Looking for a new home is an exciting journey. The real struggle, however, begins once you’ve found a place you want to live in. What comes after that? In a competitive market where numerous individuals could be eyeing the same house, how do you make your offer stand out? There are several strategies and factors to keep in mind while making your offer on a house, starting from offer letters to contingencies and down payments.
At Zumbly, we make life easier for real estate investors and those looking to buy a home by providing useful property scores and values. Let’s take a look at some of the important elements of making an offer on a house.
The Process of Making an Offer on a House
After you decide that you’re interested in a property, the process of making an offer begins. You have to be prepared to negotiate or even walk away if the terms don’t suit your conditions. Do your research and know your local market well. Also, keep other properties in mind and be aware of comp prices so that your offer is well-informed.
Here’s how the process of making an offer for a house works:
- You make a written offer to the seller.
- The seller either accepts, declines, or presents a counter-offer.
- If the seller presents a counter-offer, you can either choose to decline or accept the offer or negotiate back and forth until you’ve both reached a conclusion you can agree on.
- If the seller accepts your offer, you move on to sign the purchase agreement. This means that you’re now under a contract. This duration of time is known as the contingency period. Any inspections, appraisals, and anything else mentioned in your purchase agreement will take place during this period.
Contingencies and Other Offer Details
Contingencies are events that could happen between the signing of the purchase agreement and the closing that could end or alter the contract. These contingencies protect you by allowing you to make changes to the contract or even walk away if you discover issues with the house or find out that it isn’t worth as much as you’d imagined.
Non-financial perks can also be included to make the deal better. For example, you can offer to close quickly in case the seller is in a rush to move. Or if they’re unable to find a place, you can rent out the place to the seller after the closing, until they find a new property. Your real estate agent can help you to decide what contingencies to include.
Some common contingencies when buying a home include:
- Home Inspection
Before closing the deal, you can ask for a home inspection. A home inspector examines the house or property and points out defects or issues that the buyers might overlook. This can include issues with the roof, the attic, or any major problems that could surface.
Post the home inspection report, the buyers can either choose to ask the seller to resolve these issues, or lower the price. They can also decide to back out altogether if the problems are too many or if the seller doesn’t agree to repair the damaged areas.
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- Hazard Inspections
Hazard inspections look to dig up issues that aren’t uncovered in a home inspection, such as radon, pests, and lead paint. Although these are optional, they’re recommended, especially in areas where the rate of termite infestations or radon contamination is high.
- Sewer and Well Inspection
Sewer and well inspections are conducted in order to evaluate the condition, functionality, and safety of a property’s water and sanitation system. This usually costs a non-refundable amount anywhere between $200 to $500. A contaminated well or a damaged sewer line will have to be fixed by the seller, and if that can’t be agreed on, the buyer can cancel the agreement.
- Early Occupancy
An early occupancy situation occurs when the buyer doesn’t have a place to stay before the closing date, which happens if their previous house is sold before the current deal takes place. In such a scenario, the seller can allow them to move in before the closing date and make changes to the purchase agreement accordingly.
How Much Should You Put Down for the Earnest Money Deposit?
Depositing earnest money is a crucial part of the home-buying process. It provides proof to the seller that you’re serious about the purchase and also helps with your down payment. The earnest money is usually cashed and kept in a title company trust account, or in the broker’s escrow account. Once you hand in the earnest money, you will receive a receipt from your brokerage.
On average, you can hand over about 1% to 2% of the total home purchase price as your earnest money deposit. In some real estate markets, the earnest amount can be more or less than the average amount. This depends on whether the demand is high or if you’re buying from an area where the houses aren’t selling quickly.
Your agent might recommend that you’re more likely to win a bid if you provide the seller with a large deposit. The seller can even negotiate on the overall price if your deposit is big enough for them to know that you really are interested in the property.
On the other hand, depositing a lot of cash as earnest money isn’t always the best decision. Gathering that amount and losing the use of it for weeks or months prior to the closing date is not something everyone can choose to do. If you can provide the necessary documents and show that you’ve been in possession of that money for at least 60 days, you’ll be good to go.
What are the Elements to Include in Your Offer Letter?
When you’re making an offer on a house, you’re probably dealing with a lot of competition depending on the market. With so many others bidding for the same house, how do you make yourself unique? The answer to that is an offer letter. Your offer letter to the buyer shouldn’t just include technical details such as the expected closing date or information about your mortgage, but personal details as well.
Here are the most necessary elements to include in your offer letter that can make it stand out:
- Address the seller by their name. This adds a personal touch and makes the seller feel a warm sort of welcome from your end. Writing them as “X” or so is something many can do, but the minute you address them by their name, they know that you’ve done your research and are respectful towards them. You can either find the name of the seller online or through your real estate agent.
- Tell them what you like most about the house. Mention little details that you really admire. The house is probably a place they’ve owned for a long time and are naturally attached to; therefore, it will make them feel good to know that you’re someone who appreciates the nuances of the house and has an eye for the minute details.
- Share a few personal details about yourself. In addition to flattering the seller, this point works really well. When you open up to the seller, they get an idea of the kind of person who wants to buy their house and increases their confidence in you. You can tell them about why you want to move in, how much moving into that particular house with your family will mean to you, and so on.
- Mention what you have in common with them. Good friendships are usually formed based on common likes and dislikes, right? Use that to your advantage. You could do that by taking features from the house. For example, if you saw a painting whose artist you admire as well, or if there are posters about sports celebrities that you follow, too, etc.
- You can choose to throw in a personal picture of you with your family. This will be a good touch to the letter. Also, remember to keep it short instead of turning it into an essay. There are probably many letters they have to get to. Therefore, in order to make yours memorable, get to the point quickly, and tell them how much you would love to buy their house.
The duration between making an offer for a house and the closing date can be a long one. Therefore, you have to be patient and play your cards right. If the seller says no, you can try negotiating. However, if they don’t budge, it’s okay to forget about that particular house and move on to a property that will suit your better.
Make sure your offer letter is precise and complimentary. Also remember to conduct the respective inspections well in case the seller does accept your offer. If you follow the above-mentioned steps accurately, your offer is sure to go through, and all that’s left is moving into the house of your dreams. Now that you know how to make an offer, start taking a look at which houses might be worth the investment at Zumbly