Introduction
Welcome to Your First-Time Homebuyer’s Guide, Part Three!
If you’ve completed parts one [LR1] and two[LR2] of the series, you’re practically a first-time homebuyer pro as we’ve covered a lot, including: financing, how to find your home, partner with a real estate agent, and more. In the third installment of this series, we’ll continue to add to your homebuying knowledge base with tips featured in Your First Home (Second Edition), written by Gary Keller and Jay Papasan.
Making an Offer
No matter the market, there are three basic components of any offer: price, terms, and contingencies (or “conditions” in Canada).
Price: The right price fairly reflects the market value of the home you want to buy. To find this price, your agent will pull together a competitive market analysis (CMA), which is a set of recently sold homes that resemble one you want in size, condition, location, and amenities.
These records are also called “comparables” or “comps.” You’ll get the best market insights from the homes most similar to the one you’re looking for. Your set of comps will enable you to determine an average cost per square foot, which forms the basis of a competitive offer.
Terms: You and the seller have to agree on many details, such as when the deal will close, whether the seller will keep any of the decor (such as window treatments or appliances), and who pays for closing costs. (Though, in Canada, the buyers always pay the closing costs.) These factors are called “terms,” and they give buyers and sellers additional flexibility in crafting a winning deal.
When it comes to terms, remember that everything is negotiable. However, different markets have informal rules governing the kinds of requests you can make of sellers. Your agent will let you know what the seller will probably expect, as well as the pros and cons of deviating from market norms. The six basic terms in a real estate offer are: schedule, conveyances, commissions, closing costs, home warranty, and earnest money.
Contingencies (or Conditions): These clauses let you out of the deal if the house has a problem that didn’t exist, or about which you weren’t aware, when you went under contract. They specify any event that will need to take place in order for you to fulfill the contract.
Common contingencies include:
- Inspections - protecting you from paying too much for a home that’s hiding MAJOR problems.
- Financing - letting you out of the contract in the event you don’t qualify for a mortgage
- Appraisal - guarantees that the home will be professionally appraised and you will only purchase if the value of the appraisal is at least as much as what you agreed to pay on the home.
Negotiation
Once you and your agent have written a contract, your agent will submit it to the seller’s agent. The seller may write a counteroffer that, for example, asks for an earlier closing date and a slightly higher price. Then the ball’s back in your court to decide whether to accept their changes or to counter their counter. Your agent will do all the talking with the seller’s agent, providing a buffer between you and the seller and saving you the stress of in-person negotiations.When you and the seller reach an agreement and both parties sign the contract, that check you wrote as earnest money will be deposited into an escrow account.
Your agent will do all the talking with the seller’s agent, providing a buffer between you and the seller and saving you the stress of in-person negotiations.
