Conditions may be right for you to finally buy a house. House prices are down in most parts of the country and interest rates are at historic lows. However, your excitement may quickly turn to nerves as you go through the tense process of making an offer and waiting for the seller to (hopefully) accept it. Be smart about the process and to understand exactly what you are getting yourself into so you can make a sound real estate investment.
How Much to Offer
Most people do not offer the exact amount that is listed for a home. The specifics of how much you should offer will vary depending on what you believe the market value of the home is. Your real estate agent should help you to determine how much is appropriate by looking at “comps” in the area. If you aren’t working with a real estate agent, you can also look at comps yourself.
Comps are simply sales of comparable homes in the same area where the house you are looking to buy is located. You should take the time to determine what the reasonable value of the house is, as compared to the other houses on the market. Don’t forget to take into account and adjust for the age and condition of the home you are offering, adjusting upward or downward depending on whether your home is newer and in better condition or older and in need of more repairs.
Making a Formal Offer
When making a smart offer on a home, you typically must include an “earnest money” deposit with the offer that signifies to the seller that you are actually serious about buying the house and going through with the transaction. You will lose this earnest money if you make an offer, the offer is accepted and you simply decide not to go ahead with the deal.
Before you make an offer, make sure you are serious about buying the house and that you protect yourself with the proper contingencies in the paperwork you submit. You also need to make sure that the offer is for an amount you are willing to pay, and is reasonable based on what the home is worth.
The other key to making an offer on a piece of real estate is to include the correct contingency clauses. These clauses allow you to get out of the purchase if it turns out that something is wrong or you cannot go through with the transaction.
Typically contingency clauses include a financing contingency and a contingency on the property passing inspection. By including these clauses, you can walk away from the deal and get your money back if you cannot get a mortgage to buy the home or if it turns out that the house is in poor condition.
Your real estate agent may also suggest other contingencies depending on the type of property you are buying or the nature of the transaction. Even in a simple transaction, however, you want to make sure you aren’t forced into going through with a deal if something goes awry- and contingencies protect you from this.
Submitting Your Offer
After you have reviewed all of the paperwork and included any necessary contingencies, you can submit your formal offer to the sellers of the home. You will specify a certain period of time that the offer is good for. The sellers must accept or counter within that period of time or you are no longer bound by the terms of your offer. If the seller accepts, you will have to go through with the transaction or risk losing your deposit, unless one of your contingencies provides you with an out.
Finally, a common result is that the seller will make a counter offer to change the terms or the price or to include contingencies. If the seller makes a counter offer, the ball is back in your court and you’ll have a choice as to whether to accept or walk away from the deal.