What a New Home Buyer Should Consider When Making an Offer
Home buying, for anyone, is usually a complex and lengthy process. If you are a new home buyer, meaning you have never been through the process of purchasing a home before, it can be a bit intimidating – particularly when it comes time to make an actual offer on a home. Although each home search is as unique as the buyer who is home buying, there are some factors that are frequently considered by both a veteran and a new home buyer when drafting an offer to purchase.
- Fair Market Value – The fair market value, or FMV, of a home is an estimate of the home’s value based on what a knowledgeable, willing, and unpressured buyer could/would pay in the current market. Various factors will go into determining the FMV such as what similar homes in the area have recently been sold for or are currently listed at.
- Comparative Market Analysis – This is usually done by a real estate agent for a seller before the home is listed for sale. A Comparative Market Analysis examines real estate that are all comparable in their lay out, size, and condition. Depending on how long the home has been on the market, the CMA may not reflect the current fair market value (FMV) of the home. Moreover, because a comparative market analysis will likely be done by the seller’s agent, it may reflect a “top of the market” price, not the price that a buyer should use to begin negotiations.
- Terms of Your Offer – Before you sign on the dotted line, make sure you understand everything that is stated within the offer to purchase. This is of particular importance if you are a new home buyer. Once the seller accepts your offer, you should probably expect to close on the purchase agreement and seal the deal. To avoid entering into a binding agreement that you will regret, you want to consider working with a real estate agent when drafting your offer. Also, note that most offers include several contingency clauses (contingency clauses require that certain conditions must be met in order for the transaction to become final). Common contingency clauses include: financing, inspection, clear title, and appraisal contingencies.
- Inspection – In order to protect yourself from buying a property with major structural or functional issues, you want to have the home inspected. Many buyers include an inspection contingency clause in an offer to purchase and have the inspections after the home seller accepts the offer. This allows the buyer to be released from any legal obligation to purchase the home if an inspection shows significant problems with the property.
- Financing – Before submitting an offer to purchase, a buyer should consult with a lender to be certain that he or she will qualify for the financing necessary to complete the purchase.
- Possession – Not only must you decide when you need to take possession of the property, but also when the seller can actually give you possession. Sometimes, for instance, a buyer needs to get into a home on a date prior to when the seller is able to vacate the home, which may require the buyer to make temporary housing arrangements or require some flexibility on the part of the seller.
- Flexibility of the Seller – Determining how much flexibility a seller has prior to making an offer can maximize your chances of closing the deal. For example, is the seller being relocated by his or her employer and, therefore, in a situation where he or she must sell the home immediately? Are you operating in a buyer’s market, meaning that the seller likely knows that he or she needs to be flexible when reviewing and negotiating an offer?
By taking the time to contemplate each of the above-referenced factors prior to making an offer to purchase, your home buying experience should be smoother and, ultimately, more beneficial both financially and personally.