5 Crucial Things to Consider Before Putting an Offer Down

Just as a note before I start, not all advice is perfect in all situations. The following is general advice on submitting offers.

The Agent Most Likely is not Lying to You

The title of this point goes to show you how people feel about real estate agents. I think I read something where people trust real estate agents just about as much as they trust used car salesmen. I would never have known before getting into the industry myself, but I am not going to stand here and tell you agents do not lie. They do lie, but not as much as you think. Not for moral reasons, but more because they have no reason to lie.

I have worked with many buyers who have thought the seller’s agent was making things up as they went along and no matter how much I told them that they probably weren’t they did not want to hear it. If the seller’s agent tells you the seller will not take any less than a certain amount, odds are the seller probably said that to the seller’s agent. This could be a technique by the seller’s agent, but to me it seems like a bad one. If the buyer walks away because they are not willing to go up on their offer price then the seller’s agent has to explain what happened to the seller. The seller will not be pleased if the agent caused them to lose the sale over a few thousand dollars. The other reason the seller’s agent does not care is because a few extra thousand dollars on the final sales price makes almost no difference at all on their commission dollars. An agent’s number one job is to complete the sale, price is secondary.

Your First Offer Should not be Your Best Offer

When you first make an offer on a house you want to make sure you leave some negotiating room between your initial offer and the maximum you are willing to pay for the piece of real estate. The majority of offers are not accepted the first time they are presented to the seller. I have only seen an offer accepted without a counter-offer a couple of times and those offers were almost at asking price.

A good place to start negotiations for the real estate you plan to buy is about 5% off asking price. If the property has been on the market for a quite a while, 3 months or more, then you can lower your initial offer price based on the properties time on market. If the owner is willing to negotiate in most cases, certainly not all cases, the final price of the property usually ends up very close to the middle of the asking price and the initial offer price. If the owner does not counter offer and you raise your initial offer to a higher price this will start the clock all over again. The final price of the property will most likely end up in the middle of this second offer assuming the seller is willing to negotiate.

This advice applies in all types of markets, but works better in a buyer’s market. Also if there is another offer on the property at the same time you make your offer you should be more careful when considering your initial and counter-offers. Competition is only good for the seller.

Know Your Price Range

Only you can know your max price range. Your bank will probably approve you for way more than you can afford. You real estate agent will probably pressure you to overspend. Your family might even pressure you to live in a certain neighborhood beyond your means. So make sure you set your maximum price range before you make your first offer. If you set your price range beforehand then you are less likely to get into a situation where you overspend.

Overspending on a house is one of the worst situations I come across as a real estate agent. Financial pressure leads to a less enjoyable lifestyle. In some of the more severe cases it can lead to foreclosure and bankruptcy. One way to avoid all of this is to know how much you can afford before even making your first offer. This is especially important in a bidding war between two buyers I have seen many people get carried away to make sure they get the house, but end up paying for it later.

One way to make sure you can afford the amount you think you can is to start living like you already are spending that amount on your house. For example if you have a monthly rent or mortgage payment of $1,000 a month and you think you can afford $1,500 a month then start saving that extra $500 a month. That way you will know what it will be like when you move into the more expensive place. Plus you will be saving money as well.

There is More to an Offer than Just the Money You are Willing to Pay

By far the dollar amount of your offer is the most important part of the offer letter. It is not the only important part though. The other aspects of an offer are also important. They are:

Closing Date – Probably the second most important piece of information on the offer letter. Typical closing date for an offer letter is about 5 weeks from the offer date. If it gets to be much more than that your offer becomes a weaker offer. If it is less than 5 weeks it is a stringer offer. Be careful when making it less than 5 weeks. Make sure your mortgage company can do it this quickly before submitting the offer.
Terms and Conditions – This line is important as well, the buyer would list all conditions they have for backing out of the sale. For example a weak offer may contain the line, “Buyer to obtain 100% financing.” This would mean the buyer has no down payment and must obtain 100% financing from the bank, which is risky to the seller.
Special Provisions – I have never seen an offer fall apart over this section of the offer letter, but it could happen. This is the section where you would ask for specific things to stay with the house. For example, this line might read, “All appliances to stay.” This would just mean all appliances would belong to the buyer after the sale. You could even ask for something more unusual on this line such as the big screen television.
Offer Expiration Date – Not too important, assuming you give the seller ample time to review the offer. Standard time period is about 24 hours.
Purchase and Sales Date – This part of the offer is important because, as any real estate agent knows, offers are easy to back out of, but Purchase and Sales Agreements (P&S) are much harder to back out of. This is the date where you would put down your first real down payment on the property should you have one.
Down Payment – This part f the offer is important because it is the money that ends up securing the Purchase and Sales Agreement. If this number is low then there is little to bind you to the Purchase and Sales Agreement and ultimately the whole deal. A very small down payment may signify to the seller that you are unsure about the property. If the seller has two offers on the table for about the same money and one has no down payment the seller will most likely choose the one with a down payment.
Keep the Negotiations Alive

I have seen a great number of deals fall apart over stubbornness on either side of the offer. The fact is both parties want this deal to happen. The negotiations are just for the terms. Obviously the terms are the most important part, but you cannot forget that everyone wants this deal to happen. Try your best to keep negotiating alive and moving forward. Once you stop countering the negotiations are over. I have seen many people lose a house because they think they can get if for a couple thousand less and hold strong at their offer even though a couple of hours before we got to this point they were willing to pay a couple thousand more. They lose the house because they took themselves out of the negotiations. Once you stop negotiating the deal is dead and you will most likely lose the real estate property.