Step 12: Make an Offer
By this time, you feel you are ready to make an offer on the house you have chosen. You need to determine what the initial offer should be. There are some things that you should consider when determining the amount to offer:
Sale price of similar houses in the neighbourhood for the past year or so. This gives you a pretty good estimate of the current market value of similar properties. But, bear in mind that no two houses are alike, even if they look the same.
Inspection results. Go over the inspection checklist and weigh the good points against the bad. Also, estimate the cost of fixing the problems. The severity of the problem and the cost of fixing it, may impact your offer amount.
Mood of the market, in general and the neighborhood, in particular. If it is a seller's market, the houses are moving fast and close to the asking price, and you really want the house, consider offering close to the market value of the house. This will ensure that you are a serious contender, even if the buyer gets multiple offers. On the contrary, if the market is slow, or the house has been on the market for a while, or the seller is eager to sell, you might want to leave more room for negotiations after your initial offer.
When you are ready to make an offer, you should prepare a written offer or a statement, to be presented to the seller. Typically there are forms that can be filled out to make a formal offer. The intent of the offer forms (also referred to as binders, sometimes), is to make the offer a bit formal, without signing a purchase contract. The form should contain a statement to the effect that the offer is subject to signing of a mutually acceptable purchase contract, within a specified number of days, that has been agreed to and signed by the buyer and the seller and any other relevant party. This ensures that the offer is non-binding.
An offer usually includes an offer price, closing date, financing information, contingencies
and earnest money as a token of buyer's commitment to buy the property. Earnest money could vary
from $500-$1000, although it is usually $1000. You may make your offer contingent on some outstanding
issues being resolved, for instance, sellers paying closing costs, sellers fixing some/all of the problems that surfaced during
inspection, getting ownership of the house by a certain date, specially if there are tenants occupying
the house, etc. At the time of making an offer,
it could be an added advantage if the seller is aware that you have been pre-qualified for your mortgage. This may be especially useful if the seller has multiple offers.
If you are going through a real estate agent, he/she should be able to facilitate the process of writing up the offer and presenting it to the seller.
An offer is generally not open-ended. It is valid for a certain duration of time and expires at a documented date and time (as set forth in the written offer). This usually protects all the parties involved. Once the offer has been presented to the sellers, they should get back to you within the specified time. Generally this phase may be associated with some negotiations between the buyers and the sellers. Eventually, the deal either gets negotiated or not.
If the deal has been negotiated and all the parties agree to the terms and conditions, then proceed with the remaining home inspection (if that was a condition) and prepare for the Purchase & Sale agreement. If the deal could not be negotiated then you may either continue to look at more houses or consider making an offer on your next choice.
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