My job is it to assist you in getting that dream house that you have always wanted. There are only a few things that I HAVE to have as a REALTOR® in order to make sure you will be successful with your offer on this dream house:
- A lender pre-approval (depending on lender with the new TRID regulations) Want to know more details about a pre-approval and why it makes you a powerful buyer in a sellers market? Read this.
- Your requirements.
- Your cooperation to push forward and through the transaction.
To make all of this happen, there are a few things that you should definitely think about before submitting your offer. Please do not feel overwhelmed, but instead consider the following list as a guideline of things to do PRIOR to making an offer. It will reduce your frustration and increase you home buying success as you move swiftly through the contract process to closing. Some people say that it’s almost like having another job. Luckily it’s only for a short time.
I started telling you about 10 Rules for buying a home, which you want to consider BEFORE you even move into the offer stage of the home buying process. If you are ready to make an offer, read these tips to sail past all the other competing offers:
1. Get pre-approved from a local lender.
For a long time, having a pre-qualification from a lender was enough to go out look at homes and to make an offer. The tide has turned, and since most real estate markets are now sellers markets, sellers want a higher degree of assurance that you can actually close than simply a pre-qualification. A pre-approval is absolutely necessary to be able to compete with other incoming offers. Please note that there have been changes in regulations since last October 2015. Pre-Approvals have changed with each lender, and might be called by different names. As a home buyer, it basically boils down to the fact that you need to determine if a home purchase is feasible, how much you can or want to spend on a home, and you need to confirm that your lender WILL finance your home.
2. Are you a cash buyer?
If you are a cash buyer, be prepared to provide proof of funds to the seller with you offer to purchase. You may black out personal information. Make sure funds are immediately available, and that the funds are in the loan applicant’s name.
3. How will you hold your property?
Will you hold your property as a couple or maybe it will be held in a trust? Do you have an LLC that you’d like to use to hold the property in? Have all your documents on hand. While it’s not needed for the offer itself, you will need to provide them to the closing agent/company.
4. Research the house and the area.
Know your neighborhood
Do you know, where in the city or county you want to be? If you don’t know the area personally, then NOW is the time to do your home-work.
- Research the school district your property is assigned to.
- Research crime rates and sex offenders of the area that you intend to buy in.
- Does your neighborhood have a walking score? (Note: we find that these scores are not always representative. It’s best is to go and see for yourself.)
- What amenities does the neighborhood offer?
- Test drive your commute, especially during rush hour.
- How much do homes rent for in the neighborhood? How well/poorly did the neighborhood do during the downturn?
- Use search engines to find any articles about the area, and what improvements and development plans are in the works.
Making sure this house is what you want.
You won’t always have time to do ALL your research before you submit an offer. Therefore you have a “due diligence” time frame. By X date you have to have all your due diligence, which I like to simply call “research.” You can surely get it all done AFTER your offer is accepted, but it will be quite busy during this time at least until your Inspection Objection. It will be beneficial to get as much work done BEFORE you sign on the dotted line.
Learn more about how the sellers market has changed the real estate landscape.
What else might you want to know?
- Take a look at the HOA rules and regulations/bylaws – you might find the HOA website and read the rules there. Will your 150lbs dog be a problem? Maybe the HOA does not allow a pick up truck in parking spaces but only in the garage (yes, it happens). Most importantly for many buyers: will you be able to rent out your home once you need to move? There could be a provision in the HOA Rules and Regulations that renting out your home is not permitted.
- Read disclosures. In Colorado, the mandatory disclosures are a Square Footage Disclosure and a Source of Water Disclosure. A Sellers Property Disclosure (SPD) is NOT required by state law, though most sellers will fill it out. Banks and investors tend to not want to fill out a SPD. Keep in mind that the seller should disclose all facts about the home on the Sellers Property Disclosure, but certain circumstances can lead to this being missed. Do not depend solely on the sellers statement but do your own research and inspections.
- Look at permits from the regional building department, possible flood zone marking.
- Have your realtor provide you with rental rates offered around your home if you intend for it to be a rental at some future point of ownership.
- Ask your neighbors. You might know about the neighborhood, but do you know your neighbors? Or rather, what do your [future] neighbors have to say about the home you are about to buy? Trust me, when I tell you that neighbors will disclose everything you ever wanted to know [and things you might not really want to know] about the area/house.
- Drive the neighborhood. Drive it during rush hour, at night, especially Saturday nights.
- Look up the property on Google Maps to see what’s around.
5. Know your contract
In Colorado, the Contract to Buy and Sell is an 18 page document. It’s a lot to review while discussing your offer as there is so much to talk about.
I like to provide a copy of the contract to my buyers at the beginning of the home search. This gives buyers the opportunity to read it on their own time and ask questions about anything in it.
Once you find a home that you’d like to make an offer on, we will review, discuss, and change the contract until you are comfortable with it. Yes, it is like drinking from the fire hose, but you CAN do it.
6. Know the buying process.
It seems so easy: look for a home, offer, get the loan, close. Done.
There is so much more to this buying process than that. Discuss the buying process with your Realtor, so that you are aware what is lies ahead.
7. What kind of cash do you need?
Now is the time to ask this question if you haven’t already. While every contract is different, generally you’ll need at least Earnest Money and money to pay the inspector (and any other tests you are having performed).
You might also need the cash on hand for an appraisal depending on the type of loan you are getting or the lender.
What else will you have to pay for? If you are not asking for sellers contributions towards closing costs, know how much you are expected to bring to the table. And if you do ask for sellers contributions to closing costs, will that deter the seller from accepting your offer?
8. Assemble your home buyer team
Who is a member of such a team? Besides your Realtor, having the following professionals on your team and chosen ahead of time is beneficial:
- Home inspector
- Other inspectors (termite, well, septic)
- Title company
9. HOW badly do you want the house?
Before making and submitting your offer, think about how much this house means to you. A short explanation: A lot of home buyers think that the home they are offering on is the one they want. There is no other. Maybe you have been house hunting for awhile and you are getting tired? Maybe you are in a time crunch because you need to get your family settled?
It’s all understandable, but this mindset makes you vulnerable. What should you do?
It’s best is to talk to your realtor and make a plan together. Think about what you COULD agree to and what you would consider agreeing to should a counter offer be presented.
Note: I would like to mention that in the last 6 months, I had 2 buyers that lost a multiple offer situation and both times the buyers ended up buying a different home they said they liked even better than the previous one that they lost. Keep that in mind should you lose out.
Having an incredibly strong sellers market will make more strategies necessary to assist in winning the house for you.
There are more deadlines to keep in mind once you start approaching your closing.
By the same token, after you have assured that the home is really worth what it’s listed as (your Realtor will provide you with such information), know ahead of time how much a price difference will cost you. Depending on the interest rates, an additional $1000 you offer might be only a few dollars a month. Know the numbers and calculate ahead of time.
10. Move quickly
It’s a sellers market and this means you have to look at what’s out there first and if you don’t find what you are looking for you’ll have to “lurk” and “pounce.” If you see a home, be prepare to offer -quickly.
11. Choosing the right amount to offer
Give the seller what he wants
Offer list price and other perfect seller terms. Easy enough, right? In some areas of Colorado that might not be enough anymore.
Offer more than list price:
- Simply offer more – especially if your other terms might not be too favorable.
- Add closing costs to your offer price.
As we are progressing further and further into a sellers market, concessions such as “Seller Paid Closing Costs” will become less common. In Denver “Sellers Concessions”, as they are also known, are almost gone.
We have a large number of military VA buyers, who will purchase a home with $0 down because that’s one of the best perks of VA loans. If the buyers do not want to use their savings for closing costs, they might consider adding closing costs to their purchase price and then have sellers pay all or part of the added amount as their Sellers Concessions. This scenario only works if there is enough value in the home so that the appraisal still comes in on sales price or higher.
If you consider asking for sellers contribution towards closing costs, then remember that sellers will look at your NET offer. This is your offered price less all cost that you want sellers to pay listed in the contract.
Offer more and then some
You might wonder how you can offer more than “MORE.”
In areas with hyper-shortage of home inventory, buyers have resorted to “Escalation Clauses.” Buyers will offer a price and note that their offer automatically increases with other incoming competitive offers that are higher.
12. Choosing the right terms to offer
The highest offer does not necessarily mean it’s the right offer for the sellers. There are several factors that sellers look at when they are considering offers.
- Price – of course!
- What cost are you requesting the sellers to pay (title insurance, HOA statements, Home Warranty, etc.).
- Exclusions/Inclusions – what’s conveyed with the home.
- Timeline – are you flexible with closing?
- How big is the down payment? The larger the down payment, the greater the security that you will qualify for the loan and perform at closing.
- How many contingencies are included in your contract? (inspection, loan, home to sell, other deadlines that allow you to rescind your offer).
13. Expect multiple offers
Regardless of how much (or how little you offer) expect multiple players to the game. Don’t shy away. Know what you want and how much you want to pay ahead of time.
There are several ways this is handled. Cross that bridge when you get there, but be aware and do what feels right in your gut.
14. While you are at the house
As already mentioned, we are in a sellers market and that will change things. You might not have the time for a second showing, so it’s advisable to start taking notes the moment you think that the home you are currently viewing might be the one for you.
- Everything that you believe will or should come with the home (you can later on determine if it is mentioned as inclusion/exclusion in the listing).
- Is there visible damage which will be a cost for a later time after closing or is there damage that an appraiser would object to? (the damage would have to be repaired and then the appraiser will have to come to the home again for re-inspection).
- Other condition questions? Look at the big ticket items:
- Is the roof a T-Lock roof? (shingles are not made anymore and insurance costs are very high) Skylights leaking? Does the roof need replacing?
- What kind of heating system do you have? Electric baseboard heating is VERY expensive.
- How are the windows? Vinyl or old aluminum?
If time permits, I would recommend viewing the home a second time because you’ll be able to see more of the details.
15. Have the right mindset
Be positive, be patient, be diligent.