Three Things to Consider Before Submitting an Offer

1. Ensure Your Finances are in Order

The easiest way to prepare your finances is to meet with your mortgage lender. Discuss a pre-qualification or even better, a pre-approval. They will help you get all of the necessary documents prepared, and supply you with a maximum spending limit when searching for your home.

Imagine this nightmare situation. A young couple decides to search for homes before meeting with a lender. They soon find their dream home, submit an offer, and the sellers accept! They go to their lender to complete their mortgage application, and they’re denied. Turns out, the couple can’t afford the offer they’ve submitted to the buyers. Unfortunately, similar situations happen.

To avoid heartache on both sides of the deal, many agents are now requiring at least a pre-qualification letter from a mortgage lender prior to showing a home. This stresses the importance of having your finances in order prior to shopping for homes, and falling in love with something out of your price range.

2. Do the Math, Prior to Making the Offer

Of course you want to save as much as possible on your new home, who wouldn’t? It is important however, to know when to ask for a little more, and when to cut your losses. I have seen buyers lose deals over very minor details, which perhaps aren’t saving them much in the long run. Examine the difference between $199,000 and $195,000 on a mortgage with an interest rate of 4.3%. You’d be saving $19/month, or a grand total of $6,840 considering interest over 30 years. Would that amount be enough to change your mind about the home?

It is important to know what the difference will be broken down in dollars when considering your offer. This may help you decide when it is worth planting your feet firmly in the ground, or conceding to the seller’s terms.

3. Base your Offer on the Home’s Value, Not the List Price

I have heard numerous approaches to negotiations. One I’ve heard recently is submitting the first offer at 85% of the list price and allowing the sellers to haggle from there. PLEASE DON’T DO THIS! There is nothing solid backing the offer. If there is any competition for the property, it is likely the sellers will not even consider your offer, and could find it insulting. Instead, base your offers primarily on facts.

I recommend, when drafting your offer, start by putting the list price out of your mind completely. Consider only the real estate and how much it’s worth. Your real estate agent should be an expert at determining market value on properties. He or she will be able to look at comparable homes that have recently sold in the neighborhood to determine the price you should pay for that home. After you and your agent reach that figure, reconsider the list price. How relevant is it to the price you’ve concluded? Bear in mind, this price does not include any extras, such as furnishings, repairs, or appliances. With this data, you should have a justifiable bid on the property.