Today buyers are faced with many obstacles when making an offer for a property. Due to the recent low in inventory levels, buyers are confronted with multiple offers for the same property. This dilemma is worsened when one of those offers is cash – cash is king. Finding he right financing is also becoming more difficult, particularly for first time home buyers.
Here are a few things to consider. First, a buyer should be well aware of what price home he or she or couple qualify for. Your local bank or mortgage broker will be able to help with this. You will not have to use the lender who prequalified you. You can later find the Lender of your choice to make the actual loan.
Make your offer as strong as you possibly can. To do so, the Buyer needs to do the following.
Line up all the resources you will need in order to comply with the terms and conditions of contract. You will need a lender, property inspector and title attorney for the closing (if purchasing a distress property (short sale, foreclosure, REO, etc), the title attorney or company will most likely be chosen by the Seller). It is important that you discuss the timeline with these professionals. The less time you ask for in your offer to fulfill the contract contingencies the stronger your offer will look to the Seller.
Simultaneously with the above, you should be searching for property within your budget, never exceeding more than 3-5% over the amount you qualified for (3-5% may be negotiated off the listing price-hard to say in today’s market). A real estate agent can help you with your search and the offer amount. Today Buyers need to be really careful when negotiating on the purchase price. Being too aggressive could steer the Seller towards another offer. In fact, today many offers are being made for full asking price and sometimes for more. If offering more, on needs to understand that this could be a problem if the property doesn’t appraise for the amount offered. If the property doesn’t appraise, the Buyer has to either pull out money from his or her own pocket to cover the difference or cancel the contract. Remember, although price isn’t always what determines the strength of an offer, for many Sellers it is at the top of the list.
When making an offer, the Buyer should consider the following.
· The size of the loan that they qualify for before they begin to look for property.
· Can they afford to offer more than the asking price?
· Terms and conditions of the offer - Buyers should carefully consider how much time they should ask for in order to cure the financing and inspection contingencies, and how soon they can close. Consult with the professionals you will be working with before you make your offer. Remember that the time set in the contract for the mentioned items above will have to be met or you will be in default of contract.
· If possible, present your offer with a loan commitment letter from your lender (this shows that you have a committed lender for the purchase). By doing this, the timeline can be shortened, making your offer stronger, particularly against a cash offer. It is important to know, once the commitment letter is issued to the Seller, the Buyer waives the right to cancel due to financing (every transaction is unique and a professional should be consulted before submitting an offer).
· Inspection period should be as short as possible. Typically, an offer allows between 10 and 15 days, however, with the technology available to property inspectors, inspectors can usually perform the inspections and issue a report in 48 hours (must discuss the timeline for the physical inspection and report with the inspector in advance of the offer). Note, with the bounce back of the RE market, many inspectors are very busy and may need more time. Also, the number of inspections will affect the amount of time needed.