Making and Negotiating an Offer
So, you’ve found a home that fits your needs and lifestyle and are ready to make an offer. Good for you! So what comes next?
First, because you have already been pre-qualified, you know what your loan amount and purchase price cap as well as your payment tolerances, so you will feel comfortable enough with the numbers to determine an offering price.
Your Agent will pull recent neighborhood comparable sales to suggest an appropriate value/offer for the home. You should also review the listing history (price, time on market). Work to find an agreement that both parties can be happy with. After all, if you like the home the goal is to write an offer that is acceptable to both you and the Seller – if the Seller says “no way”, then no deal!
One way to strengthen an offer for the Seller is to increase the earnest money deposit you write with the offer. The earnest money assures the Seller that you are indeed a “real” Buyer, that you are committed to purchasing their property and will follow-through with the terms of the contract.
Be sure to offer enough earnest money for the Seller to agree to take their home off the market. This amount is held by the Broker until the agreed upon time. The idea is the Seller agrees to accept this amount in the event of Buyer default. And it needs to be enough that they will, in fact, accept it in event of Buyer default rather than sue the Buyer to perform (buy the house anyway). The Seller will weigh an offer with $100 earnest money differently than with $1000. Why? A Buyer is less likely to be willing to break a contract and walk away from $1000!
NOTE: Your earnest money check will most often be deposited upon contract acceptance, so funds must be available at the time the check is written!
Review the home warranty options available.
A home warranty is not a warranty, but a one-year service contract. The Buyer may purchase this at closing, ask the Seller for one in the offer or the Seller may offer one to the Buyer. If you would like to include a home warranty in the offer, consider your offer price vs. asking price and other unique factors in the contract. This is a relatively inexpensive item, but if the offer is otherwise too demanding it can be the straw that breaks the camel’s back (and the deal!). It’s ok to ask for a home warranty, especially with a strong offer, but be prepared to pay for it yourself if the Seller baulks.
The closing date may be another way to strengthen an offer. For example, if you are offering on a vacant home, more than likely the Seller will not look favorably on a closing date that is 2-3 months out. If you can close quickly this will benefit the Seller, as their ultimate goal is to get it off their books.
What about counter offers? Hopefully there will not be too many. Ideally, the offer was close enough to what both parties want to come to an agreement with no more than one counter-offer. Be ready to give something to get something! If there is too much back-and-forth, one or both parties may become agitated or be more likely to become offended. This can endanger the deal and lessen the chance of a successful agreement!
Don’t try to be a killer negotiator. Negotiation is definitely a part of the real estate process, but trying to “win” by getting an extra-low price may lose you the home you love.
NEXT: Applying for the Mortgage