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First Time Home Buyers Step 3
So the time has come to make an offer. You have successfully spoken with a lender, been approved for a certain amount. You and I have taken the time to make up your dream sheet and have found the must haves, the would likes, and the in a perfect world ideas for a home. We have looked at several houses that have been on the market and you have finally selected "THE ONE"! Now what?
Considering the market we are in, homes can either be in multiple offer situations or if the house has sat for a week or more on the market, we possibly have negotiating power.
Lets start with the home that has it all and is going multiple offer. It came on the market yesterday and already has had 20 showings. The agent who has it listed held it Open on Sunday and at this point there are already 6 offers coming in and the agent has notified everyone that all offers will be looked at by 7 PM Tuesday evening.
This can always be very daunting for the First Time home Buyer. For anyone really, but when you have your heart set on that house, you want it! Strategy and wise thinking will play a very important roll here. The deepest multiple offer situation I have been in has been 27 deep, yes 27 offers! Thankfully our market has slowed slightly to where this isn't as common unless someone is eager to unload a homes for financial reasons and it is priced way below value.
Our goal will be to take all the things about the home that you love and value them. What are you willing to negotiate in way of price? Does the home really meet all your needs, expectations and desires? I think there has to be a syndrome out there that when potential buyers see that other people are clamoring to purchase a property they have to have it too. Wisdom will be key here and knowledge of the prices in the area are going to help decide what to offer. If homes in the area of the same size, age, and upgrades are 10K less than you would be wise to not make an offer too high over asking. The home has to appraise and depending on the loan you are going with, this can set you up for issues when funds are to be paid. If you offer over asking keep in mind, if the home doesn't appraise there are three things that can take place:
The seller can demand you pay the difference, something I never suggest because of option 2, unless you absolutely have to have the house.
You can negotiate with the seller, letting them know that because you are going with an FHA loan that the appraisal amount sticks with that house for a year, so if they don't accept your offer they will only be able to list at a higher price for Cash or Conventional buyers, which lowers their selling power.
or You walk away and the seller can try to sell it to another buyer who is going Cash or Conventional at the price you offered or they listed at.
The seller has other offers that have come in so they may not be as willing to negotiate and may go back to those other buyers letting them know the situation and see if they have someone willing to come up with the difference. Buying a home in a Multiple Offer market is like gambling. You take risks knowing how to negotiate with the seller. This is why I am here. I take the time to go back and forth with the selling agent and get a feel for what the seller is looking at. If for some reason the seller feels that the appraisal was wrong the selling agent and I will work to see if we kind find a comparable that will match the appraisal. This rarely happens.
This is all under the assumption that the seller has accepted your offer. The appraisal is actually the 3 step in the process "AFTER" the offer has been accepted. If we find ourselves in a multiple offer situation and we are selected 1 of say 3, there is usually a negotiation of how much earnest money the buyers are willing to put up, what type of closing assistance they are asking the seller for and how soon they can close and what type of loan they are using. Again these are things that will be negotiated to "win" the house. If you have a large sum you can put up for Earnest Money- money that is good faith saying you are going to purchase this house- but are asking the seller to pay all your closing costs, the seller may look at another buyer who has less earnest money but is willing to pay all the closing. This is the feeling out process of negotiating. I am very open with my selling agents and really try to let them know upfront where we stand, so you as the buyer will need to know what you have available to negotiate with up front.
Now lets say we find a house that has been on the market for two weeks. Its a cute home, needs a little TLC, the yard needs some work and it is an older home with older windows. The house has central heat but only window air units, but it is the sweetest home you have ever seen and you have family who works in the air cooling industry. You love the house, however, it has sat like I said for 2 weeks and after doing the comps in the area we have found for the age and condition of the home it is over priced by about 20K, however it is in one of the most desired neighborhoods, and backs up to a park. This is my favorite scenario! Negotiating power rules here! You are a first time home buyer with a FHA Loan, the house looks as though it will meet all the FHA loan criteria and you love the neighborhood and feel with a "LITTLE' elbow grease you could really make it a gem. Going in at full price here would be a major mistake! The time on the market, the upgrades needed and the fact that you will have to make some expensive repairs for efficiency really bring us to some great negotiating power. It will of course depend on if the seller owes a large amount on the home, however, typically a home such as this is priced due to location. We would calculate the repairs and updates you feel would need to be done and subtract that from the asking price, offer a strong earnest money amount and possibly ask for all the closing to start. EXPECT a counter offer! This type of offer can do one of two things, irritate the seller, or if they have a good agent who will educate them as to why you are submitting this offer, they will counter. The counter will typically come back close to asking and then we have a game started! I have a rule of thumb that I try to avoid more than three counters. In that time other offers can come in and you can lose all together so being wise in how we approach each counter is key.
I love to educate my buyers through this process, and my greatest joy is when I tell my buyer "you got the house". BUT its not done yet. Next week we will discuss the steps after your offer has been accepted!
Please let me know if I can help you buy or sell a home, I appreciate you.
As a Full Time real estate agent for the past 23 years, Sheryll has helped hundreds of home owners in Colorado buy and sell their homes. Sheryll's easy going, no pressure style and her in depth knowl....