Offering on a House? - Decisions You'll Make as the Buyer

You’ve just toured the home of your dreams. You are ready to take the leap and make your first offer! If this home just hit the market, chances are other buyers are thinking the exact same thing. If you want to be competitive, you’ll have to make your offer soon.

Making an offer on a home isn’t just about price. There are several decisions you’ll have to make when writing your offer. Your realtor will help guide you, yet you are the one with the final say. This can be overwhelming under a high-pressure circumstance. Yet, if you know what to expect, the process of writing your first offer will go so much smoother.

Here are some of the common decisions you’ll most likely have to make when drafting your offer. (This covers many of the standard items you’ll need to think about, although your specific situation may alter the decisions you’ll make.)

Price

This one is probably the most obvious and often the most important to the seller. Your agent will be able to give you comparable properties and advice on the market value of the home to help you make this decision. Regardless of what previous sold homes have sold for, finding out whether you are competing with others will help you narrow down a price range.

What items in the house you’d like included or excluded

When a home is listed in the MLS, it will tell you exactly what the seller is willing to give with the home and what they’d like to exclude. Typically, the seller excludes personal property. You’ll want to check the MLS listing for what will be included. Often times it is things like: Washer/dryer, dishwasher, fridge, microwave, range, etc. When you go through your offer to purchase, ensure the items you feel important are included in this. If you want something that may be considered personal property, your agent can help you fill out a bill of sale. Things that are fixtures to the home will automatically be included with your purchase price.

Closing Date

If you need to obtain traditional financing, a good rule of thumb is to ensure your closing date is at least 30 days away. Ask your lender what an appropriate time frame would be for them to get you your loan commitment. In many cases, sellers prefer sooner closing dates. Before drafting your offer, consider asking the seller if they have a preference on closing date. If you have a home sale contingency, talk to your agent about how to juggle closing date deadlines. Whatever date you choose, make sure it doesn’t fall on a holiday.

Earnest Money

Earnest money is “good faith” money. You typically send the earnest money to be held by the listing broker’s trust account within 5 days of your accepted offer. Your earnest money ends up going towards your down payment, so this is not an additional cost. This is an amount you pay up front to show the sellers that you are serious about buying their home. If a buyer tries to get out of an offer for no reason other than “cold feet”, buyers should be prepared to lose this earnest money.

That being said, earnest money is typically between 1%-2% of the purchase price. You can submit more if you’d like to make yourself even more competitive.

Financing

By the time you sit down to write your offer, you should already have this piece flushed out. To write an offer contingent on financing, you’ll want to make sure that you can include a pre-approval letter from your lender as well.

Keep in mind that your loan program is very important to a seller. Sellers typically prefer conventional loans. Loans like VA, FHA and USDA loans tend to be stricter with additional testing or eligibility requirements.

When drafting your offer, your agent will typically need to know the following:

• Down payment amount

• Loan type

• Length of mortgage

• Fixed or adjustable rate

• Interest rate

Appraisal

If you have financing, your lender will likely require you to get an appraisal. This is a report that will give you an official opinion of price. Lenders require appraisals to confirm that the amount you are purchasing the house for is less than or equal to the amount it is officially valued to make sure it is a safe investment for the bank.

If you have found your dream home and you know that the competition is fierce, there is a chance that the price the home will go for is above what an appraisal may define as it’s true market value. Per the offer to purchase, this puts the seller in a tricky place because you may be able to get out of the offer because of this.

In order to stay competitive, you may consider adding language that tells the seller that you would be willing to cover the difference between the purchase price and the appraised value up to a certain amount. Your realtor will be able to provide advice to help you make this decision.

Inspections

If a home purchase falls through, more often than not, it is due to inspection issues. Sellers pay close attention to terms for an inspection. Buyer agents on our team always recommend our buyers include an inspection with their offer. It’s so important to know the issues in a home before closing. Typically, your home inspection will be done by a qualified, licensed home inspector. Your inspector will review the entire property. Based on the findings, you will need to make sure all negotiations regarding inspection are completed within a certain time frame. Often around 14 days.

As a buyer, you could decide to add additional language for something called an “inspection cap”. If you know you are going to be in a competitive situation, this could help you win the offer. Basically, an inspection cap states that you as the buyer, will not negotiate defects in the home up to $X amount.

Let’s say that you write in a $1,000 inspection cap. Let’s also say that you have a roof that is in such bad shape that it needs to be replaced. (Please note, in order for this to be a valid claim, your home inspector would need to state that an issue exists and that a licensed roofer should evaluate further). Once a roofer reviews the roof, they send an estimate of $8,000 to repair the roof. Now you can negotiate $7,000 since you had a $1,000 inspection cap. In inspection negotiations, you’ll have 3 basic options for negotiation.

1. You can ask for a credit at closing (you may need to verify with your lender the max. allowed credit)

2. You can ask for a reduction in purchase price, or a combination of credit and price reduction.

3. You can ask that the roof be replaced before closing. (Assuming that the roof was the only defect on the inspection report, you would probably need to contribute $1,000 if you wanted to go with this option)

Please keep in mind that at the end of the day, inspection are always negotiations. They are never cut and dry.

Radon Testing

This is something an inspector does not automatically test. Radon is a naturally occurring element in the ground that can seep into homes. Radon is the second leading cause of lung cancer. In Dane County, radon is common in many homes.

When making an offer on a home, you do have the option to make your offer contingent on a radon test. Inspectors typically charge between $75-$150 to run the test. If your home has high levels of radon, it costs anywhere from $800-$1,000 to mitigate.

Adding this contingency does make you less competitive, yet whether you decide to make your offer contingent on this test or not, we always highly recommend people test for radon in their home at some point.

There are certainly other things you may need to make decisions on when offering on a home depending on your situation and property. If you’d like to talk more about the Offer to Purchase and your unique situation, please Contact Us! We’d be happy to chat with you.