So you've gotten preapproved for a loan, found a great place and are ready to make an offer — now what? Making an offer is one of the most critical steps in the process of buying a home. A knowledgeable real estate agent is your greatest asset in navigating the offer — they can provide invaluable insights into local market conditions, help you draft a competitive offer and negotiate on your behalf.
In this installment of Homebuying 101, we'll break down all the steps of the offer process, from what happens when your offer is accepted to everything else that happens in between making your offer and closing on your new home.
The Offer
Determine Your Price
Before submitting a formal offer, research the local real estate market extensively. Understand recent sales data, neighborhood trends and any unique characteristics of the property itself. Ask your agent for their insights about the property and the local market. Based on your research and discussions with your agent, determine a competitive offer price. Consider factors like the property's condition, comparable sales in the area and how motivated the seller is.
Include Contingencies
Contingencies are safeguards that protect your interests as a buyer. Common contingencies include home inspection, financing and appraisal contingencies. These will allow you to renegotiate or withdraw your offer if certain conditions aren't met.
Await a Decision
Once your offer has been made, the seller now has the option to accept your offer, reject your offer or negotiate. If the seller rejects your offer outright or chooses a different offer, your agent may be able to provide insight on why. These transactions are complex, and it's a common misconception that sellers are always going to choose the highest offer. Knowing why your offer was rejected can inform your strategy and help you craft a stronger offer for the next property you're interested in.
Negotiate Your Offer
In the event of a counteroffer, you can decide to accept the deal or submit your own counteroffer. The home seller may counter with a higher price than what you offered, but still lower than the original asking price. Once both parties sign the purchase agreement, the home goes into escrow.
The Escrow Process
Open an Escrow Account
Once the seller accepts your offer, the next step is to open an escrow account. This involves depositing earnest money — a sum of money that demonstrates your commitment to purchasing the property. The earnest money is held "in escrow" until the sale is finalized, at which point it is applied toward the purchase price.
Order a Home Inspection
During the escrow period, you can order a home inspection. To get an inspection, the buyer will provide a copy of the signed purchase agreement to their mortgage lender. The buyer will then hire a home inspector to perform a thorough but non-invasive inspection of the property. Home inspectors evaluate major features of the home like the roof, HVAC, plumbing, electrical and foundation. After the home inspection is completed, you move on to the appraisal, negotiate the final sale price, wait for the seller to make necessary repairs or cancel the deal.
Order an Appraisal
After the home inspection is completed, the lender will typically order an appraisal to assess the property's value. A licensed appraiser will visit the home, evaluate its condition and compare it to similar properties in the area to determine its market value. If you included an appraisal contingency in your offer and the appraised value falls short of the agreed-upon purchase price, you may once again choose to negotiate with the seller to lower the price, provide additional funds to cover the shortfall or walk away from the deal altogether.
Finalize the Sale
Once the appraisal is completed, contingencies are addressed and any necessary adjustments are made to the terms of the sale, the transaction moves forward to closing. The appraisal report serves as an important document in securing financing and finalizing the sale of the property.
Once all conditions have been satisfied and the necessary paperwork is completed, you can move into the closing stage. While you're almost at the finish line, there are still a few things to know about the closing process and what happens afterward. Stay tuned for the next edition of Homebuying 101, where we'll cover everything you need to know about closing.
