Buying a home is a big decision. Understanding the offer process when buying a home is key to making your goal a reality. Most people think finding a home is the hardest part. However, finding a home isn’t the goal. Buying a home is. If you are unfamiliar with the homebuying offer process, you might be left only dreaming about your new home and not actually living in it. In this article we will share the steps to making an offer on a home, getting it under contract and finally to the closing table.
There are many articles to help you financially prepare to buy a home. After 20 years of selling real estate, I have found the steps to becoming pre-approved are well documented. Yet, recently the process for actually moving forward to buying a home is not as common for many buyers. This is not an article for just first-time home buyers. This information is for anyone who doesn’t buy homes on a regular basis and might be unfamiliar with the actual steps of making an offer to buy a home, and moving from contract to closing.
The offer process to buy a home
Buying a home is a bit more complicated than just picking out a pretty house and saying you want it. Here is what you will need to consider when making an offer to buy a home.
How much should you offer?
The biggest question when it comes to making an offer to buy a home is “How much should I offer?”
If you have hired a Realtor to help you with this process, they will be able to look at comparable sales (a.k.a comps) to help answer this question. The comps should be ones an appraiser will most likely use to value the property as well.
If the home is highly desired by you and others, the amount you offer could be asking price or even more. If you are planning to make an offer at or above asking price, take into consideration your financing. The property will need to appraise at the purchase price to ensure your loan approval.
If the home has been sitting on the market for an extended period of time, you might be thinking of a “low-ball” offer. This type of offer can have good and bad returns. It is good if you get the home at a lower price. It is bad if you insult the seller and start the negotiations off on the wrong foot!
Figure out what the property is worth to you. Make an offer that works for you and the seller, taking the comparable sales into consideration.
How will you take title of your new home?
The name you put on the offer will be the name(s) recorded on the deed. You will want your legal names on the offer. Do you want your full name or middle initial? Do not use nicknames. If you are married but haven’t legally changed your name, use your legal name not your married name.
What amount of earnest money should be deposited?
Earnest money deposit, also referred to as escrow deposit or good faith deposit, is the amount of money you are willing to deposit to show your interest in purchasing the home. The exact steps may vary from area to area and the type of contract being used. However the fundamentals are the same.
- Earnest money is deposited with a 3rd party, either an attorney or title company
- Earnest money is deposited either at the time the offer is made or within a set time after the offer has been accepted.
- There are clauses of the contract that help protect you from losing your escrow deposit. Pay attention to the timelines of the contract to protect your money.
The amount of earnest money deposit is a different story. Again, each area might have different rules of thumb. Typically there isn’t a specific calculation for the amount of earnest money deposit. The amount you offer as good faith to purchase the property should be enough to show you are a serious buyer.
For example, if you are buying a $500,000 home and only offer $1000 as good faith, the seller may not perceive you as a committed buyer. The seller might want to see $5000 – $10,000 held in escrow.
Whatever your situation, you will want to determine how much money you have available and are willing to have held in an escrow account before making an offer.
What should be the closing date?
The closing date should be something you consult your lender about. Here are some of the timeframes the lender will take into consideration:
- Have you already made a full loan application?
- Appraisal of the property’s value
- Underwriting of the loan timeframe
- Securing a homeowners insurance policy
- Title search and title policy
Typically a 30 day contract to closing timeframe will be enough for your lender to prepare your financing. It is also ideal to ask the seller their preferred closing timeframe. The seller may request a longer closing date to accommodate their moving needs.
ALWAYS check the calendar! Make sure you do not put a weekend or holiday as your closing date. (Don’t laugh. It happens all of the time)
Lastly, try not to schedule your closing on the last day of the month. This is typically the busiest day for lenders and title companies. Any delays could cause contractual issues.
Other terms to consider when making an offer to buy a home
- Are you purchasing the home AS-IS or asking the seller to make repairs?
- Timeframe for home inspections
- Financing terms of the contract
- Who (Buyer or Seller) is paying for title search and title insurance
There are many terms and timelines of a real estate sales contract. Your offer should be with the terms that make sense for you. However, in order to make your offer to become a sales contract, consider win-win terms for you and the seller.
What happens once you submit an offer to buy a home?
You’ve done your prep work, written your offer to purchase a home, and submitted it to the seller. What happens next?
At this point the seller has the option to accept, reject, or counter your offer. Accepting an offer means the seller is accepting ALL of your terms, not just price.
Typically the seller will counter the offer, making changes to some or all of the terms. At this point, the seller will return the counter-offer to the buyer. Now the ball is back in the buyer’s court. The buyer has the option to accept, reject or counter the seller’s terms. Patience is extremely important at this stage.
This tennis match goes on until both parties have agreed to ALL of the terms of the offer and it now becomes a bona fide contract.
WARNING: The Emotional Rollercoaster has begun. Knowing the process will help keep your emotions in check. Try not to set your heart on buying this home. Remember, your dream doesn’t become a reality until the closing table. The contract to closing process isn’t always a smooth ride.
From contract to closing table
Yay! You are officially under contract to purchase your home. Don’t pop the champagne just yet. It is now “go-time”. In my experience, this is when your Realtor really shows their value.
Remember all those timelines we discussed above? It is crucial you and your Realtor know the timelines. Accompanied with the timelines are additional negotiations and the Emotional Rollercoaster is in full force.
The Closing Table
Congratulations! You’ve made it from the offer process, through the contract, had your financing approved and are ready to sign a big stack of papers making you the owner of your new home.
TIP: As a homeowner, record keeping can seem like a job in itself. I recommend using Google Drive. Create a folder for your new home and save all your documents in one place. Also, maintain records of repairs and receipts. When it is time to sell your home, these will be very valuable!
We hope this article helps you understand the offer process when buying a home. If you have questions or need guidance please feel free to reach out to YES. We are happy to answer your questions and be a resource to you.