How To Make A Smart Offer When Buying A Home
Posted by Cherry Creek Realty Services on Wednesday, March 10th, 2010 at 3:55pm.When you make an offer on a home, it should be based on hard data - not wishful thinking on the seller's end. That's why they call it an "asking" price, and many sellers ask for too much. Your agent will help you review recent, comparable sales (or "comps") in the area. This will help you shape your offer, because it's an indicator of what the true market value is.
Home prices go up and down all the time. Real estate bubbles grow and then they break. It's an endless cycle of appreciation and depreciation. In some cities, the cycle is rapid. In other cities, appreciation comes more slowly and homes tend to hold their values better.
What does this mean to you, as a buyer? It means the particular home in today's market may be worth more or less than what the homeowners paid some years ago. Many sellers simply look at what they paid for the house originally and then add on some arbitrary amount of appreciation. But this runs contrary to reality. The only way to measure the value of a home in its current market is to look at recent, comparable sales in the area.
Lastly, be sure you make your offer contingent upon a successful home inspection. This gives you a way out of the contract if you find an unacceptable flaw in the house later on. You might also want to make the offer contingent upon your financing. These are common contingencies you should ask your agent about.
Summary of How to Make an Offer on Home:
The offer is a critical part of the home buying process. It’s when you, as the buyer, say to the seller: “Here’s what I’m willing to pay for this house.” Here’s how to do it wisely:
1. Base the offer on hard evidence.
Before making an offer, you should have a good idea of the home’s estimated value. This will come from understanding your market and knowing what comparable homes are selling for in your area. Making a realistic offer increases your chances of acceptance, while preventing you from overpaying.
2. Make the offer contingent.
It’s a safe practice to make your offer contingent on two things - - loan approval and home inspection. Even if you’ve been pre-approved by a lender, there’s a chance you get turned down for the actual loan (especially if the price you agree to pay is higher than the pre-approval amount). The home inspection is also critical, because you won’t know the true “health” of the house based on a casual walk-through. Only a qualified home inspector can dig up the facts. Your offer should be contingent on both of these things.
3. Set a time limit.
The last thing you want to do is sit around wondering when you’ll hear back from the sellers (if at all). For this reason, it’s common practice to put a time limit on a home buying offer. It shows the seller you’re serious and prevents the process from dragging on. Some buyers limit their offer to 24 hours, some for 48 hours, and others even longer. It will depend on your comfort level and unique circumstances.
4. Hope for acceptance, but plan for everything.
Of course you want the seller to accept your offer, but there’s always a chance they won’t, so you need to have a plan in place so you can react quickly. Discuss this with your agent before making the offer. Have a plan for three different scenarios, an acceptance, a rejection, and counteroffer.
5. Know your limits.
If you’ve been pre-approved for a certain loan amount by a mortgage lender, then you have a pretty good idea of you limitations. Be careful making offers that exceed your pre-approval amount (unless you can make up the difference in cash).
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