Things to Know When Making an Offer on a House
You’ve found the home of your dreams! Now it’s time to make an offer. But how do you make an offer on a house? And how do you know you’re offering a price that’s both fair to you and attractive to the sellers? Don’t fret — we’ve got some tips to help you navigate the often confusing waters of buying a home.
Come to the table preapproved. There’s a difference between being pre-qualified and preapproved for a mortgage. If you’re already pre-approved by a lender, then you know how much your lender is willing to give you for your mortgage. Knowing what you can afford is key, not only for making an offer but for shopping within your budget. Another advantage of being pre-approved is that you will get a pre-approval letter from your lender, showing you’re ready to buy and have your financing lined up.
Know the market. A big part of shopping for a home should be researching your target market. As you look around you’ll become familiar with local price trends. But, if you dig deeper, you’ll be even more prepared to make an offer. Research the selling prices of recently sold homes in the area. These are known as home comparisons and give you a great idea of local home values.
Don’t be overzealous. You may want the home so much that you’re willing to offer more than the asking price. And in very competitive markets, this can be the trend. The problem is, if the offer is more than the appraised value you probably won’t get a mortgage. Lenders look closely at appraisals as they also want to make a smart financial decision.
Understand the seller’s perspective. Try to learn what you can about the seller through open houses and speaking with realtors. If their home has been on the market a long time they might be willing to accept a lower offer to get rid of it. And, if they’ve already moved they also might be willing to accept even less to eliminate that extra mortgage. If seasonality plays into your region, this could make the sellers more motivated. There are all sorts of nuggets of information about the sellers that can help you be a better informed buyer.
Do you need contingencies? Quite often an offer to purchase comes with some contingencies, the most common one being sale of a current home. This means that the prospective buyer has to sell the home they’re living in before they’re able to buy a new one. Sometimes this can cause a delay — which the seller may want to avoid. Not having contingencies may make your offer more attractive, but in some situations they’re necessary.
Inspection contingencies. While you can remove inspection contingencies to make your offer more attractive, you probably shouldn’t. Most buyers still want the property checked thoroughly by an inspector to make sure it’s sound and there aren’t any unexpected surprises. Having this clause is not likely to make your offer less attractive than others and you’ll appreciate the insight.
Have earnest money ready. Buyers put up earnest money to prove that they’re serious about buying. It’s similar to putting a deposit on an item — you’ll get it back when you buy or you’ll lose it if you’re the reason the sale falls through. That’s a real simplification, but you get the idea. A typical earnest amount is in the range of 1-2% of the asking price, but different types of property and different markets may drive demand higher. You may also want to offer more in earnest to prove you’re ready to buy.
Legal requirements. A home purchase can be tricky as there is a lot of paperwork and legal requirements — and they vary by city and state. If you have a realtor working with you, they’ll be able to provide you with the appropriate paperwork. If you don’t have a realtor you may benefit from having a real estate attorney to help you make an offer on a house.
One part of your home purchase process will be proving you have homeowners insurance ready to go. Connect with your American Family Insurance agent as soon as your offer is accepted so they can take care of that part of the process for you. Congratulations on your new home!