Step 6: Make an Offer!
Now is when things get interesting: you see a place you want,
you figure out what you’re willing to pay for it, and you submit the offer (and
sit on pins and needles while waiting to hear back).
The first part of the process above is intuitive, but
figuring out what you’re willing to pay for it is a little more involved. On
one hand, you have to explore what you can do in light of your budget,
estimated mortgage payments, property taxes, monthly home-owners assessments
(if it’s in an association), insurance, heating/cooling costs, and potentially
parking. In addition, your agent should be able to provide you with an estimate
of closing costs factoring in things like earnest money, title transfer fees
and transfer stamps, attorney’s fee, etc. This is not the most enjoyable of exercises,
but you better count the cost.
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On the other hand, you will work with your agent to figure out
what a fair price for the property is. Your agent will lean on “comps”
(comparable properties nearby either on the market or sold in the last 6 months
or so) and make adjustments based on property differences, etc. see if the list
price is too, too low, or just right. For example, if there are two three-bed,
2-bath places on the same block and one sold that is a top floor unit with a
nice deck, you would adjust the estimated value of a first-floor unit with no
deck to a lower amount if everything else is roughly the same. The goal of this
process is for the agent to provide the buyer with an objective estimate of the
property’s worth; this may or may not be an appropriate price to offer at.
Once you and your agent know what you can do and roughly
what a place is worth, various strategies may come into play depending on the market
activity, how long the property has been listed, and how badly you want the
place. During the late fall and winter, there are generally less buyers and so
less competition (but also less places being listed, which can balance it out).
A buyer is more likely to get away with offering below what the property is
worth because the seller may not want to wait until the spring market and pay
for taxes, monthly assessments, etc. in the meantime if they are not living there
anymore. It’s often advisable to try low and go back and forth with the seller’s
counter-offer(s) to see how much the seller is willing to move down.
In the spring however, many new listings have so much activity
that a buyer is often compelled to make their best offer right off the bat.
Many sellers in the spring actually price their property for less than what it
will likely go for. This generates a lot of interest and produces an auction
effect; as one buyer visits an open house and sees five other parties also
exploring the place, it signals to them that their offer will need to be
competitive and that aiming low would probably be a waste of time.
If you absolutely love a place or you are on a tight
timeline to find your home, you’ll naturally be willing to offer more to
increase the chances of your offer being accepted. If instead you are on the fence
about how much you want it and you have time to continue searching, it might be
worth offering lower and leaving the offer’s acceptance more up to chance.
In order to officially make an offer, your agent will need a
few things from you. They will use your information to fill in the blanks of a
standardized purchase agreement and then have you sign it (electronically nowadays).
They will also need a copy of your pre-qualification letter showing that your
lender is willing to give you a loan. This will be submitted along with the
offer contract so that the seller can have confidence they are accepting an
offer from a buyer who won’t have to cancel. Finally, the agent will send you
some legally required disclosures about lead-based paint and radon and also
have you sign a property disclosure from the current owner which describes significant
defects in the property.
Once the contract and disclosures are completed and signed,
your agent will send everything over to the seller’s agent to officially make
the offer. The offer is not official unless all of these items are provided,
which again shows the importance of prequalification. It is heartbreaking for a
buyer to visit a place they love and know they want to offer on only to have
their hands tied 1-2 days during prequalification with their lender while
another buyer’s offer is accepted.
Once the offer is sent, now the ball is in the seller’s
court- they should quickly provide an estimate of when a decision will be given.
Sometimes they will call with a decision or a counter-offer within minutes. A
counter-offer means your original offer is no longer valid since their counter
implies its rejection. If an agreement hasn’t been reached, both sides may go
back and forth to meet in the middle. More about this in the next post on
negotiating the offer’s terms…
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