Step #4: Make an Offer
The Offer
For some, this is a stressful experience. After all, you and the seller may not be able to come to an agreement and you won't get your dream home. There are six basic elements to an offer and there are various offer strategies that you may want to use during your negotiations.
When you've found your home, you will make a formal, written offer to purchase. This is a legally binding contract outlining what you will give (a combination of price and terms) in exchange for the home. Remember, everything is negotiable. You should ask for what you want, but keep in mind what you're willing to give up. As your agent, we will put everything in writing. Of course, the more conditions in your offer, the less attractive it will be to the vendor. In a buyers' market, that's OK.
Understanding Market Conditions
When looking for a home, you should understand market conditions and how they will impact on your search and the price you can expect to pay. The Real Estate Market is always changing. The chart below will help explain types of market conditions.
|
Market Conditions |
Characteristics |
Implications |
|---|---|---|
|
Buyer's Market: |
High inventory of homes. Few buyers compared to availability. Homes are on the market longer. Prices stabilize or drop. |
More time to look for a home. More negotiating leverage. |
|
Seller's Market: |
Smaller inventory of homes. Many buyers. Homes sell quickly. Prices usually increase. |
Many have to pay more. Make decisions quickly. Conditional offers usually rejected . |
|
Balance Market: |
Demand equals supply. Sellers accept reasonable offers. Homes sell within a reasonable period of time. Prices are stable. |
More relaxed atmosphere. Good number of homes to choose from. |
Price - Depending on the market conditions, your opinion of the value of the home and the information obtained from our CMA, the price you offer may be different from the seller's asking price.
Deposit - The deposit shows your good faith and will be applied against the purchase ofthe home when the sale closes. Deposits are usually no more than 3-5% of the purchase price, but a larger deposit can show the vendor that you're serious. We can advise you on the appropriate amount.
Chattels (Inclusions and Exclusions) - Items within the home that will be included in the purchase price such as appliances, fixtures or decorations such as drapes or mirrors are referred to as chatt els. Don't assume that anything will be left behind. If you want it, put it in writing.
Making an Offer and the Process
When it comes time to determining the dollar amount of your offer, we can provide information on the prices of similar homes that are currently on the market and those that have sold recently in the surrounding area. Then you'll be better prepared to make an informed decision.
You'll probably wish to make an initial offer that is lower that what you would actually be willing to pay.
Once you have decided on the initial price, terms and conditions, we will communicate your offer to purchase to the seller, or the seller's representative, on your behalf.
The Offer Can be Firm or Conditional
A firm offer means that you are prepared to purchase the home without any conditions. If the offer is accepted, the home is yours. Although a firm offer to purchase is usually preferable to the seller, if you are unable to close you will lose your deposit and may get sued. Take time to confirm your financing and to think twice about the investment.
A conditional offer to purchase means that you have placed one or more conditions on the purchase, such as subject to home inspection, financing or sale of your existing home. The home is not sold until all the conditions have been met.
Acceptance of the Offer
Your offer to purchase will be presented as soon as possible. After the seller has reviewed the offer, it may be accepted as is, rejected, or returned with a counter offer.
The counter-offer may be in reference to the price, the closing date or any number of variables. The offers can go back and forth until both parties have agreed or one ends the negotiations.
It is best to know your absolute upper limit before you begin negotiations, so that in the heat of the moment you don't end up with a home you really can't afford.
Six Basic Elements of an Offer
Closing, Possession and Adjustment Date - Closing is the day the title is legally transferred and the transaction of funds is finalized. Possession is the date you actually have access to or take possession of your new home. Adjustment is the date you pay for taxes, strata fees, and utilities on the home.
Terms and Conditions - Anything that must be obtained, approved, or satisfied prior to confirming the deal. These may include obtaining financing, home inspection, title search, insurance quote, etc.
Offer Acceptance Date -The date and time the offer is open for negotiations. Once this time elapses, the offer is no longer valid.
Offer Strategies
Choose the Strategy That's Best for You
- The "How Low Can You Go" offer
- The "I've Got to Have This Home" offer
- The "Multiple" offer
The "How Low Can You Go" offer is contingent on you not having an emotional attachment to the property you intend to purchase. In a buyers' market, you may find a few homes that catch your interest and you may want to make a lowball offer. This is usually significantly less than the asking price.
Low balls only succeed if the seller is desperate. You may receive a counter offer, but more often than not, the seller will feel insulted and ignore your offer. We may advise you against presenting such an offer, but will pass it along to the vendor.
The "I've Got to Have This Home" offer usually happens when buyers fall in love with the home, and wants to present their best offer first. This offer leaves no negotiating room, but if the market is hot, it's an offer that will attract attention. We will convey to the seller that this is your best offer. Most sellers expect to receive an offer and counter with another, so you may find yourself in a situation where you either accept the counter offer, or walk away from the home.
The "Multiple" offer usually arises in a sellers' market where buyers find themselves in a bidding war for the property. A Multiple offer is when there is more than one competing offer on a specific property. If you find yourself in this situation, all of your negotiating strength may be lost. Strategy is important and will be discussed at length. You will typically present your best offer, with as few conditions as necessary. Being pre-approved is essential in this situation.
Buyers
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