Today we’re moving on to the next step of the homebuying process!
For some buyers, this is when the thrill and excitement of touring houses (which I discussed in my last column) turns to panic and fear, understandably so since things get very real when you sign a contract for a large sum of money.
Once you find a home that you want to buy, the next step is to submit a written offer to the seller of that home, letting them know what you are offering in exchange for their property. We have a fairly standardized well established offer process here in the DC area, but I can’t say enough that every transaction is different and it’s challenging to accurately generalize.
The offer terms that you submit become part of the legally binding written contract between you and the seller, so it’s important to carefully think through what you are offering to ensure that you will be able to follow through with your contractual obligations.
Here are some of the different offer terms to be thinking about as you look at homes and prepare to submit an offer:
Price: On the surface, price is the most straightforward of the offer terms, but often one of the most difficult to decide on. The price you decide to offer should be based on an overall offer strategy, and your decision of what the home is worth to you.
Financing terms: If you are using a loan for your purchase, you will include your down payment percentage and loan amount percentage, as well as other specific details. It’s a good idea to speak with your lender when you are deciding on your offer terms to make sure you have an accurate understanding of all of the numbers associated with your offer.
Deposit amount: Also known as an earnest money deposit, in DC and MD this is generally 2-5% of the sales price, in VA 1% is more common. The deposit will be applied to your total “cash to close” amount at settlement, and it is an amount that is held in escrow between the contract ratification and settlement dates.
Settlement date: In our area, settlement dates average between 25-35 days from contract ratification, but it isn’t unusual to see up to 45 days. When deciding on a settlement date, its important to know what the sellers preference is, and take that into account along with your own preferences as part of the overall offer strategy. A seller may highly value a specific settlement date.
Contingencies: In the most competitive of offer situations it may be advantageous or necessary to submit an offer with no contingencies. In most offers, buyers do include contingencies, the more common ones include financing, appraisal, and home inspection. Contingencies are added options, and allow either party to exercise specific rights through an established process.
Can we see if the seller will accept this price without submitting an offer? You can, but they are unlikely to consider an offer that isn’t in writing. Sellers will want to see all offer terms before considering an offer. I am of the believe that serious offers are submitted in writing, therefore, as a buyer, if you want your offer to be seriously considered, its worth taking the time to submit it.
Can I submit more than one offer at a time? This isn’t a good idea unless you plan to buy more than one home at a time. It’s important to remember that an offer can become a legally binding contract if the seller accepts all the terms and signs off on it, and you don’t want to submit an offer where you don’t intend to or cannot fulfill the contractual obligations.
What can I do to improve my offer? The straightforward answer to this is to make the offer as appealing to the seller as possible. The first step is to find out exactly what the seller wants, and this is a conversation that should take place between a buyers agent and a listing agent before an offer is submitted. With most offer terms, you will need to consider the pros and cons, weigh the risk vs potential benefit.
It isn’t uncommon to submit a few offers in our market before ratifying a contract, and while it’s important to think through the offer terms carefully, it’s also helpful to prepare your expectations accordingly. Sometimes the first offer is a trial run which in my opinion is completely OK. Anytime you submit an offer that isn’t accepted, it’s a good idea to find out what you could have done differently to be better prepared for the next one.