Now more than ever a homebuyer needs to know how to make an offer on a home.
In the Boise, Idaho area we are experiencing a shortage of homes for sale and in most parts of the country, this holds true. There just isn’t enough supply to meet demand in most markets. We are at a time when interest rates are still at historic lows and people are more confident in the economy, so we are seeing new buyers hit the market every week.
For those who have already been out searching for their new home, the reality of an inventory shortage means that not only are fewer homes available on the market, but they tend to receive offers quickly and in some cases receive multiple offers.
How Making an Offer on a House Works
So what’s a buyer to do when faced with these obstacles? When you find a home you picture yourself in- you make a strong offer and make it stand out. Now, it’s important to know that this doesn’t mean offering thousands of dollars over the asking price to secure the home of your dreams. It just means that you may only get one shot and you need to be sure it’s a good one.
You’ve spent weeks or maybe even months looking at homes for sale. Weekends are absorbed attending open houses and spare time is devoted to your favorite Boise real estate website looking at what’s available. If you’ve been keeping track of all the homes you’ve seen during this time period you may have a journal outlining your likes and dislikes (this is what we give to our buyers to help stay organized). At this point, you may even be experiencing house fatigue.
When buyers have looked at so many homes, it’s not only considered more or less of a chore at this point but all the places you’ve walked through somehow bleed together like a tie-dyed shirt. You then get a phone call from your agent saying “Hey, this perfect house just came on the market that we should look at!” So what do you do? You look at it of course! Despite everything else you have looked at previously- this one stands on its’ own, checks most of the boxes and at this point you know- this is home.
Know Exactly What You Are Looking For
Now it’s time to hustle. When we are in a buyers market, homebuyers have the luxury of being able to wait it out on a home to see if anything happens when it comes on the market. Maybe they take a few days to a week to think it over. Unfortunately, these days a buyer and their agent must act relatively quickly to secure the deal.
True in most cases when you have a turnkey home in an excellent location that’s priced well, the bottom line is that will not last long. The idea is to try to get in to view the listing as soon as it hits the market, so we don’t miss the boat. While no one wants to make a decision in haste, I encourage my clients to take a bit of time to think it over and if the property is a good match we write up the offer.
How Much Should You Offer?
Having represented many sellers throughout my career as a real estate agent, the list price isn’t some arbitrary number that gets randomly pulled from the sky. There are many conversations and considerations when coming up with an asking price. While I could go over the thought process and strategies that sellers and agents use to come up with these prices, we will save that for a future blog post.
The takeaway here is while the asking price of a home is a suggestion if you will, what determines the value of a home is the market and what someone is willing to pay. The best source of information is recently sold homes in the immediate area. Your agent should be able to provide comparables or recently sold homes that mirror the property you are looking to make an offer on.
No one house is the same as another when it comes to condition, square footage, amenities, etc. This is where your agent should be able to adjust for these items adequately and suggest an offer price. There are many instances where buyers will request that the seller help pay for some of the closing costs, this is common. Take into consideration that if the seller is asked to help pay for closing costs, this means they are ultimately accepting a lower price unless you decide to add closing costs on top of the purchase price.
Make Your First Offer Your Best Offer
I love a good deal as much as the next person, but there are times when a home is priced appropriately. Homebuyers have a preconceived notion that if they’re offering the list price or close to it they are somehow overpaying and that simply isn’t true. When you find yourself buying in a competitive market, it’s essential your offer reflects the market value of the home.
Lowball or offers that aren’t serious do not tend to get a desired reaction from the selling side. While as agents, it’s our duty to present offers to sellers all the way up to the closing date. The seller is not obligated to respond to any offer, good or bad. Best practice is to always keep in mind that there is another person at the other end of the transaction, so now isn’t the time to try to score the deal of a lifetime or worse- insult the seller.
How a Seller Knows You Mean Business
At this point you have carefully considered your offer price. Next up is the earnest money. Earnest money is a HUGE deal for many reasons. First of all, it speaks volumes and it symbolizes your skin in the game. It lets the seller and their agent know just how serious you are about buying this house. Amounts vary by area and can depend on the purchase price.
What I can tell you is the more you are willing to put down- the better. A good scenario would be if a seller were to receive two identical offers, same price, same closing date but one had $1,000 for earnest money and the other party was willing to put $2,000 down- which one would you choose? It’s worth mentioning that you’re not just giving this money away- your funds get held in a trust account during the transaction and are refundable, in most cases, like when there is a defect with the home.
Keep Your Offer Contingency Period Short
Home inspections are important for so many reasons. No one wants to get stuck with a lemon of a house. As a buyer, a home inspection is worth its weight in gold as an inspection can turn up costly issues. In a previous post, we covered some of the most common home inspection items that creep up from time to time.
Most real estate markets offer a suggested timeframe on the purchase contract as to when these should be completed. In the Boise area, it’s not unreasonable to have this completed within five business days but availability can vary, so it’s best to consult with your agent.
Also during this time, you and your agent will want to be conducting your due diligence, confirming school districts, taxes, zoning, etc. In the instance of wells or septic systems, you would get those inspected as well. The takeaway here is time is of the essence.
Who Pays for What?
While this can vary greatly by region, some items have to be accounted for when drawing up your real estate contract. A good example would be which side pays for closing costs or appraisal. Many times, some of these fees can be wrapped into the loan and are separate from the buyer’s initial down payment. For a buyer, this usually means coming up with the cash to be able to bring to closing which can be a challenge when money can be tight with the items noted above.
With most first time home buyers, asking the seller to contribute towards closing costs is typical. It’s worth pointing out that anything you may be asking the seller to pay for affects the actual purchase price for the seller since they will be taking less once the transaction closes. One way around this is to offer over the purchase price. The offer will then reflect the actual sales price plus any fees you may need to request.
How Soon Do You Plan on Closing?
When you’re in a fast-moving real estate market, time is always of the essence when it comes to closing the deal. With all the new legislation it’s taking a bit longer to get loans prepared. In Idaho, if a buyer is using a loan to purchase we typically allow 45 days to close. Unless the seller expresses otherwise, it’s best to try to close as soon as possible.
Many times, a buyer who may be renting will get caught up on the best time to close to mirror when their lease might be up. The reality of it is- you need time to not only move into your new house, but you need time to get your former home ready to release back. When a security deposit is on the line, you don’t want to be rushing to get it cleaned and miss out on getting your money back.
No one likes to be in a time crunch and moving is hard enough as it is. What many new buyers don’t know is that your first mortgage payment isn’t usually due until the following month so this gives a nice buffer to be able to move at your leisure.
In the end, the goal is simple, making an offer on a house that gets accepted. You’re on the hunt for something special and buying a home is a process that many find emotional yet rewarding in so many ways.
Too many times, buyers can miss out on the opportunities just by being unaware of what’s happening in the marketplace, resulting in lost deals which no one likes to see. Having open communication with your real estate agent and maximizing them as a resource is key to a successful transaction. A good rule of thumb- educated homebuyers become homeowners!