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:

1. The inspector found so many issues that you are uncomfortable moving  forward, and you exit the contract, getting your deposit back.
2. 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.
3. 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.

Closing date

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. 

Other dates

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.