What do I need to offer on a home?

in Real Estate Tips, Update
sahuaita-real-estate-offer

No matter where you are at in the home buying process you are asking the perfect question.

Asking this question puts you at an advantage even if your purchase is six months out.

What advantage do I have by preparing to write an offer a head of time?

  • Your offers will be accepted quickly.
  • You can get the home off the market and reduce risk of a bidding war with other buyers
  • You can address financial (credit typos, repair credit, organize finances for move, etc)
  • You will have more time to focus on the important parts of buying a home.
  • And more..

Collect the following two items

Sellers need to know you have money to back up your offer. This ensures they are taking the home off the market for somebody who can fund the transaction. It also protects your earnest money which is part of the transaction paid up front in case you don’t meet your obligations in the offer.

You must collect and provide the following documents to your agent prior to writing ANY offers.

Item 1 Bank Statement showing Proof of Funds

Even if you choose to use a home loan you will still need to provide proof of funds. This will shows the seller you can fund your down payment and cover your transaction fees (taxes, upfront Community HOA dues, transfer fees, document fees, escrow fees, etc).

Option 1: Obtain your most recent bank statement / statements illustrating adequate balance. Print and cross out account numbers crossed for privacy.

Option 2: Have your banker write a cover letter stating adequate balance for the transaction and contact info for the seller to verify accuracy. This keeps your account balances private.

Note: The proof of funds must be in US dollars. It cannot be in stocks, mutual funds, foreign currencies etc. I advise all my clients liquidate enough investments to cover their budget for a new home.

Item 2 Home Loan Pre-Approval aka Prequal Letter

If you choose to use a home loan you will need to be pre-approved for the loan prior to submitting an offer. Sellers will request what’s referred to as a home loan pre-qualification letter.

This involves shopping banks and or hiring a loan broker before shopping for a home. They will guide you through the process of preparing your finances to purchase a home. Many will even help you correct errors on your credit report and coach you to improve your credit scores.

The sooner you select a lender the better as this process can take months. You will walk away with a pre-qualification letter to provide your agent when you write the offer.

NO verbal pre-qualification letters. Any savvy seller will immediately reject pre-qualification letters based on verbal income statements. Make sure your pre-qualification letter is based off Turn in your supporting income documentation to the lender. If you have plans to make a large down payments make sure you turn in proof of funds for the down payment to the lender.

Review the purchase contract

Your offer will be written in a this purchase contract (or a similar one). Once the seller accepts your offer you’ll be obligated to meet the terms of the contract.

Read the contract a head of time so you understand what you are signing and obligated to do. Otherwise you risk loosing your earnest money, the property, and possibly getting sued.

At the very least have your questions prepared for when you sign the offer with your real estate agent.

Select the Terms of your Offer

You’ll need to arrive at the terms you’ll be offering the seller. Here’s a few standard terms seen in most offers ~

  1. Purchase Price based off your experience shopping for homes, market insights your agent has to share, and competitiveness of sellers.How much money will you offer for the home?
  2. Earnest Money the amount is negotiable. Traditionally 1% of purchase price is acceptable to most sellers.How much are you going to put down up front to secure the contract? This will be applied towards your balance when the transaction closes or you back out without violating contract. If you break the contract the seller will get your earnest money.
  3. Financing cash, home loan, or both?You will share type of financing and closing costs you request the seller cover if any. Closing costs are typically applied to cover financing fees when you need to include them in purchase of the home.
  4. Home Warranty these cover basic condition of home for 1 year and can be optionally added to purchase.You can request (1) the seller pay for the warranty which includes it in the purchase price / financing or (2) you pay for the warranty in closing fees.
  5. Time to Close you will select date of closing.For CASH offers I advise one month / 30 days to close escrow. For FINANCED offers I advise 60 days to close escrow. It’s easy to close early. If we have to ask for an extension than sellers can put all the terms are back on the table for negotiation which you want to avoid. This puts your earnest money at risk and or you may incur late fees in exchange for more time to close the transaction.
  6. Offer expiration time you will allow seller to review your offer.I advise my clients provide 24-48 hours. This may change based off of seller requirements.
  7. Appliances do you need the seller to include a refrigerator, cloths washer, and or dryer?If the seller has these appliances in the home you may like to request they be included in the transaction. This can be especially helpful if you are short on dollars to purchase outside the home loan.
  8. Home Owner Association Transfer FeesThere may be fees associated with shared community resources (parks, pools, landscaping, etc). These fees typically represent a fraction of a percent of the overall transaction price. Who pays these fees, buyer or seller, is negotiable within the offer. Paying them on behalf of the seller can mean more leverage negotiating elsewhere in the transaction.

In Summary, Your ready to write an offer with your agent when…

Your agent will write up the offer and present it to the other side for you. This means you have completed the items discussed in this article and can

  1. Provide Proof of Funds and or Pre-qualification letter
  2. Have reviewed a copy of the purchase contract you will be using and can share your questions / concerns with the agent prior to signing.
  3. Know what terms you will be asking for in the purchase.

Your agent will also need miscellaneous information such as your mailing address, phone number, legal name(s) on contract, etc. My team and I have created a form to collect this information up front. You can visit that form at http://www.keystoaz.com/buyer-application/

Completing your application up front means you don’t have to sit in front of your agent for hours while he drafts documents to write your offer. We encourage ALL clients complete the application at http://www.keystoaz.com/buyer-application/ prior to working with us to purchase a home.