Make your offer
Your agent or discount broker will take charge of this,
here's what to expect when you make an offer:
You'll be asked to give an offer price for
You'll be asked to explain how you plan to
pay for the property. (As I noted earlier,
appending a pre-approval letter from a bank
costs you little and sweetens your offer.)
You'll be asked to write a check payable to
the seller as an earnest money deposit,
usually enough to cover rent or a mortgage
payment for one month, and even more in a
hot market. The broker or agent will hold
onto the check during the price
negotiations. If your offer is accepted and
you later default on the contract, you'll
forfeit the deposit.
Your broker will probably add some
contingencies to the contract so that will
let you walk away from the deal if something
goes wrong. For example, youíll want to get
out of the deal if you canít get financing,
or if you discover something wrong with the
house after inspecting it more closely.
This article talks about the importance
of these kinds of contingencies.
The contract will specify who pays for
various closing costs. These expenses are
often allocated according to local customs,
but they're usually negotiable.
The contract will establish a timetable for
completing the deal.
The contract will set a date for when you
can move in.
The contract will specify who is responsible
for any repairs or improvements.
The contract will sometimes specify what stays and
what goes (e.g., light fixtures, drapes,
When considering offers, sellers don't just look
at price. They also care about whether the deal
is likely to make it through escrow. Sellers
hate it when deals fall through.
relatively painless way to sweeten your offer is
to append a pre-approval letter or certificate
to it. The letter says that the bank has
reviewed your financial information and that
it's willing to lend you enough money to buy the
house at the price you've offered. It won't
show the maximum amount you can borrow, though,
since that would tip your hand to the sellers.
Getting pre-approved takes just a few days, and
involves filling out an application, and
submitting documents like paycheck stubs and
bank statements. You may also have to pay an
Applying for a loan is no longer an
ordeal, since lenders have access to
an alarming amount of information
Pre-qualification is similar to pre-approval,
except that the financial information provided
by the buyer isn't verified. Because of this, a
pre-qualification letter won't impress sellers
as much as a pre-approval letter. (Click
here to read more about the differences
between pre-qualification and pre-approval.)
Your broker should submit the offer with a cover
letter summarizing the terms of the offer
and--most importantly--defending your offer
price. This is usually done by looking for
low "comps" in the area--similar homes that have
sold for low prices--and explaining why those
sales prices justify your low offer.
What to do if your offer isn't accepted
If your offer is accepted, congratulations! But
it usually won't be if you've started with a low
offer. Here's how to interpret different
reactions to an offer of, say, $830,000:
The seller counters with $930,000. Sellers
sometimes devise counteroffers with the hope
you'll offer to "split the difference." In
this case, the seller may be hoping you'll
bid $880,000. I recommend countering with
a lower value, say $860,000, and see what
The seller counters with a firm price of
$910,000. A firm price means the seller
isn't willing to entertain a counteroffer
from you. If this firm price is more
than the property is worth to you, I'd politely reject the
counteroffer and urge the seller to contact
me if he or she had a change of heart.
Meanwhile, I'd make offers on other
The seller rejects the offer outright.
There are several possible reasons for
this. Sometimes it's because the seller is
entertaining or expecting another, higher
offer. Sometimes it's because the seller
hopes to press you into coming in with a
much higher offer. Sometimes it's because
the seller is inexperienced, and is reacting
emotionally to what he or she perceives as
an insulting offer. I recommend urging the
seller to reconsider and make a
counteroffer. Send signals that you like
the house and that you're a serious buyer.
Sometimes the seller is willing to bend on
price, but not on something else. Some friends
of mine were involved in negotiations for a
$700,000 home that broke down over whether the drapes
would stay or go. If something (like drapes or
the move-in date) matters more to the seller
than it does to you, it's wise to bend.
Advanced negotiating tactics
Don't fall for statements like these: "The
price is $20,000 below market." or "It's
selling for less than the appraised value."
If the house can only sell for $600,000 in a
market, than that's the market value. If a
house is priced below the appraised value,
then the appraisal must be off.
rely upon your discount broker for advice
about how much to offer. It's in the
broker's interest for you to make as high an
offer as possible so that the offer is more
likely to be accepted and the commission to
be paid. Figure out how much to offer on
to convince your broker that your bargaining
position is strong. One way is to make a
show of being interested in more than one
If someone else is also looking at the
property, give the sellers just a day or two to
respond. This can head off an alternative
If things get bogged down, talk directly to
the seller. Agents won't like this, and
some sellers won't want to talk with you.
But this might be an effective way of
working out a deal.
If you can't break an impasse with a seller,
consider making an appraisal offer, in which
you offer to pay the median appraisal price
of three randomly chosen appraisers.
If you're short of cash for the down payment
and closing costs--but have the ability to
borrow more--offer a higher
price but ask the seller to pick up all of
the closing costs.
©Lori Alden, 2008. All rights reserved.