Deciding How Much To Offer

The time has come to make an offer on the home you would like to purchase. If you're like most buyers you won't offer what the seller is asking but will propose a lower price. But how much lower? Most sellers anticipate a low initial offer and build in a 5% cushion. There are a number of things to consider when formulating your offer:

• Market Value of the House
  • Is the asking price of the home similar to other properties in the area? Ask your agent if he or she has prepared a "comparative market analysis" on the property. This is a report that compares similar properties in this area currently on the market and equivalent properties that have sold in recent months.
    
    
• Condition of the House
  • By this time you should have a pretty good idea of the home's condition. If there are problems that need to be fixed after you move in, you'll want to find out approximately how much it's going to cost to do the work. You can use this information to help calculate an offer.
    
    
• Circumstances of the Sale
  • Why is the owner selling? Are they purchasing a new home and, if so, are they ready to move or already making payments on their new residence? Find out how long it's been on the market and if there have been any previous offers. All of this will help you understand how motivated the seller is to have a firm sale.
    
    
• What Can You Afford
  • You need to know if you can afford the payments before you make an offer. If you've been pre-approved this is something you'll already know. If not, there are calculators you can use to determine your monthly payment and a mortgage lender such as 1st Source Bank will be happy to help you figure this out. Don't forget that utilities, taxes, and insurance will all play a part in how much you can afford. In addition, fight the temptation to buy a home that will be difficult to maintain. It might feel good at first, but when you find that housing expenses take all of your money, the thrill will be gone.
    
    
• Financing Terms
  • There are two parts to an offer: the price and the financing terms. Sometimes the financial conditions can be even more important than the price. If, for example, the seller is offering appealing terms such as paying for the title search, the home inspection, and other closing costs, you may be inclined to meet them more than halfway on the price.

If you really want the house try to hide your enthusiasm from the realtor and the seller. This lets them "get inside" your head and know you are anxious. This could be interpreted that you'll be a soft negotiator. Hold your emotions in check and try to stick to business.

What the Offer Includes

An offer is a document proposing a certain purchase price under specified terms and is presented to the seller by the realtor. Preparing an offer provides a good opportunity for you to talk to your realtor about why you want to offer a particular price.

Along with the offer you will provide "earnest money." which indicates to the seller you are serious about purchasing their home. There is no particular sum required and your realtor will be glad to advise you on customary amounts. The amount of earnest money you pay will be applied to your down payment. The check needs to be made out to the real estate agent and will be deposited in the escrow account. If the seller doesn't accept the offer, the money is returned to you. If the seller accepts and you back out later, you forfeit the money.

At a minimum the offer should contain the following:

• Complete legal description of the property
• Amount of earnest money
• Offering price
• Size of down payment and how the house will be financed
• List of items the seller offered to leave with the house that you would like to keep
• Proposed occupancy and closing dates
• Length of time offer is valid (normally five days)
• Stipulation that your obligation to buy is contingent upon the successful negotiation of the contract, satisfactory inspection reports, and approval for financing

Counter Offer and Negotiating

Once your offer has been presented, the seller will either accept it, reject it, or make a counter offer. If a counter offer is made, don't feel pressured to make a decision right away. The realtor may insist you act quickly because "other buyers are waiting." This is a common sales ploy and may or may not be true. Whatever the case, the decision to purchase a new home is too important to rush. Any changes made to your original offer by the seller constitute a completely new offer. This is not binding until you accept it in writing by initialing any changes made on the original offer.

At this time you have the same three choices you had the first time around: accept, reject, or make another offer. If you make another offer, you might be asked to increase the amount of earnest money held in escrow. The same items contained in the first offer need to be included in this one as well.

This process can take place again and again until you and the seller arrive at an agreement you can both live with.