Making Your First Offer

You have visited every open house for months; you have every push notification on to make sure you do not miss any of the new homes that come on the market, and then, you see it, the perfect home, the house that you have been picturing. It is perfect! Now what?

You have invested all this time looking for the right home and found the right house. You must have it. It is perfect! Now the only thing you need to do is convince the seller to sell it to you. You love the house and plan on making a reasonable offer. Of course, you do not want to lowball the seller and lose the house. But you do not want to look foolish or let your emotions get the best of you and end up overpaying for the house, either! What should you do?

Making an offer on your first home is a big deal. As an Illinois realtor, I have seen the good, the bad, and the ugly when it comes to making offers. I want to share my tips for making sure you are successful when finding the right home. We will cover how much to offer, what contingencies are important, what earnest money is, negotiating strategy, and more! This will better guarantee success in making an offer on your dream home.

How Much Should I Offer?

The first step in making an offer is determining what the house and land are worth.

The value of the residential real estate is determined by the comparable sales analysis method. This method is used by both real estate agents and real estate appraisers to determine what a home is worth. The comparable analysis method compares the price of the home you are trying to buy with other similar recently sold homes in that area. Comparing other sales with similar features such as layouts, beds, and baths will give you are a better understanding of what others are paying for a home similar to yours.

Determining the value of a home is not a science; it is more of an art. The target is always moving and does not include any homes that are pending or under contract. Therefore, value is subjective, so you will likely get many different answers from many qualified advisors.

So the question you should ask is, ‘What is it worth to you?”

In real estate, nothing is perfectly equal. Everyone’s home is unique.

When you find a home you are looking to buy, ask your realtor for a comparable sales analysis. Your realtor will be able to bring up the most recent homes that have sold. Review the comparable properties and sales price with the home you are trying to buy. Ask your realtor for input and suggestions on how to assess recent sales properly.

Real estate is not supposed to be emotional, but it always is. And it is normal. A house becomes a home, where you share moments and memories with the ones you love. Make an educated guess on the value of the home with the help of your realtor.

Quick Tip: If the home has multiple offers or it is in a hot market, making a full asking price offer or even higher than asking is recommended and often necessary to get your offer accepted. Listen to your realtor’s input.

What Are Contingencies?

Contingencies are a common occurrence in real estate transactions. They simply mean the sale and purchase of a house will only happen if certain other conditions are met. There can be many different contingencies in a real estate transaction, but the two most common are an inspection contingency and mortgage contingency.

Adding these two contingencies basically means that you agree to purchase the house as long the home inspection satisfies your liking, and second, that the bank appraises the home for what you promised the seller to purchase it for.

Contingencies are great ways to protect you during the purchase process and will allow you to feel confident giving you a due diligence period.

What is a Due Diligence Period?

Due diligence period usually refers to the time after signing a contract that the buyer has to inspect the property and make a decision whether they want to buy the property or cancel the purchase or go forward with the transaction.

In an extremely hot market like we are experiencing today, waiving some or all of your contingencies makes you a much stronger buyer. However, I do not recommend purchasing a home without an inspection report. Waving the inspection contingency is only for those buyers with a wealth of experience. Not for first-time home buyers. Also, in order to wave the mortgage contingency, your offer will need to be an all-cash offer.

What is Earnest Money?

Earnest money is a deposit that shows the buyer is serious about purchasing a property. Earnest money deposits are not refundable and are usually applied towards the purchase or closing costs and down payment requirements.

Earnest Money:

The earnest money is held in an escrow account and is not refundable to the buyer.

The amount of earnest money varies depending on location, market conditions, and what you are using it for but should be between one to two percent of the sales price. Higher than normal earnest money deposits can show a seller that you, as the buyer, have sufficient funds in their bank and are very serious about the purchase.

Quick Tip: Use earnest money as part of the negotiation. Ask your realtor for suggestions and recommendations. Make a decision you feel comfortable making.

Writing the offer

Every real estate contract is a little different and varies from location to location, but almost all real estate contracts have the same common information.

The contract should cover a few things, including:

• The address of the home you are buying
• The amount of your offer
• The earnest amount and when you are going to deliver it
• Any and all seller concessions that you are requesting from the seller
• Any contingencies that you are putting into place
• The type of loan that you are going to have
• The date that you plan to close on the property
• The date that you want to have possession of the property

Most real estate agents already have a general contract from their local realtor associations for you to use. These contracts are usually over 10 pages long. You will want to ask your agent for a copy of the contract so that you can review it ahead of time. You should also be sure to ask any questions if there is something you do not understand about the contract they give you. You do not want to be blind-sighted by anything on signing day or afterward.

In Illinois, sellers are required to fill out something called a property disclosure report. This kind of report is done in order to let the seller disclose all of the defects that he or she knows about the property. The disclosure report includes where there has been any flooding, roof leaks, and any other known material defects that may or may not be a concern to the buyer. You will include a signed disclosure agreement with your offer. Including the signed disclosure agreement means that you understand the condition of the property based on what has been disclosed to you.

The buyer will want to see if the roof needs replacing or whether there have been water leaks. They may also check for termites, foundation problems, or electrical issues. You should not expect an inspection report when reviewing the disclosure report, as that is what an inspection is for. A disclosure report is simply what the owner already knows about.

Getting Your to Offer Accepted

There are many different factors that determine whether or not your offer gets accepted or declined. I wish I could tell you that there was one way that always got the job done and guaranteed you would get the property, but there is not. The best piece of advice I can give you is to listen to your trusted advisors—the people that are currently buying and selling houses in the area you wish to purchase.

The first offer is always going to be the best one, so you should make sure you have everything lined up before you make an offer on a house. It should not matter if you are offering above or below the asking price. Sellers what to feel secure in the fact that you are serious and are able to follow through with your agreement. Βecause of this, you should provide the seller with a copy of your pre-approval letter. Do not send an offer to a seller without a pre-approval letter. No experienced seller or seller agent will take any offer seriously without a pre-approval letter.

Quick Tip: You should have your lender call the listing agent to introduce themselves. This will give the listing agent the opportunity to ask any questions should they have any. Lenders can provide a vote of confidence that you are able to purchase that home which will help boost your chances of getting the house.

Negotiation

The key to every successful negotiation is having everyone involved feel like they both gave and took and therefore will able to find a happy medium. Historically on average, homes are sold anywhere from 95 to 98% of the original asking price. This is most likely the case because almost every buyer wants to feel as if they had some negotiation power and therefore were able to drop the price at least a smidge.

The path you take in the negotiations will depend on a variety of factors. First, it is important to understand the current market and have as much information on the home you are interested in and its listing agent as possible. Understanding your position, your strength, and your weaknesses will help you develop a plan with your realtor to agree on terms with the seller.

When negotiating the terms and the price of your new home, you want to make sure that you make data-driven decisions. Your realtor will be able to provide all of the data and information that you need to make the best decision possible.

When negotiating, I like to follow the advice of two master negotiators. The first is Chris Voss. Chris is a retired master FBI hostage negotiator. The best advice that shocked me from his teachings was that ruthless negotiators usually do not end up getting their way. Instead, great negotiation is all about great collaboration. You are never going bend someone’s arm to get them to sell you their home. Instead, listen and see what the seller wants from you and adjust what you are asking for accordingly.

The second negotiation advice comes from Compass CEO Robert Reffkin. Robert teaches moving fast to submit an offer and then negotiating slow. Robert recommends moving slow when negotiating in order to avoid showing eager enthusiasm as a buyer. This is similar to having a poker face when negotiating.

At the end of the day, negotiating is not about winning or losing; it is about creating a win-win situation in every party’s eyes. Please consult with your realtor and consider his or her recommendations. Realtors have dealt with many home purchase negotiations and they understand the current market conditions.

Conclusion

I wish I could tell you that all negotiations turn out successful, but that would not be true. I hope what we have covered today will help you through the negotiation process for your home. Having the helping hand of an experienced realtor on your side will undoubtedly increase your chances of success.

If you are in the Chicagoland area and are interested in purchasing a home or have any other real estate needs, please make sure to reach out to me. If you are buying, selling, or investing, give us a call or text, and we will do the rest.