Adventures in Home Buying – Part 3
By Erica Root
Well, hello there. Thanks for coming back for more adventures in home buying. Today we are going to learn all about offers, offer letters, and home inspections. Hopefully you aren’t waiting for this to be published before making a move on a home, but in case you are, let’s get started.
Making an offer on a home
So you are ready to commit and make an offer on a home. Now you need to craft your offer.
Each offer is different, and your real estate agent will walk you through it, advising you on your options. But, there are a few general offer options worth knowing:
- Making an offer at the list price – this might seem like the obvious choice. It is after all how we make many of our purchases. You can’t exactly haggle over the price of a book on Amazon, or negotiate a better price for your Starbucks Frappuccino. Buyers typically go on a list price if there isn’t a lot of competition in the market and they feel as if it is correctly priced compared to similar homes on the market in their area.
- Making an offer under the list price – if the house has been on the market for a while, this is the best time to make an offer under the list price. When the seller has few options, they might be willing to go under list price, or at least negotiate somewhere in the middle. Another time where it makes sense to go in under the list price is when you don’t think that the house is worth what the seller is asking for it. Is the house listed at $350K, when all other similar homes in the area are going for $310K? Maybe there is a good reason, but maybe not.
- Making an offer over the list price – so for those of you looking for a home in this Sacramento market, there is a high likelihood that you end up paying more than the list price for a home. It’s sad. But true. Often sellers will place a home on the market at a competitive price, one they know will bring in lots of potential buyers, with the expectation that a bidding war will drive the final price up. This is definitely what is happening in Sacramento, at least it was earlier this year when I was in the throes of the home buying process.
Discuss all of these options with your real estate agent. While they might make recommendations as to how you should write your offer, the choice is ultimately up to the home buyer. So decide what you are comfortable with, look at the comps that your real estate agent sends over, and do a little homework. This will help you feel confident in whatever offer you make.
The Offer Letter
I almost forgot about the supplementary offer letter. But thank goodness I didn’t because it is apparently super important.
No, this letter isn’t like an offer letter for a job, it is actually more like a cover letter. A way to sell yourself as the best person to move into the house you want to buy.
It offers a way for you to tell your story, to pull on some heartstrings, and distinguish yourself from others who may also be putting in an offer.
Tips for writing an offer letter:
- Be yourself – be you, not who you think the seller wants you to be
- Share something universal – whether it is growing your family by having children, or getting a larger yard so your rescue dog from Front Street has more room to roam, share something that people can identify with
- Keep it short – just like those cover letters, people’s attention spans are short, so keep it simple and to the point
Once they accept your offer – because your offer was competitive and you had a kick-ass letter – you will be asked to put a deposit down on the house. The standard 1% deposit is a good faith measure as you begin the loan process.
If your offer was accepted, you now have a limited time to go in and make sure the house is up to snuff. Unless you are buying a brand new house, something will be wrong with the house you’ve put an offer in on. It’s just how it works.
So who you gonna call to get those inspections done? Your real estate agent will likely have recommendations and if they are super awesome, they might even schedule those inspections for you. Typically, you have several different people stopping by to inspect various aspects of the house.
Inspections are an expensive – but necessary – cost.
I ended up backing out of a house due to the number of items flagged during the inspection process. While I knew I would need some cash on hand to make improvements to whatever house I ended up buying, I wasn’t ready or willing to cough up tens of thousands of dollars to buy a new roof, to fix the nob and tube wiring, or place dry rot.
A bad inspection report can be disappointing. It brings you to a crossroads where you need to weigh the costs and benefits of the house. Maybe you are buying in an older neighborhood and already factored in a new roof while buying a house, moving forward might be an easy decision. But for most of us, we expect to pay for new paint, floors, and other cosmetic items when buying a home, larger infrastructure items can scare us away.
I firmly believe you have to love, or at least really like, a house to put a bid on it. But nothing makes it easier to walk away and keep looking than a bad inspection.
If you do decide to walk away, tell your agent and they will inform the sellers. You are not penalized for doing do and will get any deposit you made on the house back.
I recommend a few things for when you are ready to go all in on a house:
- Figure out what you want your offer to look like, are you going in over the asking price, or has the house just been sitting for a while waiting for a buyer to sweep it up under the asking price?
- Write that letter. Sell yourself and make sure you stand out against all those other offers that might be on the table. Sure, sellers are likely to go with the highest bid on the table, but all things being equal, a letter can be that little extra advantage to getting accepted. Hmmm, maybe I should start writing these letters on the side…
- Inspect the heck out of the house. This is a necessary evil that might seem like a waste of money, but trust that it isn’t. It will either help you confirm your decision to get this house, or be the out you need to not continue with the home purchasing process.
Until next time…