There are many factors to consider when making an offer to buy a house. First, you need to determine a price that you can afford but which is also reasonable to ask. There are also other terms and conditions you can ask for, but what you can afford to ask will depend on the price you offer and the conditions under which the house is being sold. Also be prepared to enter into a negotiation, as your first offer may not be accepted. Read on to find out more details.
Steps
Method 1 of 4: Part One: Before You Begin - Working with a Real Estate Agent or Working Yourself
Step 1. Get pre-approved
Before you even start looking for a home, you should get preliminary approval for a mortgage from a bank. Don't wait until you've found the house you want to buy to do so, as you may get bad news after so much effort.
- During the process, there will be a short session with a credit institution who will analyze your financial information. You won't actually apply for a mortgage, but you can realize what you can expect or hope for when the time comes.
- Pre-approval gives you a better idea of the indicative price you can offer.
- Performing this process also reassures the salesperson you are bargaining with, as it indicates your level of seriousness.
Step 2. Know the benefits of working with a real estate agent
In general, working with a real estate agent when you buy a house is easier than working alone. Being professionals, real estate agents know what to look for and can guide you through your search and offer to make. It will mean an additional cost, but most people who buy home find it worth it.
- Real estate agents have standard forms available and, as professionals, they make sure these are up to date according to the newest and most revised laws. These forms are available to you when you work with a real estate agent.
- In addition, the seller's compliance with transparency laws may be enforced by the seller.
Step 3. Know the pros and cons of working alone
If you are experienced enough to be able to buy a house without professional help, it will save you extra money. Unfortunately, you are also exposed to the risk of making more mistakes and facing more difficulties. Additionally, many sellers may not be willing to cooperate without the presence of a real estate agent.
Even if you don't work with a real estate agent, you may want to consider hiring a lawyer to make a solid contract when the time comes
Step 4. Consider hiring a building appraiser or inspector
Once you find a home you want to bid for, do a personal inspection and consider asking a professional inspector to do the same, as their eyes may notice more detail than yours. You should try to hire an appraiser who can look at the house and give you an estimate of its actual value.
- A thorough inspection will include property, foundation and roof analysis. A check for termites should also be conducted.
- In your contract, you should specify that any offer is "contingent depending on how much the value provided by the estimator is above or similar to the selling price". This essentially means that you are required to confirm the offer only if your appraiser assures you that you will get the value you are paying for.
Method 2 of 4: Part Two: Finding the Right Sum
Step 1. Use a comparative market analysis (CMA)
A CMA provides a mathematical way of estimating the "true" value of a property. It breaks down a property into its basic characteristics, including square meters, counts rooms, bathrooms, and compares it to other houses with similar characteristics that are nearby.
- The houses that the CMA compares to the one for sale will either be on the market or recently sold.
- Pay attention to the differences between the displayed price and the final price. The price displayed is what the seller asks, but the final price is what the buyer actually paid for the house that was sold.
- Use the CMA to quantify your offer. Take the limits lower and higher by looking at the lowest and highest sales in the CMA. Average the selling prices, and determine if the house you are considering should be paid more or less depending on its size, furnishings and location in relation to those of the other houses in the CMA.
Step 2. Make a note of any special features
There may also be features of a home not listed in the official announcement that may still be considered valuable. For example, if all the bathrooms in the house have been recently renovated, you can be sure that you won't need to repair them in the near future and incur other expenses.
If you do enough research, you can usually get an idea of how much these different characteristics may be worth. Look for price lists on the internet, comparing houses that are similar in area and square meters but not so much in special features. You can also speak to your real estate agent, if you have one, to get an idea of the cost of these features
Step 3. Know the market trends
Your zone will currently be below the buyer's or seller's market, and the difference between the two can greatly affect how much you can bring down the price of your offer.
- In a buyer's market, you can get a better deal. In a seller's market, it may be more difficult to find a profitable deal.
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Consider the types of stories you hear about home sales in your area.
- If you hear stories of buyers placing a dozen bids before one is accepted, or stories of homes receiving a dozen bids, you may be dealing with a seller's market.
- If you hear stories of buyers getting great deals on homes that have been on sale for a long time, buyers who have lots of homes to choose from within a budget, or buyers who make sellers work a lot on the property, you may be dealing with with a market that of buyers.
- These types of stories are of course not the most accurate way to determine the market, but they can give you a basic idea.
Step 4. Understand the competition
You have to consider the competition for both the buyer and the seller. As a general rule, if there are a lot of homes and properties in your CMA, it is the seller who has the most competition, and therefore you may find yourself in a buyer's market.
You still need to take into account how many homes there are on average on the market in that area, to determine whether or not there is an abundance of homes for sale in your CMA
Method 3 of 4: Part Three: Submit a Formal Offer
Step 1. Inspect the house
You may have already had an appraiser do a site inspection, but you still need to do your final inspection before submitting your formal offer. The eye of an estimator may pick up details that you would be missing, but sometimes the reverse is also true: your eyes may see something that the estimator has not paid attention to.
When you do your inspection, test everything that is left in the house and check all the faucets and sinks to make sure there are no leaks
Step 2. Learn about state and local laws regarding contracts of this nature
While many national and local laws are roughly the same when it comes to contracts, there may be variations, so it is very important to take a look at them so that you are aware of your responsibilities and rights throughout the process.
If you have any questions or concerns, consult a lawyer or other lawyer in your area
Step 3. Prepare a written offer
An oral agreement will not be binding. You have to prepare an actual contract in order to be able to make a formal offer on a home.
Step 4. Know what the offer should contain
An offer contains more information than just the price you are willing to pay for the house. Each of these additional terms should be included in the legal document:
- Address and a legal description of the property.
- Proposed sale price.
- Special terms (cash only for a certain amount; the seller's contribution to close costs, house guarantee in case something breaks, etc.).
- The seller's promise to provide an undamaged property.
- The expected closing date.
- The amount of a down payment that accompanies the offer.
- How property taxes, rent, gas, water bills and other services will be resolved between seller and buyer.
- A statement on how you will pay for insurance and title inspection.
- Other specific requests from your state or municipality.
- A provision that allows you, as a buyer, to make a final inspection on site before closing the deal.
- A time limit for the offer.
- Contingencies.
Step 5. Specify each contingency
In this context, a contingency refers to the conditions that must be met in order for you to be willing to buy the house on your stated terms. These should be clearly specified in the contract.
- A common contingency would be that the buyer must be able to obtain a specific type of financing from a bank or other credit institution. If the loan cannot be obtained, the buyer is not tied to the contract.
- Another common contingency would be that a satisfactory report arrives from a building inspector within a few days (10 days, 14 days, etc.) after acceptance of the offer. If after the time limit you as a buyer are not satisfied with the inspector's report, the contract is void.
Step 6. Prepare a down payment
A down payment is a cash sum that is included in your offer to show your good faith and serious intention to buy the house. If you are working with a real estate agent, the agent usually holds the sum on hold during negotiations.
- If an offer is not accompanied by a down payment, the seller may be suspicious of the seriousness of your intentions.
- As long as you specify what will have to happen to the down payment if the sale is canceled, you don't have to worry about losing it. If the sale goes through, it usually becomes the first payment installment.
- If you are not working with a real estate agent, you should have an attorney hold the down payment.
Method 4 of 4: Part Four: Negotiations
Step 1. Reinforce your position in the agreement
There are some qualities and conditions that you can meet in order to be in control of the negotiation. If you approach the situation from a position of strength, it will be easier to get what you want.
If you're a cash buyer, already pre-approved for a mortgage, or don't have a home that needs to be sold before you can afford to buy, you'll be a much more attractive buyer to a seller
Step 2. Find out why the house is for sale
A seller's motivations can have a greater influence on the process than you expect. For example, if the seller has an interest in selling fast, they may be more inclined to accept your terms and your price.
- It could be beneficial to you if the seller is going through a divorce or business transfer, or if the home is for sale as part of an estate liquidation. It might work in your favor that the seller has another house and the one for sale is empty, and it is just an extra expense for them.
- Think about how long the house has been on sale, and whether or not there has been a reduction in the price. If the house has been on sale for a long time, and the price has already been lowered once or twice, the seller may be in a hurry to find someone to get it out of their hands.
- Sellers who are not in a rush to sell, on the other hand, due to the absence of specific time limits or special financial needs, will in all likelihood result in a more difficult deal.
Step 3. Wait for the seller's response
A seller can accept a first offer, but will usually respond with a counter offer which may include a different price or different terms.
- Analyze the counter offer carefully to make sure you understand all the differences. If you can, it is helpful to consult with a real estate agent or lawyer during the proceedings.
- Seller and buyer can go on indefinitely, presenting counter-offers to each other; the process generally ends when the two sides reach an agreement or when one of the two decides that the "bidding war" has lasted too long and abandons.
Step 4. Accept, decline, or make another counter offer
The ball is now in your court. You can accept the seller's counter offer, or reject it completely. If you think there is room for further negotiations, you can also make your own counter offer.
- After receiving a counter offer, you are free to end the negotiations if you wish. There shouldn't be any legal issues in doing this, but you should still check with an agent or attorney to verify if you have any concerns.
- You should first choose a maximum price you are willing to pay, and keep it constant. Once trades reach that price, if the seller is unwilling to accept it, they abandon the offer.
Step 5. Know if and when to withdraw an offer
In most cases, you can withdraw an offer during deals if the negotiation seems to go nowhere or if your circumstances suddenly change. Some states and municipalities may have laws governing this process, so for your own good you should be familiar with them before filing a withdrawal.
- In most cases, you will have no problem withdrawing an offer until the moment it is accepted. Sometimes, you can still withdraw it if you haven't been notified yet that the offer was accepted.
- You should always consult a lawyer or real estate agent before withdrawing an offer to ensure that you do not lose your deposit and are not sued for possible damages resulting from your withdrawal.
