Ah, the offer!
Cinematically speaking, this is the iconic moment — we’d forgive you if you imagined, say, putting a hand on your REALTORS®’ shoulder and whispering (in your best Vito Corleone) that you’re going to make them an offer they can’t refuse.
In reality, it’s not that simple (or dramatic). Your offer marks the beginning of a back-and-forth between you and the seller, typically with REALTORS® advising you both.
The more intentional you are about your offer, the better your chances of making a successful bid. Follow these 10 steps, and you’ll be well prepared — that’s a true story. (“The Godfather” again. We couldn’t resist.)
1. Know Your Limits
Your agent will help you craft a winning offer. You can trust your agent’s advice on price, contingencies, and other terms of the deal: It’s a mutually beneficial relationship. The more collaborative you are with your agent, the more quickly you’ll be able to move.
But ultimately, it’s you who decides what the offer will be — and you who knows what your financial and lifestyle limits are. Buying a home means mixing strong emotions with business savvy, so now is also a good time to reflect on your “musts.”
2. Learn to Speak “Contract”
Essentially, an offer is a contract. The documents and wording vary across the country.
In the spirit of due diligence, take time to review sample offer forms before you’ve found a house. If you’re high-maintenance, a real estate attorney can explain the documents to you so you’re familiar with their vocabulary when you’re ready to pull the trigger on an offer with your REALTOR®. Your agent will provide the official offer forms.
3. Set Your Price
Homes always have a listing price. Think of it as the seller’s opening bid in your negotiation to buy a home.
As the buyer, your offer will include an offer price. This is the first thing home sellers look at when they receive a bid.
Your REALTOR® will help you determine whether the seller’s listing price is fair by running comps (or comparables), a process that involves comparing the house you’re bidding on to similar properties that recently sold in the neighborhood.
Several factors can also affect your bargaining position and offer price. For example, if the home has been sitting on the market for a while, or you’re in a buyer’s market where supply exceeds demand, the seller may be willing to accept an offer that’s below the list price. Or if the seller has already received another offer on the home, that may impact the price you’re willing to offer. Your REALTOR® will help you understand the context here.
4. Figure Out Your Down Payment
To get a mortgage, you have to make a down payment on your loan. For conventional loans, making a 20% down payment enables borrowers to avoid having to pay mortgage default insurance, a monthly premium that protects the lender in case the borrower defaults on the loan.
But 20% isn’t always feasible — or even necessary. Your lender will help you determine what the best down payment amount is for your finances. Depending on the type of loan you get, you may even be able to put down as little as 0% on your mortgage.
For home buyers who meet certain criteria, there are federal government assistance programs to help you reach a homeownership goal. Some of the available programs include First-Time Home Buyers’ Tax Credit, Home Buyers Plan and CMHC Green Home program. For a more comprehensive list of government programs, go to Service Canada at wwww.canada.ca. Your REALTOR® will be able to provide valuable advice about available programs and how they can help you become a homeowner.
You can use winnipegrealestatenews.com’s online mortgage calculator to see how different down payments would affect your mortgage premiums and how much you’ll pay in interest.
5. Show the Seller You’re Serious: Make a Deposit
A real estate deposit is the sum of money you put down as evidence to the seller that you’re serious about buying the house. If the seller accepts your offer, the deposit money will go toward your down payment at closing. However, if you try to back out of the deal, you might have to forfeit the cash to the seller.
A standard deposit is 1% to 3% of the sales price of the home (so, that would be $2,000 to $6,000 on a $200,000 loan). But depending on how hot the market is in your desired area, you may want to put down more deposit money to compete with other offers.
In most cases, the title company is responsible for holding the deposit money in an escrow account. In the event the deal falls through, the title company will disperse the funds appropriately based on the terms of the sales contract. Title companies also check for defects or liens on a seller’s title to make sure it can be transferred cleanly to you.
6. Review the Contingency Plans
Most real estate offers include contingencies — provisions that must be met before the transaction can go through, or the buyer is entitled to walk away from the deal with their deposit.
For example, if an offer says, “This contract is contingent upon a home inspection,” the buyer has a set number of days after the offer is accepted to do an inspection of the property with a licensed or certified home inspector.
If something is wrong with the house, the buyer can request the seller to make repairs. But most repairs are negotiable; the seller may agree to some, but say no to others. Or the seller can offer a price reduction, or a credit at closing, based on the cost of the repairs. This is where your REALTOR® can offer real value and counsel on what you should ask the seller to fix.
Just remember to keep your eye on the big picture. If you and the seller are bickering over a $500 repair to the hardwood floors, keep in mind that’s a drop in the bucket in relation to the size of the bid.
7. Read the Fine Print About the Property
The sales contract states key information about the property, such as the address, tax ID, and the types of utilities: public water or private well, gas or electric heating, and so on. It also includes a section that specifies what personal property and fixtures the seller agrees to leave behind, like appliances, lighting fixtures, and window shades. The seller provides prospective buyers with a list of these items before they submit an offer. This can be another area of negotiation.
Carefully reviewing the property description also helps you know, for example, if the seller plans to take that unattached kitchen island with them when they move. (Stranger things have happened.)
8. Make a Date to Settle
The sales contract you submit to the seller must include a proposed settlement date, which confirms when the transaction will be finalized. The clock starts as soon as the purchase agreement is signed. If you don’t close on time, the party that’s responsible for the delay may have to pay the other party compensation in the form of “penalty interest” at a predetermined rate.
A 30- to 60-day settlement period is common because it gives the typical home buyer time to complete a title search and obtain mortgage approval, but settlement periods can vary. Some sellers, for example, prefer a longer period so they have more time to move or look for their next house. Being flexible, with respect to the closing date, could give you more negotiating power in another area of the deal.
One thing that’s the same no matter where you live is that you’ll have a three-day period prior to settlement to review the Closing Disclosure, or CD — a form that states your final loan terms and closing costs.
Once the sales contract is signed, the parties can change the settlement date if they both sign an addendum specifying the new day.
9. Write a Fan Letter to the Seller
Want to make a truly compelling offer? Pull on the seller’s heartstrings by attaching a personal letter to the bid documents. Tell a compelling story about your family and your connection to the area. Get deep about your roots.
Also, sincere flattery can go a long way. Compliment the seller on how their kitchen renovation looks Apartment Therapy–worthy, for instance, or how the succulents in their landscaping remind you of a resort in Palm Springs.
Your REALTOR® can help you gather background on the sellers (e.g., are they crazy about their labradoodle, like you are about yours? Did they run a small business from the home, like you dream of doing?). And you should — of course — refer to information you gleaned during the open house or private showing. Use this intel to write a message that really speaks to the seller, and it may very well seal the deal.
10. Brace Yourself for a Counteroffer
If you’re making a lowball bid or going up against multiple offers, the seller may decide to make you a counteroffer — a purchase agreement with new terms, such as a higher sales price or fewer contingencies.
At that point, it’s up to you to accept the new contract, make your own counteroffer to the sellers, or walk away.
Don’t panic: Your REALTOR® has the expertise to walk you through the counteroffer process, and offer strategies to give you more negotiating power.