Balancing your home purchase offer will give you the best chance of getting the home you want without risking everything.
In part one of Home Buyer Bootcamp - Negotiating the Deal, we discussed the offering price. In part two, we got into the terms and conditions. In part three, we will consider bringing all the components together to create an attractive offer that is not above your risk tolerance.
Balancing the Offer ~ The Situation
In our example, the desired home is priced at $200,000. There are three other competing offers, and the house has only been for sale three days. The seller's agent is presenting all offers quickly, so there is no time to do a second showing or have an inspector do a pre-offer investigation. You really want the home and are qualified up to $225,000.
Balancing the Offer ~ What Not To Do
Knowing there are several offers submitted in a short time will likely lead to the home selling for more than asking price. Don't offer full asking price with a seller credit. As previously discussed in part one, a seller credit does two things. It reduces your net offer to the seller and makes your offer look needy. Don't ask for every inspection known to man. Over inspecting places a heavy burden on the seller and makes them feel you are overly critical of a home they have lived in safely for years. Don't put a tiny deposit down (if you can avoid it). Small escrow deposits don't give the seller confidence you are serious. Don't ask for a settlement date that is too soon or too far in the future. Have your agent inquire with the seller's agent as to what settlement date they desire.
Balancing the Offer ~ What TO Do
If you are planning on living in the home for more than ten years, make the highest and the best offer you can! Don't worry about the market value because it will change in the next decade anyway. If you are getting a mortgage, the home will have to appraise for the price you offer. I believe it is better to make an offer over asking price, say $205,000, and include an escalator up to the highest amount you ware willing to spend. See part one for information on what an escalator is. Make sure the spread on your escalator is $2,000 or more over the next highest offer, especially if you are going to select several inspections.
By offering a higher price, it makes it more likely the seller will consider your offer with a home and other inspections. Inspections can reduce your overall risk and allow you to either terminate or renegotiate the agreement if you find something adverse. For this reason, it is often better to make a higher offer and leave your inspection options open.
Include a Buyer Financial Information form (BFI). The BFI will allow you to represent your financial condition to the seller. This document, along with a pre-approval letter from an accredited mortgage lender, will go a long way in showing the seller you can purchase their home.
A note about the BFI ~ If you were a cash buyer you would be asked for proof of funds to show you had the cash to complete the home purchase. If you are not a cash buyer, likely, you will still have to come up with some money to make the purchase. Often sellers are presented with offers that show the buyer is prequalified for a mortgage but never states where the additional cash is coming from. The BFI is the solution to this issue. Using the BFI is another no-cost intangible that can make your offer stand out from the others.
Round things out with a reasonable deposit, accommodating settlement date, a personal letter telling the seller about yourself, and you are on your way to owning the home you want!
In the next and final installment of Home Buyer Boot Camp, we will discuss intangibles and other considerations when making an offer. We will discuss what to do when making an offer contingent on the sale of an existing home and including a seller credit.
Knowledge is Power!