How to Make an Offer on a Home You Love

You’ve spent the last 2 months doing research, the last 30 days getting your finances straight, and the last 3 weekends looking at dozens of homes. Finally, you’ve found the PERFECT home.  You know you want it, but how do you make an offer? What’s a good offer? What else do I need to know besides an offer price? Will they accept my offer?

First off, understand that an offer is also a contract.  When you submit an offer, you are drafting a contract to purchase the home.  By signing, you agree to the terms as long as the seller also agrees. So for terminology sake, before the seller accepts the document, it’s an offer.  Once they accept it, it’s now a contract for purchase, got it?

So what sort of things are negotiable? In short, almost everything is negotiable (barring some real estate laws of course).

Earnest Money/Earnest Deposit is an amount of money submitted with an offer in order to show in good faith you have every intention of purchasing the property.  This money will be applied towards your down payment.  This money is refundable most commonly if A) you back out during your inspection period, or B) your financing falls through.

The amount of the earnest deposit is traditionally around 1% of the purchase price.  However, this can often be used as leverage. Increasing the deposit shows the buyer is serious and capable of purchasing the property. A larger earnest deposit can make up for shortcomings on the offer elsewhere. If you decide to back out of the transaction due to a change of heart, this money will be forfeited to the seller!

Inspection Period is a period after sellers accept a contract in which you are entitled to have a home inspection, and do any research on the property you wish. The reason this is on here, is because often times this can be adjusted to be a more competitive offer to a seller. For example, if you shorten the inspection period to be 5 days, that’s 5 less days than the standard 10 days.  Since the inspection period is considered one of the major hurdles to get past, a seller would like a shorter time frame in which to move the transaction along.  In other words, they would rather know a deal is going to fall apart within the first 5 days, than waiting up to 10 days.

Appliances can be included in a purchase contract.  By default, all built in appliances are included with the property on the standard purchase contract.(microwave, dishwasher, over/range) Also included are all items permanently affixed to the wall (see list below)  Additionally, the seller may be offering the refrigerator, washer, dryer, soft water system or other “personal property” with the sale.  If these items are important to you, make sure they are on the contract, never assume they come with the property.  Even if they are not advertised as included, you can still offer them as a part of the offer, I consider it always negotiable.

HOA Fees are mostly negotiable.  The seller is required to pay for an HOA disclosure fee by state law. However, transfer fees, and capital improvement fees that may be required to be paid to the HOA during a sale of a property are fully negotiable.

Seller Concessions are funds from the sellers proceeds applied towards your closing costs. Closing costs consist mainly of loan fees and title/escrow fees. It is relatively common practice to ask for anywhere from 1%-3% for seller concessions for buyers with loans.  It is most common with a low down payment buyer. If a buyer is coming in with a 50% down payment, it’s assumed they can pay for their own closing costs, but nothing is prohibiting them from asking anyways.  It completely depends on how the home is priced, the type of home, the price range, the market conditions, etc.

Keep this in mind when making an offer: In the SELLERS views an offer of $500,000 on a home with 3% seller concessions is the same as offering $485,000 with NO seller concessions.  At the end of the day, the seller cares about how much they will NET profit from the sale, not the actual purchase price. As a buyer, if you lack up front capital, you may need these concessions to help pay for your closing costs, but they do not come free.  Sellers will usually not be as flexible on price if you need concessions.

Home Warranty Home warranties have become commonplace in a home purchase. What happens when you move into a home, and 2 weeks later the A/C goes out?  Who do you blame? The inspector? The seller? The agent?  Unfortunately, none of them can take the fall for you.

For this reason, it is always recommended to get a home warranty in place to cover any major system failures.  Home warranties are ordered during escrow, and charged to either the buyer or the seller depending on the contract.  Although completely negotiable, often sellers are willing to pay for this for buyers.  If a seller won’t pay for it, you should still buy one.  Home warranties range from $300 upwards of $1,000 a year depending on the size, year, and coverage level you need.

So, what makes a GOOD offer vs a BAD offer?  There’s no right or wrong offer, but there’s a myriad of options and ways to structure a transaction based upon the needs and situations of the buyers and sellers.

When it comes to price, each home is priced differently.  Many homes are priced 5-10% above market value, but many are also priced AT market value, or sometimes even below.  A good offer is one that secures you the home at the best price and terms possible. A bad offer is one that is completely one sided to the buyer. It doesn’t mean you can’t get a great deal, but if you offer much too little, you risk losing out, or offending the seller.  A transaction must be in mutual agreeance between buyer and seller!

If getting a below market value price is your primary goal, consider reducing your inspection period, increasing your earnest money, and pay for your own home warranty and closing costs. This same approach can apply when making an offer on a highly competitive home.  If a seller has two offers for the same price, and one of them comes with a larger earnest deposit, and a shorter inspection period, the seller would be advised to take that offer.

These are just the basics of making an offer. Your Realtor will advise you depending on your personal goals, the property, the conditions of the market and a lot of other factors unique to your transaction.  There are literally thousands of ways to structure a deal, and sometimes coming up with a creative solution to make a win-win is the offer that gets the job done.