Writing an Offer

Writing an offer on a property is done after a buyer decides they want to purchase a home. This is the first step in conveying your direct interest in the property to the seller. One thing for the buyer and seller to keep in mind are the price and terms in which the property advertised. The price and terms are what will be conveyed in your offer and the closer you are to the price and terms the better chance your offer has to being accepted, but keep in mind if another party is interested there is always a chance that another offer may be presented to the seller.

Key Parts To An Offer

  1. Expiration date of the offer. This is the amount of time the seller has to consider your offer before it expires, which could be hours, days or weeks after the offer is submitted. Your real estate agent will help you determine how long to give the seller to consider your offer.
  2. Purchase price. This is the total price you’re offering to pay to purchase the home from the seller.
  3. Earnest deposit. Also known as earnest money, this is a good faith deposit in which you are using to ensure that you will not 'walk-away' from the transaction after acceptance. An earnest deposit does not 'hold' a home only conveys your seriousness in completing the transaction.
  4. Down payment amount. You’ll want to make clear how much you will be paying in cash as part of the sale in addition to your loan. This money is not financed and you can disclose proof of this down payment to the seller with a bank statement, check, etc. This can usually be found in the pre-approval letter from your lender.
  5. Financing terms. List out the rate, terms, and type of loan you have to receive from a lender if you’re financing the sale.
  6. Closing Costs. Typically the loan closing costs are the responsibility of the buyer to pay, however some loans allow a seller to pay part or all of the closing costs on behalf of the buyer. This can be made clear as to who will be responsible for paying closing costs and, if so, how much.
  7. Requiring inspection(s). This means you are entitled to have the home professionally inspected for construction defects, home systems functionality and general habitability. There are a multitude of inspections that can be performed such as a general home, well/water, septic, mold, radon, mold, wood destroying insects, lead-based paint, and/or any other concern you may have with the property. Typically the inspections are at the buyers expense.
  8. Contingencies. Describe events that would void your offer to purchase – for example, you being unable to get financing, the inspection revealing serious structural problems or even the sale of another home beforehand.
  9. Closing Date. This is the date which you expect your home to close by. There is a lot that can affect the closing date like inspections, slow getting documentation to your lender, the appraisal, title work and much more that may be out of your control.
  10. Possession date. The possession date is the date that possession will be given to the home from the seller to the buyer.
  11. Warranties. Request any home warranties that you’d like included as part of the sale.
  12. Included in the Sale. If you are wanting to make sure certain items in the home like the washing machine stay with the home, you would add them here.

Seller Responses To Your Offer

The seller will be left with 4 options after you submit an offer to them. They are:

  1. Accept your offer.
  2. Reject your offer.
  3. Ignore your offer. Yes, they may not even respond.
  4. Make a counter offer to your offer.

Busting Offer "Myths"

  1. Even if your offer is at the asking price, that does not mean the seller has to accept your offer. Even a full-price offer with the exact terms the seller is looking for does not have to be accepted. There are many things going through a seller's mind when they receive an offer such as "will we receive another or higher offer?", "did we underprice the home?" or "Do I really want to sell our home?", these thoughts can be rational or irrational however they do play on the outcome of your offer.
  2. If you submit your offer first, the seller does not have to respond to your offer first. The seller can choose to respond to offers in whatever order they choose. The way or order in which a seller responds to any offer may only make sense to the seller.

Negotiation

In any real estate negotiation, buyers ask and sellers push back -- because if you're the buyer and you don’t ask, you don’t get. While sellers want the highest price and buyers want the best deal, the two have to meet somewhere in the middle for the deal to close. Negotiating for a home is important since this is the largest asset most people own and there’s potentially a lot of money at stake.

One party always has the upper hand. However, in a buyer’s market, those looking for a property can walk away if they don’t like the terms, since they have many homes to choose from. In a seller’s market, with bidding wars and multiple offers, the homeowner can be as picky about the myriad terms of the sale as his or her agent allows.

For those new to the real estate dance: The negotiations start once the seller receives a written offer. Since everything is negotiable, agents for the buyer and seller go back and forth in writing, whether that communication is via email or signed forms.

The objective is agreement on the deal’s terms, which include price, time lines, contingencies and items that may convey with the property. 

1. Price

For most this is the most important part of negotiation as the seller has typically established a price based on fair market value to over fair market value and the buyer is looking to pay at fair market value to under fair market value. A good seller will have developed there price with the help of a real estate professional using local sales comparables and derive a price via a market analysis. The Pricing strategy for a seller is also crucial as the given market condition dictate where a seller can place the asking price based on the market price. A buyer can ask for assistance from there real estate professional to look at local sold comparbles and develop a "second opinion of price". After a quick look at the local real estate market the buyer can start to develop a good value for the property in which can be a baseline for negotiation. The most common factor for the buyer and seller is that typically they are both willing to settle at market value (meet in the middle). Tip: Considering the fair market value is the most common settlement point a seller should be warned that the farther they move above fair market the less likely the home could sell and the lower a buyer offers away from fair market value the less likely the seller will be enticed by there offer. 

2. Closing costs

Buyers have to pay closing costs for their mortgage, which is money that the lender holds for items like taxes, appraisal, credit check, funding fees, insurance etc.... A buyer may ask a seller to pay a flat dollar amount toward their closing costs, or up to a percentage for what is an allowable contribution for a lender. Sometimes this can be up to 3 percent of the sales price. This is a normal trade off as the buyer will typically pay more for the property as the seller will increase the price in proportion with the amount of closing costs requested.

3. Closing date

Depending on the type of transaction the total time to "close the deal" may take 20 to 45 days. A cash transaction typically can be done quickly in the 15 to 20 day range, while a loan purchase can take between 30 to 45 days to complete. The time to close can be very tricky to negotiate as the buyer and seller may not be on the same page in terms of time. Offering a shorter close time can sometimes entice a seller as the seller would rather close sooner than later.

4. Financing contingencies

Cash is truly King in real estate, by offering a cash offer, supported by a proof of funds, can be the most enticing offer to a seller as long as the terms are still reasonable. A cash offer also removes any financing contingencies for the transaction which will ensure the seller that a major piece of the puzzle is complete, the money.

A fully confident and pre-approved buyer can also remove a financing contingency. This means that a buyer is very confident and ensured by the bank that they are able to get the loan (Note: this should only be done with a conventional loan and also a buyer should seek consult of their local lender). A seller should ensure that there is earnest money in a transaction without a financing contingency to add an extra layer of assurance that the buyer's loan is truly good-to-go.

5. Home Warranty

A buyer can ask for a home warranty, or a seller can offer one. This protection plan covers the home’s appliances and mechanical systems, like the air-conditioning and hot water heater, in the event these things break or need repair. 

Typical possession times are on the day closing (0 days), 15 days after closing, and 30 days after closing. Normally a vacant property will have the option of immediate possession and an occupied home will be 15+ days after closing to allow for the owner/previous owner to finish packing and move-out. Depending on the scenario, a buyer can offer the seller a longer possession time, even up-to 90 days, to grant them more time in to move.

7. Home Repairs

A buyer can have some decent leverage in negotiation when it comes to a non-functioning item in a property such as a dishwasher or furnace. It is very understandable and reasonable to negotiate the repair of non-functioning items. In the same tone a seller should ensure that all items in there home are in working order prior to placing it on the market. Sellers can also specify that their house is being sold “as is” and that they won’t make any repairs. 

8. Appraisal Contingency

Appraisal contingencies can work two ways, waiving appraisal and ensuring the value appraisal.

In the event of a waiver of appraisal the buyer is indicating to the seller that they are able and willing to contribute more money to the transaction in the event the appraised value is not high enough. This is more of an incentive to the seller as it ensures that the purchase price as agreed upon should not be impacted by the appraisal.

A good way for the buyer to protect themselves is to add that the transaction is contingent upon the appraised value being greater than or equal to the purchase price. If the appraisal is lower than the purchase price, a renegotiation of the price and terms would begin or possibly the buyer may request a release from the transaction. Note: the appraisal is conducted in the sale of the home to ensure the borrowed amount of money from your lender is covered with the value of the home. 

9. Appliances

The built-in appliances such as the dishwasher, microwave, range vent hood etc.. typically stay with a property however, do the range, refrigerator, washer, dryer, extra refrigerator stay with the property? Normally this is conveyed to the buyer prior to looking at the home however asking the agent/seller prior to negotiations will allow for better clarity. 

10. Inspection

Waiving an inspection often comes with "buyer’s remorse," and should be done with great caution and consideration. However waiving inspections can strengthen a buyer's offer as no further negotiation will take place in terms of inspections and the transaction should move about 10 to 14 days quicker. Another option buyers can try is to shorten the time frame for an inspection, from 10 days to five. Shortening the inspection time allows for a quicker transaction while still keeping inspections in the transaction.

What they want...

The seller wants...

  • Price: at or above asking 
  • Closing Costs: buyer pays there own
  • Closing Date: 20 days from acceptance
  • Financing: Cash
  • Home Warranty: Buyer pays for own home warranty
  • Possession: as indicated in advertising
  • Repairs: none
  • Appraisal: none or no contingency, buyer to contribute extra if needed
  • Appliances: Only appliances advertised to stay
  • Inspections: none or no repairs

The buyer wants...

  • Price: at, below, or well below asking  price
  • Closing Costs: Seller to pay for all of them
  • Closing Date: Yesterday
  • Financing: varies
  • Home Warranty: Seller to offer and pay for home warranty with all the extras
  • Possession: immediately after closing
  • Repairs: everything should be fixed at the seller's expense
  • Appraisal: the asking price to be at or under appraised value
  • Appliance: All appliances to stay 
  • Inspections: everything repaired at seller's expense by the best contractor available.

As you can see it can be very tricking to come together however with common sense, open communication, and a little effort from both parties an equal and fair deal can be obtained by both.