Buying a Home - Making an Offer
After looking for a home for a while, and learning values of homes in the various towns you've been looking in, you've decided on the home you want to buy. Congratulations! But, what happens next?
Find a buyers agent
First, if you haven't been working with a buyers agent, then find one immediately. You never, ever, ever, want to make an offer on a home via the listing agent(the person whose sign is on the front lawn). I can't stress this enough. The listing agent might appear to be very willing to help you, but its important to remember who the listing agent represents. The listing agents only responsibility is to get the highest price, best terms and conditions for the seller. Period. Obviously, if you're the buyer then you are not going to get all of the advice you should get when making an offer on the home through the listing agent. If you're uncertain of who to use in your area and don't know of a good buyers agent, then contact me and I will find a good buyers agent to represent you. It will potentially save you thousands of dollars, and multiple stress-related headaches if you use a buyers agent to represent you through the purchase. Remember also that you do NOT pay for using a buyers agent - the buyers agent is paid by the total commission paid for the sale of the home being split between the listing agent and the buyers agent, so there is no money out of your pocket for the services of your buyers agent. There are only 'positives' associated with using a buyers agent - no negatives.
Massachusetts is a two-step purchase state. There are two contractual steps associated with buying a home. The Offer to Purchase stage, and the Purchase and Sale stage. I will describe the series of events, with approximate time lines for each step, along the way.
The steps involved
First is the Offer to Purchase, which is what this is about. At the Offer to Purchase stage, a $1000 check for a deposit is standard. The next step is the Home Inspection contingency, which is normally within 7-10 days from the Offer date. Then comes Purchase and Sale, which is 10-14 days from Offer date. Then the mortgage contingency which is generally 3-4 weeks from P & S date, and then closing is anytime after the mortgage contingency date. All of the dates referred to, and more, are specified in the initial Offer to Purchase.
How much should I offer?
One of the first decisions you need to make is what price to offer. This depends on various factors. Is the home in a town that is in a 'strong market'? Are there going to be multiple offers on the home? How long has the home been on the market? How motivated does the seller appear to be? Has the home had accepted offers on it previously? Are there multiple comparable homes on the market in the immediate area, and an oversupply? Is there pent-up demand for a house, in this price point, in this area? All of these factors are questions that a buyers agent can answer and guide you as to the best strategy to take in the offer price to make.
We have many different dynamics occurring in many towns in the geographical boundaries of Massachusetts. We have towns where competing, multiple offers are commonplace. We have towns where inventory is high and homes are reducing their prices weekly to try to standout from the competition. Unless you are working with a buyers agent, you will not know what the market is doing in the town you have decided upon. So, it depends on what is happening, as to the sort of price you can offer. Obviously, if there are competing offers on homes then you will need to offer list price, or more, to obtain the house. Competing offer situations, and strategies to use in this scenario, are a whole topic in themselves. If the market is down, or flat, in the town you are looking in then coming in with a price lower than list price makes sense, but again, it depends on how long the home has been on the market. We generally say that if a home has been on the market for more than 3 weeks at its current price, then it is the market telling the sellers that their price is too high. If it has been on the market for over 3 weeks, then the sellers have generally had a 'reality check' and may be willing to negotiate. There are two strategies to use when making a lower offer - one is to offer much lower than you are willing to pay and eventually negotiate up to your 'bottom line' - although there is a very real risk that you will 'offend' the seller and even if you eventually come up to a price that they would have accepted, they will not accept it from you because of your original offer price. The other strategy is to offer close to where you want to finish up and not budge much from your initial offer price. It is important when using this technique to have a preapproval that fairly closely matches what you will be offering. A preapproval can be less than you can actually afford, but it can never be more than you can afford.
Once you have determined the price you are wanting to offer, then you decide on various other key dates which will be written into your offer.
Offer validity date and time
This date/time should never be long enough to give the listing agent time to call other interested parties and 'drum up' other offers. We generally make this within about 4-5 hours, or by close of business of the day. But, definitely no longer than that unless there are special circumstances. This date/time is the time frame for which your offer is no longer valid. You do not want to have an open-ended offer 'on the table' - this is dangerous. This timeframe governs when we require an answer from the seller. If the seller counters our offer, this can be stated that the seller rejects our offer and then proposes an alternate price, then our original offer is no longer valid and you can walk away, even though the original time frame is yet to expire. If we continue to negotiate verbally, then the time frame is also extended verbally, by the buyer. The seller cannot give the buyer a time frame for a response.
Inspection contingency date
This date is the date by which we need to respond to the seller with what our response to the inspection is, and is generally 7-10 days from offer date. There are 3 outcomes to an inspection:
- The inspector found so many issues that you are uncomfortable moving forward, and you exit the contract, getting your deposit back.
- The inspector found only a few minor issues that we ask the sellers to correct/repair/replace prior to closing. An example being that the furnace hasn't been serviced for 10 years and we ask the seller to service the furnace prior to closing.
- The inspector found only a few minor issues that we are happy to address after closing but would like a credit from the seller, at closing, to help us pay for addressing the issue. An example could be a hot water tank that is about to burst, and we ask the sellers for a credit of $700 to assist us in replacing the tank as soon as we close on the home. We can continue to negotiate the inspection items up to the P&S date. Any agreed inspection items will be incorporated by the attorney's into the P&S agreement.
Purchase and Sale (P&S) date
This date is generally 10-14 days from offer date. This stage of the process has the attorney's involved. The buyers attorney and the sellers attorney agree on the P&S agreement - the majority of the P&S is standard, but with both attorneys adding riders to the agreement to protect their clients. When the P&S is signed, the balance of a 5% deposit is paid as a deposit generally.
Mortgage application date
I generally write offers that have the mortgage application date being the day after the P&S date. This date is really only important if you need to exit the contract based on not being able to obtain a mortgage - we need to show that you applied for a mortgage by this date even though you were unable to obtain the mortgage. I generally recommend to folks that they don't wait until this date to make a formal application for a mortgage, in fact, you should make an application when you know you are moving forward (after the inspection) and have decided on a mortgage company.
Mortgage contingency date
This is the date by which you should have received the mortgage commitment from the bank. If you have not received it by then, then it is important to get your attorney to extend the date so that this date does not pass without you having a commitment from the bank. This date is the last date you can exit the contract, and still get your full deposit back, based on not being able to obtain a mortgage.
The closing date is one that you choose based on your timetable for your move. Often during the negotiations the sellers may propose another date, and it is during negotiations that this is determined. More often than not, the date the buyer proposes is the date that is agreed upon.
There are other dates that are often referenced during an offer, but they are specific to certain scenarios. For example, if the home is a condo, then there is a condo doc review date, if the home has a septic system then there is a septic system Title V date, if there is a contingency on the sale of your home (very rarely written into an offer with the market we have currently) then a 'sale by' date.
Final step in the offer process
Once the offer has been written, it is then presented to the seller along with a copy of a $1,000 check. Back and forth negotiations occur verbally and only when a verbal accepted offer has been obtained, do we actually modify the original written offer. We modify the original offer with the changes that have been negotiated, have the buyer initial the changes and then re-present it to the sellers. When the sellers have accepted & signed the offer, the check is then given to the listing agent, and the contract is ratified.
If you have any questions at all about any of these steps then please don't hesitate to reach out to any of us. We'd be more than happy to help.