I’m Ready to Make an Offer – Now What??

Congratulations! You have spent lots of time looking and thinking, and now you are ready for that BIG STEP – making the offer! It’s kinda scary…but if you have done your homework, and followed my suggestions along the way, you are in great shape.

Relax! Making an offer causes anxiety in most people – even those who have done it before. By now you will have gotten pre-approved (if you haven’t DON’T  PROCEED until you do), and hopefully prepared a budget so you know what you can really afford (considering the loan and associated fees, PLUS your lifestyle).

Assuming your agent is acting as a Buyer Agent, you now need to review the comparable properties to see what they have sold for vis-a-vis the house or condo you are interested in. Think about the similarities in location, size, amenities, square footage. Is the property you like reasonably priced as compared to these past sales, especially those that sold very recently. Is it high?

Consider what you are willing to pay for the property (the max). Don’t start there, unless the market is such that it makes sense to do so – your agent can guide you here, as in some markets a full price offer might be appropriate, especially if the listing is new - but use this as your end point. Now, talk about where properties are typically selling for in the area (e.g., 100% of asking price, 95% of asking). This will give you a guideline of where you might start – again, talk with your agent.

The goal is to make an initial offer that the seller will, ideally, accept, but one that will at least encourage a counter offer so you have a chance to negotiate. If you bid too low the seller might tell you to “take a hike.” Once the seller is annoyed you may have hurt your chances to get into the game at all.  Keep in mind your objective, which is to get the home you want at the right price, and don’t let small details or differences between you and the seller derail you from looking a the overall picture. Good luck. And if I can help in any way, please don’t be shy about asking!

FAQs Part 10 – What are the Components of an Offer to Purchase?

Paramount in most first time buyers’ minds is…what is an offer and how do I make one?

I previously talked a bit about what an offer is and who makes it, but let me share some more details on what goes into an actual offer (the paperwork used and even the details will vary from state to state). The California form (called the Residential Purchase Agreement and Joint Escrow Instructions) is 10 pages!! So it’s a bit frightening to new buyers. Let me chat about items in the CA document, but recognize that if you are in another state some things will differ – so have a good conversation with your REALTOR!

• Description of the property – address, assessor’s parcel number, etc.
• Price – probably the most important component. You need to lay out the initial offering amount and the amount of the downpayment.
• Close of escrow date
• Finance Terms - if you are not a cash buyer, you must spell out the details of the loan you are expecting to apply for – interest rate, amount to be financed, type of loan, timing of loan application, appraisal, etc.
• Contingencies – there are a bunch of them to consider, and you must decide if your offer will be CONTINGENT on any/all of these or not. Among these are: 
  • Obtaining a loan (see Finance Terms above)
  • Allocation of costs – for pest inspection, escrow/title, reports, etc.
  • Home and other inspections
  • HOA/condo documents review and approval
  • Buyer investingation of property and matters affecting property including insurablity
  • Title and vesting – examination of preliminary title
  • Sale of buyer’s property (if applicable)
• Contingency Removal Date
• Time for Expiration of Offer
• Buyer Inspection Advisory

There is lots more to read and review, but this will give you a good sense of the issues to think about in advance, and to discuss with your REALTOR.

Why You Should Create a Budget

As a first time buyer, it is essential that you develop a budget as part of your house hunting and decision-making. Why is this important?

Buying a house is an expensive proposition, and there will be monthly expenses you can’t avoid – the loan (including principal, interest, taxes and possibly homeowner’s insurance), condo or HOA fees (in some cases), Mello-Roos (again in some cases here in California), and more. You should already know about getting pre-approved, and if you have done so you now know what the bank says you can afford in a loan. But that’s deceptive.

Great, you think. The bank will loan me $xxx,xxx, costing me $2175 per month. I can afford that. But can you?? This is why you need a budget.

• Sit down and make a list of your monthly expenses…not just the standard ones like credit cards and your auto loan, but everything.
• Make sure you include the money you spend on things like the gym, going to movies or the theatre, attending sporting events, going to restaurants, vacations, etc. You get the idea.
• Then factor in the projected loan payment (PMI), estimates of utilities, HOA/condo fees, etc.
• Finally, check this summary of expenses against your monthly take home pay. You might be surprised.

My advice is, make SURE that what the bank says you can afford, and what you REALLY can afford each month are in sync with each other. The bank does not factor in expenses other than loan payments and credit cards (i.e., your debt ratio). Your lifestyle expenses may be substantial, and unless you want to give that up, make sure you don’t buy a new home that will make you cash poor and leave no money for other things, including repairs and unexpected costs or emergencies.

WIIFM

You probably know what this refers to, but if not…What’s In It For Me? As a first time buyer, you are likely thinking along these lines as you ponder what REALTOR to work with, what home to buy, which loan program to choose, etc.

Be assured, this is normal and to be expected, although many agents and other real estate service providers tend to forget this. Is this being self-serving? Perhaps, but let’s face it, YOU are the one who needs to buy the house. So isn’t the process, for the most part, all about YOU?

Agents tout their Top Producer status, their awards (top 1% in the state), and more, but don’t really consider what their potential clients want and need, and making sure they get it. What advice do YOU need to move ahead as a first time buyer? What SERVICES should you expect as part of the buying process? Don’t be shy about asking…but the right agent will tell you first.

Need help or just have questions? Check out my website’s page for buyers, and my Free Reports.

How do I Evaluate the List Price of a Home?

If you are currently in house hunting mode, very likely the following question has occurred to you – how do I evaluate the list price of a home? And perhaps, what this really means is “how do I know what to offer?”

What you need to know, and ask yourself, is the following:

• Is the list price reasonable in this market? If yes, why; if not, why not?
• How does the price compare to other similar homes on the market?
• What have similar homes sold for in the last 3-6 months?
• How much is the home worth to me? (i.e., if push comes to shove, how much am I really willing to pay, even if the price is reasonable?)
• Is the seller willing to negotiate the price?
• If seller IS willing negotiate, by how much? (or, what is reasonable?)
• What is a reasonable price for my initial offer?
• What are the market conditions and how are they impacting pricing and offers?

The advice and guidance of a REALTORis pretty important here, unless you are an expert in house buying. Since you are not a licensed agent you do not have access to ALL the pertinent data that will help answer most of these questions. And knowing about the seller’s willingness to bargain is tough – while your REALTOR can ask the listing agent, you won’t know until you get into the game. It is probably safe, especially in this market, to assume the seller will negotiate, but the amount will remain in question until the bargaining starts.

The ONE question only YOU can answer is…what is the house worth to you??? Even if the price is reasonable, what it is worth to you will determine if you get to agreement, or decide to walk away. This is something that is important to think about before you get into the negotiation, especially if you are in a multiple offer situation.

FAQs – Part 9 (Short Sale)

What is a Short Sale?

This is not really a common question, at least it hasn’t been in the market over the last few years due to climbing prices. But with the market slow down, and with many people buying in the last 2 years at the peak, we are now seeing more “short sales,” so it is something you should know about; you may come across this while house hunting.

Simply, a short sale occurs when the financial obligations on the house (the loan owed to the bank) are greater than what the house can be sold for.  This will likely be more common if someone has not been in the house for long, bought at the peak, and did not invest much money in the purchase (downpayment) and/or took out a secondary loan (e.g., home equity) after the purchase. Since the sellers owe more than the market value, this is referred to as a short sale.

A short sale can represent a possible good deal for a buyer, since the level of motivation to sell is high and the price to get the home sold (often due to a relocation or other family circumstances) may be lower than market. However, the big negative is that a short sale is SUBJECT TO THE LENDER’S APPROVAL. This can take quite a bit of time and, of course, may not be approved, in which case you cannot proceed with the purchase. So, don’t necessarily write off a short sale home if you tour one and it meets your requirements, but be aware that there are risks. Talk with your REALTORto understand more before you proceed. There are ways to work through a short sale successfully. Much will depend on what the seller owes and what the bank is willing to accept.

Are You an eBuyer?

If you are not using the Internet to assist you in your search for a home, you are among the minority. Recent surveys show that 75 – 80% of buyers are using the Internet for househunting, even before they contact an agent. A good agent can help you find the right home, even if you choose to not use the Internet in your search. But there are some advantages to being an eBuyer and doing your research first, and while actively looking with your agent.

First, you have most of the available inventory at your disposal, through Realtor.com, brokerage and agent websites, and FSBO sites. Not all homes will be found on the Internet, often due to seller request, but most will be there (with or without photos).

Second, the Internet allows you to search any time of the day or night and is generally updated frequently (I believe Realtor.com lags behind the posting of new listings by about 2 days once they are in the local MLS). You will also have access to map links so you can quickly see where properties are located (very helpful if you are unfamiliar with the local area). When you see things that are of interest you can share them with your REALTOR, who can then provide more detailed information.

Third, using the Internet to search regularly will give you a good education about the market. You will quickly learn what homes are available in different communities, price ranges, and more, so you will be a better educated consumer. This is not, however, a substitute for sound advice and information from a REALTOR who knows the areas you are interested in.

FAQs – Part 8 (Escrow)

What is Escrow?

This is a fairly common question, especially for new home buyers and those coming from other parts of the country where the process is different (e.g., escrow companies are used in California, but typically not in Massachusetts). While itself a fairly simple concept, people use the word escrow in a number of ways; for example, you hear things such as “falling out of escrow” and “opening escrow”:

1. Simply, it refers to a neutral third party in the transaction (the escrow company or escrow holder) that holds the deposit until closing, and is also responsible for ensuring that all necessary and required paperwork is signed and received, and all the conditions are met by the buyer and seller before approval of closing and recording of the documents for the property transfer and the deed. Thus escrow is a short-term trust arrangement in which the principals of the transaction trust that the escrow holder will carry out their wishes, and the escrow holder has the duty to be trustworthy as an agent for both parties, and to follow their instructions (referred to as escrow instructions) which are laid out in the offer to purchase agreement.

2. Escrow is sometimes used to refer to the actual bank account that is opened where the funds deposited by the buyer are held until closing (i.e., an escrow account).

3. Escrow can also be used to refer to the period of time during which the conditions agreed upon by the buyer and seller are met, and all the necessary paperwork is reviewed, approved and signed, then forwarded to the escrow company.

For more on this subject, check out escrow in Wikipedia.

More on the Housing Market in San Diego – new article

Here is more upbeat news on some positive changes in the San Diego housing martket that appeared recently in the Union-Tribune.

Searching on the Internet for a Home

When using a brokerage or agent real estate website to search for a home, here are some tips to make your search as fruitful as possible.

Sites vary quite a bit in terms of the parameters they allow you to use. In general, it is probably not in your best interest when starting out to be TOO particular or use too many parameters to search (once you have the list you can always narrow it down by examining the listings in more detail). Using too many search criteria may cause the site to eliminate homes that could interest you.

Be flexible withyour criteria – if you want 3 bedrooms perhaps look at 2+, since that may bring up homes that have 2 full bedrooms and an office that can double as a bedroom. And it is probably best to not search on square footage, since this varies tremendously and some homes that are smaller actually feel larger because of the open floor plan.

Keep the price range broad (but don’t waste time looking above your price range that you are approved for, except perhaps a small amount since you might be able to negotiate down), especially if you don’t know the market well. Prices can vary tremendously. But if it sounds like too good a deal to be true, more than likely there is a problem.

Search frequently. There is lots (at least in the San Diego area) coming on the market and you don’t want to miss the right home by not checking for 2 weeks.

And ask your REALTOR to help you with the searching process. If your search is not giving you much, it could be that you are being too narrow with your criteria. But it may be that what you want does not exist in the area you are searching.