consultation.)
But even so, there are a number of important steps that can only be completed once your offer is accepted, so you’ll want to make sure you’re ready to pay attention and respond to phone calls and emails from your lender or mortgage broker.
Once your offer is accepted, your lender will get busy officially approving your mortgage. Sometimes, they’ll need signatures or updated documents or additional information, so you’ll want to make sure you’re ready to pay attention and respond to phone calls and emails from your lender or mortgage broker. With lenders changing requirements day-to-day as the pandemic affects the market, this is especially true. For many homebuyers, making an offer is the point in the whole process where home buying starts to feel real. So if you’re ready to put in that offer (or almost ready) we’re ready to help you get your mortgage. Learn about how Morty makes finding the best mortgage easy. When you’re ready for your mortgage, you can get started here.