Making an offer is no longer as easy as it used to be
Bidding wars are the order of the day in today's housing market – and they can get hot. So how do you make sure your offer is what the seller can't refuse?
These seven tips will give you a better chance of beating the competition without paying too much.
The most important tip? Unless you are making a cash offer, the first step is to get approval for a mortgage loan in advance. An offer with a pre-approval letter looks much better to sellers than one without.
Get Pre-Approved To Make A Quote (June 26, 2021)
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7 tips for your best offer
When looking for a new home, you may have to compete with multiple offers on the same listing. This is especially true in a sellers' market.
While you want your offer to win, the last thing you should do is raise your bids until you can no longer afford the house.
To get the home you want without paying too much, follow these seven guidelines first.
Many of your competitors will skip some of these steps to give you a competitive advantage.
1. Get pre-approved for a mortgage
The home buying process doesn't start with finding property listings or even calling a real estate agent.
Instead, it should start with pre-approval for a mortgage from a lender.
Pre-approval performs two important steps:
Checks your price range so you know which houses you can affordShows home sellers that you are serious about buying a home and that you won't fail
Sellers prefer buyers who have been pre-approved. The pre-approval tells them you will have the money when it is time to close.
So before you hit the streets, get a pre-approval letter from one or more lenders – not just a pre-qualification letter.
A pre-approval letter confirms that you can borrow an amount of X based on this lender's assessment of your creditworthiness, assets, and income.
When pre-qualified, the lender only estimates how much you could borrow. It does not undertake to provide you with a loan.
While pre-approval takes a little longer and requires an application, it's a worthwhile investment – especially in a competitive market.
And when the seller accepts your offer and you sign a sales contract, your pre-approval gives you a head start on your mortgage application.
Start pre-approving your mortgage (June 26, 2021)
2. Leave some leeway in your bid amount
Just because a bank is willing to lend you $ 250,000 doesn't mean you should offer exactly $ 250,000 for a home. In fact, it can damage your credibility.
Seasoned sellers and real estate agents get nervous when buyers bid their full pre-approval amount.
Why is that a bad idea?
For one thing, exhausting your pre-approval could remove your "leeway" in future negotiations. The seller knows you are already spending up to your mortgage lender's limit. If interest rates go up, you may no longer qualify for that loan amount and you may have to get out of the business. Prices keep changing – until you set an interest rate – and that happens after you've signed a sales contract
Understand that just because you can afford all of your pre-approved loan amount, you shouldn't borrow that much.
Your lender will not take into account your long (expensive) commute to work, your expensive hobbies or your savings goals. You may want to borrow less and breathe easier.
Also, make sure you plan ahead for the closing costs that will be due on the closing date of your home. Typical closing costs are 3 to 5% of the loan amount.
3. Research the market and sellers
Your buyer's broker can do a comparative market analysis to help you find the fair market value of the homes you are considering.
Brokers may call this market data "comps," and it is a key piece of the puzzle when you are putting together your first bid.
But market research is more than finding a fair offer price.
By searching through public records and property listings, you or your agent can find valuable “information” about the homeowner's motives for selling. This could help you structure a successful offer for less money.
Also, check the seller's social media for any clues. You may find that you have things or people in common and that could be helpful in negotiating. Just don't push your limits when trying to get personal.
For example, you might find out that the seller is moving to a new job and needs a quick turnaround – faster than other buyers are willing to accept.
Or, you may find out that the seller hasn't found a new home and wants to postpone the closure. Armed with this information, you can come up with a more tempting offer than your competitors for the same sale price (or less).
4. Make a serious offer
Submitting a lowball offer that isn't backed by sales data usually backfires, especially in a seller's market.
Buying a home is not like haggling at a flea market. So don't offer $ 150,000 for a $ 250,000 home and then expect a counteroffer.
Too often the seller is offended by your "opening bid" and will not bother to answer your calls afterwards.
When in doubt about your bid amount, think about the home sale from a seller's perspective. As a seller, you could have put a decade or more of work and money into the house keeping the house up to date and structurally sound.
The seller can also have memories that linger in the empty rooms: a flaw on the baseboard or a faint stain on the carpet can trigger a story in the mind of the seller.
You can't attribute a dollar value to this type of emotional attachment, and it shouldn't add a dime to the purchase price of the home. Still, a low bid neglects that human aspect of the deal and can short-circuit negotiations.
This does not mean that you cannot bid below the seller's asking price; it just means that you will be more successful with a reputable offer letter backed by market data.
5. Handle the eventualities carefully
Most home purchase offers involve some standard "emergencies" – things that must happen before the deal can be closed.
It is advisable, for example, to make your offer dependent on a house inspection and the possibility of obtaining financing within a certain period of time.
The transaction should also include a valuation contingency: if the valuation of the house does not justify the loan amount, the lender will not be able to continue using your loan.
Usually, however, contingencies are an obstacle to successful closings. So keep them to a minimum.
In red-hot real estate markets, skip contingencies for non-essential repairs and loans. It doesn't hurt to ask, but be prepared to forego these eventualities in order to seal the deal.
Whatever you do, however, don't forego the home inspection. If you do and later discover a serious shortage, you could lose your deposit for the money you earned when you go out of business.
6. Use your own real estate agent – not the seller's
When you find the right house, move fast. Delays can be deal killers. At the same time, do not hire the seller's agent (also known as a "listing agent") to speed up the process.
Before you start looking for an apartment, hire a realtor who will represent your interests and help you with the negotiations.
The seller's representative is obliged to represent the seller's interests. This means that the seller gets the highest price and the best terms, not you.
Using the seller's agent creates a "double agency" situation that leaves your interests unprotected – except through you. If so, why bother hiring an agent?
After all, the brokers' commissions will likely be built into the sales price you pay. If you don't have the buyer's agent, all commission goes to the seller's agent. That's a lot of money to pay someone else's agent.
7. Keep your emotions in the background
Sometimes shoppers are so blinded by certain features – polished hardwood floors or swimming pools – that they overlook obvious flaws.
This happens to both seasoned and first-time home buyers.
Another reason to hire an agent. You need an outside advisor by your side in case you fall in love with a home and try to break your budget.
No matter how much you love a home and how good your offer to buy is, you won't always win. Instead of paying too much, be ready to go away.
There are more homes available for sale that suit your needs and wants. It is possible that your real "dream home" is still out there.
Confirm eligibility to buy a house (June 26, 2021)
Submit an offer to buy a house: FAQ
How do I make an offer for a house?
You can make an offer on a home by contacting the home's real estate agent. If you are working with your own agent, the agent should make the offer for you. For properties for sale by the owner, you or your real estate agent can contact the homeowner directly.
How much do you need to get an offer on a home?
An offer for a house does not cost anything. But if your offer is accepted, you will have to part with some cash – namely a serious deposit. The money you earn shows that you plan to enforce the sales contract. This amount can be between 1% and 3% of the purchase price and should be transferred to an escrow account so that it can be offset against your deposit later.
Do I get my earned money back?
If the sales contract fails for a reason that is listed as a contingency in your contract, you can get the money back. If you withdraw from the contract for any other reason, you risk losing the serious deposit you made.
Can I offer $ 20,000 less than list price?
You can offer any amount for a house. In a buyer's market – when fewer homes are sold – you may get a counter offer to every serious offer you make. But sellers can also ignore offers they think are too low. Your realtor should conduct a comparative market analysis to help you understand the market value of a home versus the list price. This will help you decide how much to offer. Your offer, regardless of its size, should be backed up with data.
Should you be bidding above the asking price?
In today's competitive marketplace, many buyers are offering and paying amounts well above the asking price of the home. But be careful not to overbid your budget. If the home valuation is lower than your agreed purchase price, your mortgage could be at risk. You may need to raise more cash to fill the gap between the loan amount and the selling price.
What counts as a low ball offer?
There is no reliable formula here. Typically, a low ball offer is at least 15 to 20% lower than the asking price: for example, $ 240,000 for a $ 300,000 home. But sometimes a salesperson can ask too much. If you can back up your offer with market data, make a serious offer.
How much money do I have to invest for a house?
Your minimum down payment depends on many variables, including your mortgage type and credit rating. Homebuyers who receive VA loans or USDA loans can usually buy a home with no money. An FHA loan will require at least 3.5% less, provided your credit score is at least 580. Conventional loans will require at least 3% less, but you will need a stronger credit profile to qualify.
Get a quote on a home right
Don't let an avoidable mistake stop you from buying your dream home.
Research the market, know your budget, and make sure you have all of the information you need to make a successful offer.
Most importantly, you get pre-approved funding. Your listing will look much better on the seller when you have proof in hand that you can afford the home. Here you can start the pre-approval process for the mortgage.
Confirm your new price (June 26, 2021)