- In the Fort Hood area, an offer will likely cost you approximately $1000, most of it refundable (earnest money, option fee and inspection costs)
- Be sure you’ve read and understand the contract before you sign. You are committing to buy a home.
- The market is always changing. Your agent is an expert on what to currently expect from the seller and the process.
Note: The offer, process, paperwork, and negotiating is a huge subject with countless angles, tips and tricks that depend on your situation and the market conditions. It cannot be covered adequately here. Your agent will be able to explain and advise throughout this process.
This is STEP 5 in the home buying process. Previously was STEP 4: CHOOSING A HOME.
What You’ll Need before Making an Offer
Preapproval (If using a lender)
If your original preapproval letter was for more than the offer price, you may ask your lender for an updated preapproval just for the amount you are offering. You don’t want to advertise to the seller that you can actually afford more than what you’re offering.
Proof of Funds (If paying cash)
Your proof of funds is something as simple as a bank account statement showing you have enough money on-hand to cover the price. You can black out account numbers.
Current mailing address, full legal names, and basic contact information. Some offers like those on HUD Homestore foreclosures will even require your social security number, but most do not.
Main Parts of an Offer
Once you’ve identified a home you want to make an offer on, your agent will do a Comparative Market Analysis (CMA) on the home and recommend a fair market value. You do not necessarily have to offer at this value. But at a minimum, you know whether you are perhaps getting a good deal. Or maybe you’re choosing to pay a little over market value but for a home that is worth it to you.
Choosing an offer price can be difficult because you want to feel like your “getting a deal”. My own philosophy is to offer at the price recommended by the CMA (unless it is higher than the asking price of course). Then get what you want with the other terms of the deal. The CMA price is where the negotiations will wind up anyway, and lowballing a seller is setting the wrong tone.
Ultimately, it is whatever your bottom line is. You should offer no more than that.
The seller generally wants to close as soon as possible, while the buyer wants to close as soon as practical. The lender will be the main factor regarding the closing date, as their portion of the process takes the longest. For most deals I would plan on 6 weeks for a closing with financing, and two weeks for cash deals. Working with a builder who hasn’t even built your home yet means the closing could be as much as 4-12 months out.
Just how it sounds, earnest money is proof that you are “earnest” and serious about the home by making you put some skin in the game early. Earnest money must be deposited by the buyer within two days of agreeing to a contract, and is held by the title company in Texas. The money is refunded to you at closing or if you back out for a legitimate reason allowed in the contract. If you default on the contract, the seller gets to keep your money. $500 – $1000 is a fairly common earnest money amount in the Fort Hood area. In hot seller markets like Austin, it can be several thousand dollars or 1% of the sales price.
Closing costs is NOT the down payment. Rather, it is items like the loan origination fee, title fees, lawyer fees, etc. Separately, you can negotiate for a new survey if required (about $600) and who pays the owner’s title policy (about $500-$1500). In the current Fort Hood market, it is common for the seller to contribute toward closing costs – sometimes all of them. The lender is the best person to estimate what dollar amount you should ask for in closing costs.
If you are already aware of repairs that you know will need to be made, you can include it in the initial offer. More common, however, is for the offer to be “as-is” and then repairs are negotiated during the Option Period, after you do your inspection.
Always have an option period. The option period is usually one or two weeks and is the unrestricted right for you, the buyer, to just walk away (some foreclosure contracts have restrictions on that “right”). The option period is designed for you to do your inspections and determine that you are comfortable moving forward with the deal. With the option period is the option fee which pays for the right to have an option period. The fee is negotiable and paid directly to the seller as soon as the contract is agreed. $50-$100 is common for the Fort Hood area. Unlike earnest money, the fee is only refundable if you close. Once the option period is over, you are “in it to win it”.
There are a lot of parts – title commitment objections, final lender approval timelines, exclusions, protections against interest rate spikes, and so much more that cannot all be included here. Have your agent walk you through the contract and be sure you are comfortable before signing.
The contract you use depends on the type of deal you are doing. The most common sales contract and the only one some agents have ever used is the 1-4 Family Residential Contract (Resale). There are separate contracts for commercial property, “farm and ranch” properties, new homes and condos. These contracts are promulgated by the Texas Real Estate Commission (TREC) and Texas Association of Realtors (TAR), and your agent should be an expert on each one.
Builder and Foreclosure Contracts
Builders and Banks with Foreclosures often use their own contracts. For example, VRM (who controls VA foreclosures) has its own contract for all VA foreclosures. These are not promulgated by TREC or TAR and your agent is (probably) not a lawyer or expert. Read these contracts carefully and be sure you are content with what you are signing.
The seller can do any of three things when they receive your offer:
It may be astonishing to think that the seller might ignore your offer altogether – but they can. The seller’s agent must present all offers to the seller, but the seller doesn’t have to do anything.
Most of the time in the Fort Hood market, unless it is a very strong offer that they accept outright, the seller will make a counter. You and your agent will have to consider the terms and then can either accept it or continue countering. I can’t make specific recommendations on what to do because it depends on your circumstances and what is important to you.
If you can’t come to a deal that you are satisfied with, it’s time to just walk away and keep looking.
Multiple Offer Situations
It is sort of a good thing if someone else has made an offer on the same home as you. That means the home you want is a desirable piece of real estate!
That is where the good things end for you, the buyer, during multiple offer situations.
Usually the seller’s agent will invite all the buyers’ agents to submit a “highest and best” offer (they don’t have to – it is up to the seller). You will not know what the other offers are – that is confidential. You are in the dark choosing between two roads – offer too little and lose out on the home. Offer too much and you pay more than you had to.
My advice? Don’t overthink it and just determine what the home is worth to you. Offer that. If you get it, great. If not, you did what you could and can move on. There are some tips below on how to make your offer more attractive to the seller, whether in a multiple offer situation or not.
|Tips on How to Get Your Offer Accepted|
|Offer More. Obviously.||Pay Cash. Sellers love cash offers. Quick close, no closing costs, no lender. Love ‘em.|
|Be Quick. The longer you are negotiating, the longer the chance that another buyer comes along and turns it into a multiple offer situation.||Get Rid of Contingencies. Is the seller going to have to wait for you to sell your current house? Sellers don’t like waiting.|
|Get the Seller to Like You. Try not to lowball or insult the seller in any way. Buying AND selling is an emotional process, and having the seller like you is actually a major advantage.||Make the 'Other Stuff' Look Good. Move up the closing date, offer more earnest money (you get it back at closing anyway), use the seller’s title company – in short, make the little things that shouldn’t cost you much as seller-friendly as practical.|
|Have a Lender with a Good Reputation. If the seller knows your lender can close the deal, that’s a plus.|
Once the seller accepts an offer and you have the executed contract, you need to get your earnest money and option fee checks in ASAP. Get them to your agent who will get them receipted so that you don’t lose your option period or default on the contract before you’ve even started.
Then, it’s STEP 6: DO YOUR DUE DILIGENCE. Use the option period you paid for to ensure that the house is going to meet all your needs. If it doesn’t then you can renegotiate with the seller, or walk away.