So you finally found a home to buy… you can see yourself cooking in the kitchen, having coffee on the patio and entertaining family and friends in the wide-open concept of kitchen, dining room, and living room. Now it is time to decide how much you are willing to pay for this home of your dreams.
How to decide what price you will offer
Ask your REALTOR to prepare a CMA, or Comparative Market Analysis. A CMA report will compile information from the comps of homes you may already have seen and individual descriptions of similar properties that are or have recently been on the market.
The CMA should also include the list and sales prices for recently sold properties (or pending sales) of similar properties in the area. The CMA can also include active listings and expired listings — houses that didn’t sell and were taken off the market.
The CMA report is designed to let you quickly compare elements such as square footage, age of the home, number of bedrooms and baths, size of major rooms and amenities such as fireplaces and swimming pools. It may also list property taxes and school districts, and it should also tell you how long each property has been or was on the market.
Using all the CMA information, you and your REALTOR can compare the prices of similar homes and come up with a probable market value for the home you’re interested in.
Other factors to consider when deciding on an offer:
- Is the home in a strong buyers’ or sellers’ market? In a buyers’ market or a neutral market, you may have more leeway on some of the elements of your offer (price being just one). However, in a sellers’ market, houses can become the objects of bidding wars and end up selling well above their asking price.
- Seller’s motivation. If you know something about the seller’s circumstances, you may be able to improve your chances by making an offer that accommodates his or her needs.
- Length of time on the market. If the home has just been listed, and the market is in the seller’s favor, the seller may not consider a below-asking price offer in hopes of getting the full price from the next person. However, if a deal has fallen through, the seller may well find your low offer quite attractive, especially if your financials look strong.
What happens after you have decided on the offer price?
Your REALTOR will prepare a formal offer and real estate contract. Home Purchase offers are known by different name in different parts of the country, including:
- Purchase agreement
- Offer to purchase and contract
- Deposit receipt
- Earnest money agreement
And, even though it is still early in the home buying process, you are signing a legally binding real estate contract which is a commitment to the home seller that you are ready to move ahead.
Remember, this is a good time to add contingencies; your offer may be contingent on a property inspection, a disclosure review, the appraisal… even loan approval.
In addition to the purchase price, the terms of this real estate contract may include financing, title work, date and time after which the offer expires, contingencies, etc.
What happens after offer has been prepared?
Usually your REALTOR presents your offer to the sellers agent, which is then presented to the home seller.
If the seller accepts the offer a written, signs it and gets the offer back to you within the specified time limit, you are at that point legally bound by its terms.
If the home seller does not accept the offer as written, he may reject the offer in its entirety, or modify it, sign it and send it back as a counteroffer.
You, the buyer, now have 3 options; accept and sign the counteroffer as written, reject the counteroffer and walk away, or modify it and send it back as a counter-counteroffer.
It’s possible for the home buyer and the home seller to go back and forth several times, until you reach an agreement, or one of you calls it off and walks away.
Once the buyer and seller have come to an agreement, initialed all of the changes, and signed and date the document – both the buyer and seller have certain things to accomplish in order to close the transaction. Next week look for Home Buying – Step 2. Disclosures.