So it’s finally happened. You’ve searched and you’ve found a home you love. Now you just have to buy it. I’m not going to lie, this might be the scariest part of the process. House hunting is all fun and games until you’re signing your name to pieces of paper that have very large dollar amounts written on them.
I used to be under the impression that making an offer just consisted of you telling your real estate agent a number, the agent telling that number to the seller, and then getting a yes or no back. It turns out that House Hunters may have glossed over that process, because it’s a bit more complicated than that.
The process does start with you telling your agent you’d like to make an offer on a property. At this point, they’re going to need two numbers from you – the amount you’d like to offer on the property, and the amount of earnest money you’re going to put down. The amount you’re offering is going to depend on a number of things – how long the property has been on the market, how competitive the market is, and what you’re willing to pay. The first rule of real estate is, never offer more than you can actually afford to pay. In the heat of the moment of finding an amazing property, your real estate agent is going to tell you how offering a little more adds up to just a few dollars every month in mortgage payments, but only you know your budget and what you can actually afford to pay. If you have an upper limit, don’t go over it. Your agent is working for you, but they’re also working on commission, so the more you spend, the more they get paid. If you’re in a slow market and the home has been out there for awhile, you can offer under the asking price. If a home has just come on the market and there are 50 other people at the open house, you’re going to want to offer the asking price, or even above it, if that’s within your budget.
The other important number is earnest money. This is a check that will be submitted with your offer. It’s essentially a “down payment on the down payment.” Conventional wisdom says this can be 3-5% of the purchase price of the home, but again, it’s important this be an amount you’re comfortable with. If your offer is accepted, this money will be held, and if anything falls through on your end, you’ll forfeit the money. Ideally you’ve done your homework and won’t hit any road blocks, but just in case, it’s best to make this an amount of money you can afford to lose. I had one friend put down for her earnest money an amount comparable to what I spent on my entire downpayment, which would have given me an ulcer until I closed on the place.
So now that your agent has this info, they’re going to draw up a sales contract, and then you’ll meet them to sign it. You’re going to be signing and initialling a lot of things. This was honestly a really overwhelming process, so if you have a trusted friend, significant other, or relative you can bring for moral support, I recommend it. Like I said, you’ll be initialling a lot of things and it’s easy to get complacent, so here’s a few things to definitely pay extra attention to:
Settlement Date This is the date you need to close by. Typically this is 30 days after the contract is ratified, but can vary if the seller has a stricter schedule, or can be longer if you’re buying a property that might be more difficult to get financing for (a co-op, for instance). The biggest thing you’ll have to do before settlement is get your mortgage so make sure you think you have enough time for this.
Home Inspection Your sales contract will specify whether or not you want a home inspection. Watching a lot of HGTV has led me to believe you definitely want this. You’ll have to pay for and arrange an inspection, but it’s definitely worth it if they find something big.
Personal Property This section will list what appliances and other personal property are included in the purchase. It’s good to check whether or not all the appliances currently in the home are staying, or if you’ll have to buy new ones.
Expiration You’ll often want to put an expiration date on your offer so that the seller has to respond by a given date.
Honestly, there’s a lot of legalese, but thing very much boil down to this: make sure you get your financing in order by the settlement date, and don’t do anything else to violate the contract or you risk forfeiting your earnest money. Definitely do read everything before you sign so you know what you’re committing to.
So now that you’ve signed your life away, your agent will submit the offer, and…you’ll wait. The amount of time varies, but it’s usually just a few days, and the seller will either reject, counter, or accept your offer. If you’re rejected, it’s disappointing, but there are plenty more houses on the block (I made four offers before one was actually accepted). If they counter, you have the option to accept the counteroffer, or to counter-counteroffer. I went through several rounds of offers with my seller before settling on a final price, so don’t be afraid to negotiate, especially if your initial offer was significantly under the list price, but definitely don’t feel pressure to offer more than you want to spend. And, once your offer’s accepted, congrats! You’re going to be a homeowner soon! Now, get started on getting that mortgage – we’ll talk about that next time.
I’ve said it before, but I’ll definitely repeat it now – this column should serve as a layman’s guide to things you’ll need to know about buying a home, but I’m definitely no substitute for the guidance of your financial advisor/parents/friend who’s good with money. And as always, if you have any questions, feel free to email firstname.lastname@example.org.
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