After months (or years) looking for that dream home, you have finally spotted a perfect property. Well, congratulations, but before you pop the champagne, there’s still a lot to do, and it all starts with making an offer on your first home. Depending on the state of the market, you might have to make several offers before succeeding in buying one.
Whether you’re working alone or with a local realtor, competing against other sellers can be an emotionally draining experience, especially in a sellers’ market. Luckily, this guide will take you through the entire process, providing valuable tips and advice to help you confidently make an offer on your first home. Read on.
Making an Offer on a House: More than Quoting a Price
Making an offer for your first home could be an overwhelming task. It’s your first time doing this, and you must learn how to get it right. Remember that an offer on a house isn’t just about telling the seller how much you’re willing to pay. The seller probably has multiple offers already, and you must go beyond an enticing offer to get the negotiations going.
You need proof that you can pay the amount, and your real estate agent will guide you on other matters surrounding the offer process. For instance, you need to establish a closing date, indicate how you will cover additional costs, and clarify anything you expect of the seller leading up to closing.
Some considerations when making an offer include:
- Making the right offer for the right house
- Getting the right timing for your offer
- Factoring any contingencies that may affect your offer (Common contingencies include the home inspection, appraisal, financing, and title)
- Deciding your earnest money offer (An amount of up-front cash you put into the transaction that you forfeit if you back out of the deal)
- Preparing for bidding wars
- Re-negotiating
- Backing out of a deal in some cases
Before You Make an Offer On Your First Home
Making an offer on a home requires careful planning and preparation. Here are some tips to help you prepare:
- Research the market: Research the local housing market to determine the property’s fair market value. This will help you avoid overpaying or underbidding.
- Get Pre-Approved for a Mortgage: Determine your budget by getting pre-approved for a mortgage. Pre-approval uses your actual income and credit information to calculate how much home you qualify for. This is proof that you’re qualified to buy the house.
- Understand the seller’s motivations: Understanding the seller’s causes can help you negotiate a better deal. For example, if the seller is motivated to sell quickly, they may be willing to accept a lower offer.
- Consider contingencies: Contingencies are clauses in the offer allowing you to back out of the deal if certain conditions are unmet. The five types of contingencies are home inspection, appraisal, financing, home sale, and title.
Prepare your paperwork: Before making an offer, ensure you have all the necessary paperwork, including pre-approval for your mortgage and a pre-written offer letter.
How to Determine Your Offer Price
How much will you offer on that dream home? Here are some tips to help you determine the right price:
- Research the market: Research the local housing market to determine the property’s fair market value. Your local real estate agent gathers sales data from other homes in the area to point you in the right direction.
- Consider the property’s condition: The property’s condition can affect the value. If the property requires repairs or renovations, this should be reflected in the offer price.
- Research the home and its history: How long has the seller owned it, and how long has it been listed? For a house that has been on the market for a long time, the seller will be more willing to sell, offering more room for negotiation.
You can find much about a home in its listing and public property records. If you attend an open house, you can also ask questions there. The listing agent or someone from their brokerage will be on site.
- Consider the seller’s motivations: Understanding the seller’s motivations can help you negotiate a better deal. For example, if the seller is motivated to sell quickly, they may be willing to accept a lower offer.
- Factor in closing costs: Closing costs can add up quickly, so it’s important to factor them into your offer price. These costs can include appraisal fees, inspection fees, and attorney fees.
- Be flexible: Be prepared to negotiate with the seller to reach a mutually beneficial agreement.
Making the Offer: Important Steps and Considerations
Here are some tips to help you make a compelling offer:
- Include a pre-approval letter: This makes it more attractive to the seller by showing that you are a serious buyer.
- Include a deposit: Including a deposit with your offer can also make it more attractive to the seller, showing that you are committed to the deal.
- Be specific: Be specific about the terms of your offer, such as the price, contingencies, and closing date.
- Set a deadline: Setting a deadline for the seller to respond to your offer can help keep the process moving forward.
- Be prepared to negotiate: Deal with the seller to reach a mutually beneficial agreement.
How to Negotiate the offer
Once you submit your offer, the seller can accept it, reject it or make a counteroffer. An accepted bid is the best news for a homeowner, and if this happens, congratulations. On the other hand, if your offer is rejected, continue your home search. To improve the chances of getting the offer accepted, here are some ideas:
- Work with an agent or REALTOR®
- Understand the market: Research similar properties in the area to determine what they are selling for.
- Know your budget: Knowing your budget can help you negotiate a deal within your means.
- Be flexible: Be willing to compromise on certain terms. Reducing the number of contingencies you’re asking for gives the seller an assurance of your seriousness, and they could accept your offer.
- Stick to your priorities: Stick to your priorities, such as the price or condition of the property, while negotiating.
- Raise your price (within reason): You may have to up the ante, and your agent’s expertise is handy here.
- Increase Your Earnest Money Deposit (EMD): Increasing your earnest money deposit shows your seriousness about the property. A standard EMD is typically 1% to 2% of the home’s sales price, but you can up it to persuade the seller.
- Counteroffer: Your agent guides the negotiations and uses similarly priced “comps” to make your bid look more attractive.
- Be prepared to walk away: If you cannot reach a mutually beneficial agreement, be prepared to walk away from the deal on the advice of your real estate agent. Trust your gut instinct and let your realtor guide you too.
Mistakes to Avoid When Making an Offer on Your First Home
A lot goes into making an offer for your first home. The quality of the offer determines if you will finally get that dream home or if the search will continue. We have identified some common mistakes most first-time home buyers make to help you get it right. Take a look:
- Not Consulting Comparables: Don’t overlook houses of similar size, location, and features in the same neighborhood “comps” to see the “typical” price for that type of house.
- Overbidding: This could lead to financial strain and a risk of default on monthly payments.
- Failure to investigate specifics for the property: Skipping a home inspection means you lose out on some specifics you could leverage when making an offer.
- Ignoring market conditions: Is it a buyer’s or seller’s market? There’s a glut of houses in a buyer’s market, while in a seller’s market, the homes’ inventory is limited.
- Not negotiating: Failing to deal can result in missing out on potential savings.
- Not utilizing contingencies: Sellers don’t like contingencies, but more is needed to ignore some conditions when making your offer. Your realtor guides you on contingencies and how to leverage these.
- Poor preparations: Not getting pre-approved before shopping, lack of the right team, and necessary paperwork can slow down the process and lead to missed opportunities.
Final Word: Making a Winning Offer for Your First Home
Making an offer is one of the most significant steps in the home purchase process. The nature of your request determines if you get that home, but luckily, you have your real estate agent to guide you. Considering all these factors, you can confidently make an offer on your first home. Watch out for common pitfalls when making your offer, and soon you’ll be on the way to home ownership.
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