Home Buyers Should Consider These Questions Before Making An Offer HOME BUYER: Episode 00018


Today’s buyers do more legwork than any other generation of home buyers, on everything from mortgage rates and programs to neighborhoods and schools, to comparables for the home they want, because so much more of this information is freely and easily accessed online. But none of that information diminishes the anxiety around making the final decision what number to ink onto an offer for a home. In fact, this inundation of information can shift a normally sane buyer into overwhelm and overload, and actually interfere with smart decision-making.

And the decision of what to offer to pay for a particular home is particularly high-stakes – one you don’t want muddled by panic or irrelevant inputs. On this one number hinges whether a particular home becomes your home -or not. It also represents a near-final step in one of the biggest financial commitments you’ll ever make.
No pressure.

If you feel like the final dollar amount selection is a little bit of a stab in the dark, on a subject you’d rather be able to handle confidently and with precision, let’s talk. Here are some questions you should ask yourself to collect the targeted and essential information you need to pinpoint your exact offer price and if you can afford this home:

1. How close/recent/similar are the comps – and what story do they tell?
Your agent should present you with the recent sales prices of similar homes near your target home (assuming you’re in an area where there are recent sales). This information, in conjunction with the listing price should begin to narrow your thoughts on offer price into a ballpark price range. But once it’s time to pin down a precise offer dollar amount, it behooves you to look beyond the sales prices of the comparables and to work with your agent to flush out the story they have to tell – and what implications that story has for your own offer price.

In particular, you’ll want to look at the listing details and even the photos of the comparable properties to understand which ones are truly similar – or dissimilar – to the property you’ve targeted, beyond the basic specs. If a home that has the same number of beds, baths and square feet as ‘yours’ had archaic, out-of-date kitchens and bathrooms and a massive electrical pole in the front yard when it sold six months ago, it might not be as good a comparable as a home that just sold 3 weeks ago with similar upgrades and updates to your target property, even if the latter comp has one less bathroom than yours.

Also, look for the bigger picture story that the comps are telling you. Did all the most similar comps sell for more than, less than, or right at the asking price? If they all sold for 5-10% over or under asking, that suggests the direction you might need to move from the list price. How long did it take for them to sell, and how long as your target property been on the market, by comparison? If everything is selling in 30 days, and the house you’re trying to buy has been on for 75, the takeaway might be that you can be more aggressive in offering a price below asking than you might if the place has only been on 20 days.

I can’t emphasize enough how critical it is to collaborate with your agent when it comes to gathering this fuller picture and story from the data on recently sold nearby properties and applying it in the course of setting your own offer price.

2. What kind of shape is the place in?
Fixer-upper homes may not qualify for low-down payment FHA financing. That can force you to come up with a larger down payment or evaluate the feasibility of obtaining a rehabilitation loan. On the other hand, if you had planned to put a large amount of your cash savings down on a home that needs a lot of fixing, you might want to conserve some to fund repairs. In these cases, it’s very helpful to review any disclosures or reports the seller has made available. It’s also essential to include your mortgage broker in the offer-price setting conversation, as condition issues might impact the loan programs available to you and, thus, the down payment, closing cost and monthly payment required at a given offer/purchase price point.

I’ve seen buyers that had planned to buy a fixer shift their offer price upwards because they knew a home was in move-in condition, and vice versa – people who had planned to buy a non-fixer end up coming down on their target price to hit the rehab loan guidelines and/or conserve down payment cash and redirect it to post-closing repairs.

It’s wise to have a quick conversation with your mortgage pro before you decide upon your final offer price in any event, but it’s particularly necessary if the place has obvious condition issues.

3. What’s the competition like?
If you’ve ever watched an auction on television, you’ve gotten a glimpse into the difference between making an offer on a home where you’re the only buyer, and making an offer on a home where even 1 or 2 others are vying to get it. And that difference can usually be measured in thousands of dollars. It’s a simple, but profound truth: if you know there are other buyers competing for a property, you’ll likely want and need to offer more for it than you would if the players were limited to just you and the seller.

And the more buyers are bidding, generally speaking, the higher the victorious offer price is likely to be.

How will you know what your competition is like? Ask your agent – and they’ll likely give the listing agent a ring, let them know you’re serious about making an offer and feel out whether there is competition or not, and how fierce it is.

The most frequently asked question I get about how this works is this: don’t listing agents just lie and say there are more offers than there are? It’s possible, but improbable. Every agents know that some buyers can’t or won’t bid more than asking on a given home. Accordingly, every listing agent I know would rather have a sure offer from a buyer who loves the place than risk running that buyer off by fabricating multiple offers that don’t exist.

4. How much do you want it?
Your personal desire and motivation level to get a particular property is an absolute must to factor into the offer price decision-making mix, especially when you get close to putting a final number of dollars and cents on the table. Of course, your home is an asset and a major investment, so your offer price is a decision about which you want to be smart, logical and deliberate. But we’re also talking about the place that will serve as the backdrop and environment for your everyday life, and your family’s lives, too. To ignore the emotional impact and logistical implications of the place you live when you’re deciding what to offer is to make the decision based on an incomplete portfolio of information. (And that’s also how so many buyers who lose properties end up regretting their offer price, wishing they had offered just a smidge more for “the one that got away,” sometimes for years on end)

The need to tweak your offer priced based on your motivation level (within the range of what you can afford, of course) is particularly true when it comes to multiple offer situations. Would you regret it if another buyer got the place at X price? Then you should offer X price. Would you be disappointed, but totally comfortable with knowing you’d offered as much as the place was worth to you, if the seller turned down your offer at Y price? The price at which you can answer that question with a ‘yes’ is a good boundary for the absolute max you should offer.

When you are actively bidding in multiple offer situations, you might never get the opportunity to nudge your price upwards or go back and forth with the seller. Asking yourself these questions can help you pinpoint your precise, best offer so you can make it, then let the chips fall where they may, without regrets.

5. How flexible is the seller on the asking price?
If you insult the seller with a lowball offer, you could lose your shot at the house. To avoid offending the homeowner, ask the seller’s agent how firm the seller is on price. You can have this conversation directly with the seller’s agent or have your agent ask the question.

Keeping it in terms of “how flexible are they on the price?” instead of “how much less will they take?” allows you to feel out the situation without offending the seller.

Not every seller will be willing to bargain, so if your strategy is to make lowball offers, plan to make offers on several properties before you connect with a seller who will deal.

A question that often goes hand-in-hand: Is the seller willing to help with the closing costs?
On foreclosed homes, a seller’s contribution to closing costs “certainly is common with Fannie Mae and Freddie Mac because they want to sell their properties, and sellers who have equity in their property and want to help are helping.

6. What can you truly afford?
No, really. It’s not that you haven’t asked yourself this question, worked through your monthly financials, pored over the numbers with your mate, your financial planner and your mortgage broker ad nauseam. It’s more that a lot of time can elapse between that deep financial dive and the time you actually have to decide how much to offer on a particular home. And in that time, lots of variables might have changed:
1. Interest rates might have changed.
2 You might have decided you need to move your price range up, because you can’t find anything that works in a lower range.
3 You might have realized you need to offer more than the asking price, due to the competition.
4 Your expenses might have changed, because you had to put a kid in daycare or start some new service up.
5 Your cash cushion might have changed, because you had to repair your car or fix something at your existing house.
6 Your cash needs might even have changed, as you realize the home you are trying to buy needs a lot of work that will take a lot of cash.

7. What’s wrong with this house?
One of the things that’s happening now is every house is in ‘perfect condition,the sellers really want to get rid of the properties, so may be failing to disclose any real problems.
Take the direct approach, ask: “Is there a problem with this house?”

It’s important that reminding sellers that with inspections and disclosures, chances are you’ll find any problems. So if the sellers just get it out in the open, they’ll avoid wasting your time and theirs.
Some sellers’ agents recommend a home inspection before putting the home on the market, If one has been done, ask to read it.

Some states, such as Texas, mandate disclosure forms in which sellers have to reveal any issues or problems with the house.

In his case, the disclosure not only provided information, but it also started a dialogue with the seller. when the buyer learned that there had been a problem and that it had been fixed. In the end, it wasn’t that big a deal.

8. Is this home in a flood plain?
Living in a flood plain can require flood insurance, which can affect the cost of living in the house, be sure to ask if the home is in a flood plain.

The Federal Emergency Management Agency, or FEMA, posts free online maps that show if your home-to-be is in a flood plain and you can use the website http://www.region2coastal.com/view-flood-maps-data/what-is-my-bfe-address-lookup-tool/ by just entering your address to get the base flood line elevation. It doesn’t hurt to double-check with the county, and talk with your property agent, too.
If you discover that the home you want is in a flood plain, you need to know what type of flood plain (some ratings indicate higher risks than others), and how much flood insurance will cost. (One way to find out: Ask to see the seller’s flood insurance bills.)

Once you have some information, you can weigh your options. Can you afford any additional costs that might be associated with this type of flood plain? And are you still comfortable with the property?
In most cases it may be possible to assume the seller’s flood policy.

9. Will the lender allow a short sale if this is a short sale property?
In a short sale, the bank allows the property to be sold for less than the amount of the outstanding mortgage. If the seller’s bank doesn’t give its consent, the short sale can’t happen.
But some sellers simply decide to list their properties as “short sales” before even talking with their lenders, these sellers don’t realize that their financial situations might not meet the lender’s criteria for short sales. So even if the buyer and seller settle on a price, without the bank’s permission there won’t be a deal.

That’s why, when a home is advertised as a short sale, the buyers agent should ask whether the lender has agreed to allow the home to be sold for less than the outstanding mortgage amount. Find out if there has been communication with the lender and the lender will allow a short sale and if it has been approved or put in the process of doing a short sale..

If the buyer has gotten permission for a short sale, what was the bank’s reason for granting it? Does that reason sound plausible (divorce, job loss, transfer)? And are banks typically granting short sale requests in that situation?

10. Are any foreclosures for sale in the area?
It’s the question sellers (and their agents) hate: Are foreclosed homes for sale nearby? Foreclosures usually cost less, and that has to figure into your buying decision.

It always makes sense to ask if there are other houses for sale in the neighborhood, in today’s world, you should also ask if any of these sales are as a result of foreclosures.”

With foreclosures in the neighborhood, you can assume there will be a lot of price competition, and you may offer less money.

11. Do you have the paperwork for the mechanical systems and other items?
You should ask for receipts and documentation about the home’s appliances and mechanical systems. It’s something you don’t have that much control over but is a good to have.
If the seller replaced the air conditioner shortly before putting the home on the market, but didn’t save the paperwork. Without documentation, the new buyers didn’t have a lot of options when the unit malfunctioned.

Without knowing who sold the air conditioner or if it was under warranty, the buyer would have to pay out of pocket even if still under warranty.

If the seller does pass along all the documentation, even on the home’s hardwood floors, then the new owners if they wanted to install that same hardwood in the hallway and office, they would have the information they needed to get an exact match.

12. Make sure about the other items that may be important to you also.
• Neighborhood information and Amenities
• Schools
• Local Amenities
• Test Your Commute
• Home inspection as Part of The Offer
• Total Housing Payment besides the principal and interest remember:
• Real Estate Taxes
• Home Owner Association Dues
• CDD – Community Development District Fees
• Any Required Maintenance Fees for the Property
• Home Owners Insurance
• Any Other Catastrophic Insurance Is Required i.e Flood Insurance etc
• Utility Bills
• Miscellaneous Other Fees or Expenses

Throughout the course of a house hunt, it’s not at all bizarre to experience price range creep. The best practice is to walk through the comps with your agent, determine their story, get as much information as you can about your competition and the home’s condition and get clear about how much you want the place then, just before you finalize your offer price, touch base with your mortgage broker or banker and tell them what you’re planning to offer. Ask them to give you an updated set of numbers, including what your down payment, monthly payment and cash to close would look like at that price, based on today’s interest rate, add the other expenses then decide what to do. Remember the offer made on the home is based on what the market presently is for the home, the offer is not based on all the other items that make up the entire home expense budget. Those items are to help you decide if you are in a comfortable price range for the home you want to purchase.

This Episodes sponsor is Castle Dream Real Estate, if your interested in buying or selling property in the greater Tampa FL area you can learn more at their website at castledreamrealestate.com or email them at Castle Dream Real Estate, LLC


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