Finally, a house in your first-choice neighborhood came up for sale. You’re one of many people waiting and watching for an opportunity to move into the community. Most likely, you and several others will sit down with an agent to write an offer, and I am sure of this; everyone will ask their agent the same question, “How much should we offer?”
How much SECURITY do we offer?
I think you should offer as much of everything as you can and still be comfortable. By everything, I mean security and money. Security is time and assurance. Before deciding how much money to offer, know your strengths. Are you able to cover a few thousand dollars in unplanned expenses? Is there work you’re willing to do? Can you give the seller their choice in closing dates? Do you have the necessary documentation to prove to the seller that you have the money in the bank, or that the bank is committed to loaning the money you need? What can you put in your offer, or exclude that gives the seller the evidence that you are as committed to getting to closing as they are? I don’t mean a love letter, either. The kind of information that a seller sees as proof of unequivocal commitment is not something we say, but something we can prove, show, promise, and back with an acceptance of risk.
How much money do we offer?
Sales of relevant homes in the neighborhood will be used by an appraiser to place a value on the property. Your mortgage lender will loan an amount relative to the appraised value. Regardless of the price you offer, the appraisal will be what the appraiser decides it to be. If the asking price is $400,000 and you offer $410,000 or $390,000, and the seller accepts your offer, you’re okay unless the appraiser decides $380,000 is the value. In that case, you may need to come up with the difference in the purchase price and appraised value.
I can not assure anyone that they can get a home for less than the asking price. I can tell you a combination of Seller-favorable terms and a price at or above the asking price will improve your chances of an accepted offer. To set yourself apart from everyone else, regardless of the price you offer, show the seller that you have the means and are committed to keeping the price as agreed if the appraisal is less than the sales price. Doing this is a significant offer of security. So is allowing the seller to select the closing date. Saying I’m flexible means nothing. Structuring the contract’s terms to enable the seller to choose a closing date shows the seller that you are.
Contingencies. Less is More.
Every real estate agent or an attorney can wrap your offer in so much plastic bubble wrap that you can’t possibly be hurt. Your offer won’t be accepted, but if your goal is not to hurt and not own the house, then wrap it up as you wish. Contingencies were created to protect someone from something someone fears. If you don’t have that fear, don’t include the contingency. Fewer contingencies increase the feeling of security the seller has, which’s a good thing for you.
So, how much should we offer? Think broad strokes; time, security, money. Offer as much as you are comfortable and able.