Home Buying 101: Making The Offer

You’ve found that perfect house! Now what?  Here are some of the details and steps involved when you place an offer on a home.

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Tips for Making a Successful Offer

Increasing interest rates and inventory mean the real estate market in most of the nation has calmed down. Real estate professionals are anxiously observing the sales numbers in order to advise their clients on accurately pricing homes when selling or offering on homes when buying. The inventory crunch started to ease when the number of homes for sale tripled from the historic lows in the spring of 2022. This changes the dynamic of making offers.

• Make sure you are working with an outstanding real estate team.  A trusted real estate agent is vital whether it is a super competitive market like we have had over the past 2 years or a more relaxed market. Home buying requires an agent who is responsive, dedicated and client focused.
• Strategize with you lender about how the offer should be structured. This depends on your financing goals and the current interest rate situation. Hopefully you have discussed your lending strategy beforehand, but it’s important to keep the lender in the loop once you find your dream home. They can ensure that all costs are included in the new calculations.
• Compare the listing description with your recollection of what you saw in the homes. Sometimes you are able to go back to the home to take detailed notes on what you believe is included in the sale of the home but not listed in the listing description. Details are important and your agent can be a helpful additional sets of eyes for this. All inclusions should be mentioned in the offer. If you DO NOT want an item, simply exclude it in the offer. This means the seller will have to dispose of the item prior to closing. Many times this happens when there is a hot tub or a pool table in the home that a buyer does not want to keep.
• If your home needs to sell first. While this is not desirable for a seller, the seller might be willing to accept your contingent offer if the house has been on the market for a few days.
  • • You should list and sell your current house and THEN start making offers on a new home.  You could even start making offers shortly before closing on your current home.
    • Lease backs have become less common in current real estate transactions. Sellers are expected to move out at time of closing, with only a day or two at most here and there.
    • Though it is not as common now to to move into temporary accommodations, there is always a possibility that this is necessary. Back to back closings (where you close on the house you’re selling and the house you’re purchasing within a couple of days) are happening again, though they can be extremely stressful for everyone involved.
    • It’s also possible to pull equity out of your current home with a HELOC (Home Equity Line of Credit) or use a bridge loan. It is actually a fairly simple process and less expensive than a bridge loan. Many credit unions offer HELOCs and we are happy to tell you more about them and help you come up with a strategy.  Depending on how much equity you have in your current home, a HELOC might even make it possible for you to become a cash buyer which is always an advantage most markets.
  • Inspection. Never buyer a home without an inspection! Ever, regardless of what the “market temperature” is.
• Special clauses:  Most specialty clauses have disappeared – they might come back at one point, but right now , buyers are getting a breather.

Related Reading: 
Home Buying: 10 Things You Might Not Know

Instructions for Making an Offer

Parts of an offer and negotiations:

• Your initial offer
• The lender letter or proof of funds (in case of a cash purchase and for the down payment)  that we provide to show the seller’s agent and seller that your are willing and able to buy the home
• Possibly the seller’s counter offer

1. Before you offer

Unless you are have already done so, you need to speak with your loan officer to discuss closing costs, potential monthly payments with offer price(s) and length of processing. This will allow you to go into negotiations more confidently with a full picture of your loan circumstances.

2. Information I need to write your offer

The offer is a state regulated contract form that contains 18 pages. In order to properly fill out this contract, I will need the following detailed information from you. This information will allow me to draft the initial offer, which I will then send to you for review.

• Who will own the home? It sounds a bit strange, but it’s not always clear who will own the home. Will it be an individual, a group of people, an LLC or a Trust?
• How much earnest money? 1% of the list price is the standard for an earnest money deposit. But I have seen buyers offer a higher amount of earnest money to demonstrate how committed they are to the home purchase. It’s a great strategy and I will definitely mention this to you if it applies in your transaction. The earnest money is applied to your closing cost or down payment at the day of closing. Your earnest money is usually due within 2-4 days as it is stated in the contract. It may be paid via wire, personal check or bank check. Cash is not acceptable.
• Time to close: How long will it take for your lender to close? Other factors may also play into this scenario. Sometimes a seller needs more time to move. In that case, I will have clarified that ahead of time.
• Offer price: we will discuss this in detail. Here are several factors we will consider:
  • The list versus sale price in the neighborhood you are offering.
  • What type of market you are currently in:  sellers market, buyers market, or maybe under $300,000 where competition is stiff? Or possibly above $500,000 where things could ease up a bit.
  • Generally, there is some negotiating between the sellers and buyers. You need to know what your final and bottom line offer is.  This number is important to know before negotiations begin and prices potentially go up. This can easily happen in a multiple offer situation where buyers try to outbid each other. Do not shy away from these situations, but just give it your best offer.
• Is your purchase contingent on selling your current home? Hopefully you’ve already shared this information with me during our initial consultation. All I need for your offer is the specific address of your current home to add to the contract.

3. Details about our contract software: CTM eContracts

Our contract software is in the cloud and that enables you to be at any computer or electronic device to review your offer with me. The first offer is especially important to discuss in detail (yes there might be several offers).

• As previously mentioned, you will receive an email with a link to click that will display your offer (or contract) in a new window. All changes will appear blue and the bottom is signature enabled.
• If revisions are needed I will make them on my end and then I’ll save the document. You can simply refresh your screen and you will be able to review the changes.
• When you are satisfied with your offer, you may go ahead and sign it (see video below for instructions on exactly how to do this).
• The contract is locked as soon as it is signed. The only way to change anything is by rewriting/copying the locked contract, making revisions and re-signing it.
• Once we are under contract, I recommend saving all documents via the PDF icon behind the link.

4. What are the seller’s options?

• The seller may choose to counter your offer. This could be a price change or a revision to more minor contract details such closing date or inclusions/exclusions of items conveyed with the sale of the home.
• The seller may accept your offer the way it is.
• The seller may NOT accept your offer. In 2019, the contract to buy and sell has changed slightly when the “rejected” box on the contract was removed. If the listing agent does not inform the buyers agent that their offer was not accepted, it is possible that you learn about your offer rejection by suddenly seeing the home come up online as “under contract” – and it’s not you, because you do not have signatures on your document.

Related Reading: Navigating Multiple Offers when Buying a Home

5. How long do you have to wait to hear from the sellers?

Listing agents usually request 24 hours for acceptance deadline. The acceptance deadline is the latest date and time by which they have to reply in order for you to be bound to your offer. The waiting time may seem excruciatingly long, especially in a fast market where buyers have to react quickly to other possible listings in case the current offer doesn’t get accepted. Should the seller accept or counter after the given acceptance deadline, then you are not bound to the contract, but MAY choose to move forward with it.

Additional Details About Your Contract Terms

Basic Terms and Conditions

 The purchase contract is a binding legal document. Here in Colorado we have one of the most buyer and consumer friendly real estate contracts in the nation. As confusing as the document might seem, it establishes a lot of buyer/seller conditions that (hopefully) prevent misunderstandings and possible law suits.  It is important to take your time going over the details with an experienced Realtor in order to understand the legal jargon and all of the issues which could impact the deal.  Ask questions! Every contract has certain basic clauses.  In a real estate purchase contract these include:

• Address and Legal Description of the property
• Names of both purchaser(s) and seller(s)
• Purchase price and terms of the purchase
• Amount of earnest money deposit
• Personal property or fixtures to be included / excluded from the sale
• Type of Deed to be transferred
• Any special instructions regarding who pays which closing costs
• Dates for milestones – deadlines (inspections, repairs, etc.)
• Date of closing
• Date of possession of the property
• Deadline for acceptance of the offer (usually 2 to 3 days)
• Lease back to sellers (rent back the home no more than 60 days)

 Contingency Clauses

Not all boilerplate contracts contain contingency clauses, yet these are essential in protecting your rights during the purchase process. They allow you a legal opportunity to withdraw from a contract with a full refund under certain circumstances as long as deadlines are met.

• Financing: One of the most common clauses states that the purchase of the property is contingent upon the buyer obtaining financing.  While it is highly recommended that a buyer is pre-approved for a mortgage, it’s important to be protected against the unlikely event that the financing falls through. This can happen if your financial situation changes during the contract period (for example: an unexpected debt like a furniture purchase or a job change prior to closing). You may terminate the contract on or before the loan objection deadline. Keep in mind that by then you have lost valuable time AND money on inspections and the appraisal.  You will get your earnest money back if you stay on top of your deadlines.
  Applies: only if a lender is involved.
• Appraisal: The lender wants to make sure that you are paying fair market value for the home. They will not underwrite a loan that is higher than the value established by an appraisal. The appraiser’s price opinion may be different than the contract price. It’s great news if the appraisal comes in higher than the purchase price because you have automatic equity. If the appraisal comes in lower than the contract price, the buyer and seller will have to negotiate on how to move forward. Will the seller accept the appraisal value as the new sale price? Will you and the seller come to an agreement somewhere in between? Or will everyone agree to disagree and walk away? It’s up to you to decide.
  Applies: if a lender is involved or at buyer’s discretion during a cash purchase. There will not be a deadline specified with government loans (USDA, FHA, VA).
• Inspections:  This is especially important when the home is not new construction.  Inspections are performed by licensed contractors who check the furnace, A/C, breaker boxes, appliances, roof and structural issues. If you are looking for a home inspector you can find one at the American Society of Home Inspectors.  The contingency clause should set a time frame for the inspection and a release clause that states your right to be released from the contract if the inspection does not meet your approval by the Inspection Objection Deadline. Look at your contract to purchase. There is a long list of dates. Find the Inspection Objection Date : this is the date by when the inspection must occur. If you are NOT satisfied with a condition in or around your home you will note it as an objection. Your list of objections will be presented to the seller, you might ask him for repair, a repair allowance or perhaps a home price reduction. If an issue is absolutely unacceptable to you, you may cancel your purchase contract by this date and be released from the contract.
  Applies: always.
• A home needs to sell first. Some home buyers choose to secure a new home before they sell their current home. Buyers in this situation often need the equity in the current home to finance the new home. The buyer has the option to make the contract conditional upon the sale of the old home. As a buyer’s agent I will negotiate to have that as late as possible in the contract.  You will not get your earnest money back if you choose to terminate your contract beyond the home selling contingency date.
  Applies: If the funds of an existing home are needed
• Due diligence documents are any documents pertaining to the home you are purchasing such as:
  • utility bills and property tax statements relating to the Property for the last 12 months
  • architectural drawings, blueprints, as-built construction plans and any other plans or specifications regarding any improvements on or to the Property
  • certificate(s) of occupancy or other governmental approval(s) regarding any improvements on or to the Property
  • warranties, manuals, instructional brochures or similar materials relating to the Property or Inclusions, or their use, operation or maintenance
  • inspection, soil, drainage, percolation and similar reports relating to the Property
  • and if a well exists on the Property, a CREC-approved Listing Firm’s Well Checklist completed by Seller, current as of the date of the Contract.

  In general, sellers do not provide many items beyond simple instruction manuals. If they do, please review these documents in detail and ask any questions. Applies: always – if a deadline in the contract is specified.

==>Why a pre-approval from a local lender is so important

 Counter-Offers

In some cases, a seller may respond with a counter to the offer you have made.  For example, perhaps you have offered $5,000 under the asking price and then the seller may counter with a higher figure.  In essence, a counter offer is a rejection of your original proposal and you are no longer obligated to proceed with the purchase.  If you accept the counter, however, the adjusted terms will become binding for both parties.

You might also like: Home Buying 101: Getting Started

The best way for a buyer to protect their rights is to work with an experienced Realtor.  Are you interested in Colorado Springs homes for sale?  If so, contact Susanna Haynie (susanna@co-regroup.com) and find out what a pro can do for you. Questions? Click the picture below to schedule your free Personalized Q&A call with Susanna Haynie.