Once you've found a home you want to buy you'll need to figure out how much you're willing and able to pay, then submit an offer to the sellers. Using a standard Purchase Agreement along with necessary addenda, your agent will help you through the entire offer writing and presenting process.
Determine Your Price
Before writing your offer you will need to decide on a purchase price. I typically do a CMA (Comparative Market Analysis) to help buyers zero in on a fair price for a home. Comparing properties sold or listed within the past six months, of similar style, size and location, is helpful for making comparisons, when available. Of course other factors will also come into play — the amount you can afford, current inventory, your emotional connection to the house, multiple offers being submitted, etc.
The Purchase Agreement
The Purchase Agreement, or PA, is the main contract used when buying a home. It's a fill-in-the-blank, multiple-page document made available by the Minnesota Association of Realtors (the Minnesota State Bar Association form may also be used.) Your agent has access to the PA and all other documents and can fill in the details for you, with your direction. These days, all can be done electronically on a computer or mobile device, including signatures. Getting the PA signed and accepted by the seller legally binds you to the purchase of the home, so it's important to read and understand it before you sign and your agent submits it to the seller!
The Purchase Agreement may also include various addenda for contingencies like inspection, financing, sale of another property, and more. Be aware that some contingencies allow a seller to continue marketing their home throughout the period in which yours is being met. For example, if your accepted offer was contingent on the sale of your current home and the seller receives another offer while waiting for your home to sell, you may be asked to lift the contingency (within an agreed upon amount of time) or risk losing the new home.
Once your offer has been accepted and signed by the seller, the clock starts ticking for the most common contingency — the inspection. In the days immediately following acceptance you will need to schedule a buyer's inspection with a reputable professional. Typically, buyers ask for around 10 calendar days in which to do the inspection and negotiate repairs or price based on the results. Inspections are usually paid by the buyer. Your agent should be able to provide a list of trusted inspectors and help facilitate the process.
Strengthen Your Offer
In a multiple-buyer situation it's unknown what other buyers are up to, so it's important to make your best offer while being mindful of your personal or financial limitations. If a home is in high demand, with several buyers making offers, it's not uncommon to submit an offer at or even above the listing price. In fact, this has been common lately with current seller's market.
Besides raising price, you can also manipulate terms to favor a home seller and strengthen your position. Increasing earnest money deposit, paying your own closing costs, and removing contingencies are just few ways to sweeten your offer. Sometimes even a writing personal letter to the seller can set you apart from the competition.
Seller-paid Closing Costs
It's not uncommon for buyers to ask sellers to contribute to the buyer's closing costs when cash is needed to close. The amount can vary as a percentage of the price (usually 1-3%) or as flat amount written into the PA. Asking a seller to pay additional fees of course lowers their net gain from the sale of their home. If you have enough cash and are competing with other buyers, it's wise to consider paying your own costs, or at least as much as you can.
Earnest Money:
"A deposit made to a seller showing the buyer's good faith in a transaction."
-Investopedia
Earnest Money
It's common practice to include a small percentage of cash, or earnest money, with your offer. Earnest money is a buyer's deposit on a property made at the time of offer. It's often 1-2% of the sale price, used to demonstrate your seriousness as a home buyer, and eventually contributes to the down payment or final costs to close. Earnest money deposits are not required, but including one and even increasing the amount can sometimes give you an advantage over other buyers who may be relying heavily on financing.
Contingencies
Having fewer contingencies may also help in a multiple offer situation. Contingencies are safety nets that enable you to back out of a sale if certain conditions are not met. At the minimum, you'll want an inspection contingency allowing you to check out the home before making a final decision. This is a common request for nearly all buyers — I always recommend it, and sellers will expect it. Of course you can always choose to waive the inspection at your own risk.
Unless you are paying cash for the home, you'll also need a financing contingency, which basically says you agree to buy the home as long as you can receive a loan under the conditions outlined in the Purchase Agreement. This contingency should be accompanied by an pre-approval letter from your lender. Working with a reputable lender who is available to answer the seller's questions and concerns will also give you an advantage. If you pay in cash, even better. Cash offers, made without a financing contingency, are less common but will usually be favored by sellers.
Another common contingency involves the sale of an existing home. You can make an offer contingent on the sale of your home before even listing it, but the closer you are to actually selling yours, the better.
Counter offer + Final Acceptance
A seller may be interested in your offer but choose to counter with more desirable terms or price. This can be done verbally between agents representing each side but will eventually be written into a final amendment and signed by both parties. Once signed, returned and accepted...congratulations, the offer is binding and next steps begin!
Heidi Swanson is a Realtor® based in St. Paul, Minnesota. She writes a blog to share information on a variety of real estate related topics including buying and selling, market conditions, homeownership trends and more. Reach her at heidi@lyndenrealty.com or 651-503-1540.