Making Your Offer

You've found your dream home, and you've made the decision to take the plunge. You're excited, and probably even a little scared. This is completely natural, because you know that when you take that next step, things will really begin to take shape. You're actually ready to make the seller an offer! But before you just scribble down a number on a piece of paper and hand it to the seller's agent, take some time to think it through. Call to mind the reality that your offer is the starting point for all tangible negotiations. When you're putting it together, consider the fact that all offers are a combination of both price and terms. If you give something on price, you should expect to take something on terms. For instance, you might offer an amount close to the seller's full price, but in return ask for help on closing costs or other beneficial terms. Or, if you see that the roof needs to be replaced, you might require that the seller fix it, or offer a lower price in exchange for fixing it yourself. Any obvious repairs should be addressed in your initial offer.

Remember, when you make an offer on a house, everything is negotiable – price, terms, occupancy date, what personal property (if any) is included, everything. You can literally ask for whatever you want. You may not get it, but you can certainly ask. And unless you're in a very competitive seller's market, don't offer your best (i.e., your highest) price first. Leave plenty of room for negotiating.

In the offer contract, be specific and include everything in writing. For example, you may have a verbal agreement with the seller that the washer and dryer stays, but without a written contract you'll have no recourse if along the way the washer and dryer are suddenly pulled out of the deal. Being specific is especially important when it comes to personal property, because what you consider to be personal property and what the seller considers as personal property may differ considerably. So eliminate at the outset any doubt by putting it all in writing.

Keep in mind also that, if accepted, the contract will become a legal document. You might, therefore, consider having an attorney look it over before you submit it.

Price and terms

You need to decide how much you should pay for the house. Do you offer less than the listing price, and if so, how much less? Should you offer the exact listing price? Or do you offer even more than that? In deciding what to offer, you should consider the sales prices of comparable homes, the seller's motivation to sell, the price you can afford to pay, and how motivated you are to buy.

You probably don't want to pay more for the home than it's worth, so you need to find a way of determining its value. One approach might be to ask your agent what he or she would consider a fair offer. A good agent has lots of experience in selling homes, so he or she should be able to give you a reasonable opinion of a fair price. Another strategy is to find out the selling price of comparable homes in the area. Ask for statistics of list price versus sales price of comparable local homes that sold in the past six months. For example, if similar homes in the area sold for $200,000 and the listing price of the home you want is $220,000, you may decide to offer less. But remember that price differences can vary depending upon location and the current market.

Another way to determine the market value of a home is to pay to have an appraisal done before you make your offer. (The property will be appraised as a normal course of the loan process, but this occurs after the deal has already been made.) If the house appraises for lower than the offered price and you make the offer contingent upon the appraisal, you may be able to negotiate a lower price.

When deciding on a fair price, you should also take into consideration the mindset of the seller. They probably won't come right out and say that they're desperate, but certain clues can give away a seller's thinking. For instance, find out how long the house has been on the market. If it's a new entry, the seller might not be too anxious to take the first offer he or she receives. But if the house has been on the market for several months, the seller may be a bit more anxious to accept an offer.

Find out also whether the price has been reduced, and if so, how many times. A house that's been reduced several times may be ripe for an offer. And ask when the seller originally bought the house, what they paid for it, and what their equity is (you may not get all of this data, but ask anyway). If you use a buyer's agent, he or she may also be able to ferret out other information from the listing agent. For instance, are the sellers being transferred? Are they going through a divorce? Have they had any other offers?

In addition to paying an affordable price for the house, you'll also want to specify the terms of the sale, which can include any of the following:

• What else you want the seller to provide. For instance, you may ask the seller to pay some or all of the closing costs or provide a warranty.
• What other conditions must be met for the deal to go through (in other words, contingencies). For instance, you'll probably want to make your offer contingent upon obtaining suitable financing.
• A response time, settlement time, and occupancy time. For example, you may give the seller two days to respond to your offer. You might also ask for 60 days to secure financing and require the seller to be out completely of the house on the day of the closing.
• What else is included with the house, such as appliances, window treatments, or the Lamborghini in the garage (remember, you can ask for anything that you want, and everything is negotiable).
• The required condition of the house at settlement. For example, you may want to request that certain repairs be made.
• Other provisions, such as the proration of taxes, homeowners' association and club fees, and on and on.

Contingencies

Contingencies are important, but keep in mind that the more of them you include in the offer, the less attractive the offer will be to the seller. And that's fine as long as you're operating in a buyer's market. In a seller's market, however, if you really want the house, you'll have to consider making an offer close to or at the seller's full asking price, and leave off all contingencies except those that you simply can't do without.

Suppose, for example, that you agree to purchase a house, but you can't secure a loan. Or you agree to buy a house, but find out in the meantime that it's infested with termites. If you didn't include any contingency clauses in your contract, you'd be on the hook to the house anyway. A contingency clause basically says, "Yes, I'll buy this house, if... ."

Some common contingencies include:

• Financing. If you can't get suitable financing for the home, you'll need to be able to withdraw from the deal. Be sure to specify exactly what type of financing (including terms) is acceptable to you.
• Clear deed and title. Include a clause that ensures you get a clear deed and title to the house. The lender will require a title search. Who pays for this search and what happens if problems are uncovered should be clearly stated in the contract.
• Home inspection. You may want to make the sale conditional on a professional inspection of the home. Specify who pays for the inspection and what happens if problems are found. For example, just having the sale contingent upon an inspection being performed doesn't guarantee that the seller has to fix the faulty plumbing that's uncovered. Will you ask that some or all items be corrected by the seller? Work out these terms beforehand. Additionally, you may want to have the house inspected for termites, radon, lead paint, asbestos, or other hazards (your lender may require some of these tests before as a condition of the loan).
• The appraisal. Your lender will undoubtedly require an appraisal of the property before the loan is approved. You could make your offer contingent upon the appraisal, and you may want to spell out what should be done if the appraisal comes back lower than the selling price, such as renegotiating the price or withdrawing from the deal, for example.
• Other contingencies. You might make the transaction dependent other contingencies, such as the sale of your current home. There's any number of contingencies that you can use, but it's not wise to make them frivolous in nature.

Setting time limits

Buying a home is largely a waiting game. You have the right to specify how long you're willing to wait for the seller to respond to your offer. You should require a written response within a certain time limit – for instance, 48 hours. If you don't require a response, the seller can 'sit' on your offer, perhaps until a better one comes along. But you can, however, cancel an offer at any time before it's been accepted.

When setting a settlement, or closing, date, be sure to allow enough time for your loan application to be approved and processed – 45 to 60 days is usually a reasonable timeframe. You should also set a date on which to take occupancy. Most people typically want to move in immediately after the closing (though this certainly isn't mandatory). It's a good idea, therefore, to ensure that the sellers are out before the settlement. In some cases, you may make a special arrangement for the sellers to remain in the house for a period of time after closing and pay you rent. If this is the case, the exact terms should be spelled out in the contract.

Personal Property

For the purpose of this discussion, personal property can generally be defined as anything that can be picked up and moved. Conversely, anything that is attached to the home is real property. The sellers are entitled to take the personal property, but must leave the real property. That's simple and straightforward enough, right? Well, other homebuyers thought so too, until they moved in and found that the sellers had taken the carpeting, curtains, stove, refrigerator, dishwasher, cabinets, light fixtures, doorknobs, and anything else that wasn't nailed or glued down securely.

To avoid a situation such as this, you should explicitly state which items you want the seller to leave. If you want all of the window treatments, ceiling fans, and the chandelier in the dining room, specify it in your offer. The same goes for appliances, carpets and rugs, mirrors, stained glass, and everything else you want to stay, whether real or personal property (remember, you can ask for anything).

Condition of the house on closing date

In the contract, be sure to state in what condition you expect to receive the house. For instance, you might require that the plumbing, heating, mechanical, and electrical systems be in good working order at closing. You may also want the house to be left empty and clean.

Request a walk-through inspection no sooner than the day before closing to ensure that the house is in the same condition as when you made the offer. If you want a walk-through, put it in the offer. If you take one, check for any damage to the property – holes in the walls, broken windows, marks in the flooring, spots on the carpet, and the like. Check to be sure the heating, air conditioning, plumbing, and other components are working properly.

Making an earnest money deposit

When you make an offer on a house, the seller will want to see that you're committed to making the purchase and will usually require a deposit, or earnest money. The amount of the deposit varies by location and custom, but should be specified in the contract. The contract should also state who will hold the deposit until closing. Make sure that this is a neutral party who will put the money into escrow.

Finally, be sure to specify what will happen to the deposit if the deal doesn't go through. If the seller doesn't accept your offer or the deal collapses through a fault of seller, you should have the money returned to you within a reasonable period of time.