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…