Avoid these 7 mistakes when making an offer on a house
7 mistakes you need to avoid
When making an offer on a house, you have a better chance of success if you do these things:
1. Know what you can afford and what you are willing to spend
2. Get pre-approved for your home mortgage
3. Minimize contingencies
Sellers and agents know you’re serious and give your offer more consideration (even if it’s lower) when you are pre-approved and ready to close without a ton of hoops to jump through.
Making an offer on a house: It’s a jungle out there
It took weeks of house-hunting, but you finally found the perfect home. Unfortunately, two other buyers feel the same way about the house. How can you make sure your offer will be the one the seller can’t refuse?
7 mistakes to avoid when making an offer
If you’re shopping for a home, you may find yourself in a bidding war. If so, you may be tempted to approach the situation like an eBay auction and raise your offer price.
That could be a costly mistake.
A better way to get the home you want, without overpaying, is to avoid these 7 home offer mistakes. Many of your rivals won’t avoid them, giving you a competitive edge.
1: Failing to get pre-approved for a mortgage
When buying a home, don’t start by searching real estate listings. Step 1 should be determining how much you can afford and get pre-approved for a mortgage.
Sellers give preference to buyers who are pre-approved. Pre-approval tells them that when it’s time to close, you will have the money.
So before you hit the streets, get a pre-approval letter from one or more lenders, not just a pre-qualification letter.
A pre-approval letter confirms that you’ll be able to borrow X amount based on that lender’s evaluation of your credit score, assets and income. With pre-qualification, the lender is merely estimating how much you could borrow. It’s not committing to giving you a loan.
Although pre-approval takes longer and requires an application, it’s a worthwhile investment.
2: Bidding the entire pre-approved amount
Just because a bank is willing to loan you $250,000 doesn’t mean you should offer $250,000 for the house. In fact, doing so may damage your credibility.
Experienced sellers and agents get nervous when buyers bid the full pre-approval amount. For one thing, this could eliminate your “wiggle room” in future negotiations. For another, if interest rates rise, you may no longer qualify for that loan amount and will have to back out of the deal.
Understand, also, that just because you can do something doesn’t mean you should. Your lender won’t consider your long (expensive) commute, pricey hobbies or savings goals. You may want to spend less and breathe easier.
3: Not researching the market and the seller
If you hire a buyer’s agent, she will help you formulate an attractive offer based on sales of comparable homes in the area (“comps”).
But the price isn’t the only thing that can make an offer alluring. If you or your agent search public records and real estate listings, you may unearth valuable “intel” about the homeowner’s motivations for selling. This could help you structure a winning offer for less money.
Also, check the seller’s social media for clues. You may find that you have things or people in common, and that could help when negotiating. Just don’t be a stalker or say anything creepy.
For example, you might learn that the seller is being relocated and needs a quick closing – faster than other buyers are willing to accept. Or, you might learn that the seller hasn’t yet found a home and may want to delay closing. Armed with this information, you can craft a more tempting offer than your rivals for the same price (or less).
4: Submitting a lowball offer
Submitting a lowball offer that isn’t supported by sales data could easily backfire, especially in a sellers’ market.
Buying a house isn’t like haggling at a flea market. So don’t offer $800,000 for a house worth $1,000,000, and expect a counteroffer. All too often, the seller will be insulted by your “opening bid,”.
5: Including too many contingencies
Most offers include a few standard “contingencies” – things that need to happen before the deal can close. For example, it’s wise to make an offer contingent on a home inspection and your ability to get financing within a specified time.
As a rule, however, contingencies are obstacles to successful closings. So keep them to a minimum. In red-hot markets, forgo contingencies for non-essential repairs and credits. It doesn’t hurt to ask, but be prepared to waive those contingencies to seal the deal.
Whatever you do, though, don’t waive the contingency for a home inspection. If you do, and later discover a major defect, you could lose your “earnest money” if you back out of the deal.
6: Using the seller’s agent
The seller’s agent has a duty to promote the seller’s interests. That means getting the highest price and best terms for the seller, not you. Using the seller’s agent creates a “dual agency” situation, which leaves your interests unprotected – except by you. And in that case, why hire an agent at all?
7: Letting your emotions guide you
Sometimes, buyers are so blinded by certain features – polished hardwood floors or swimming pools – that they overlook obvious defects.
No matter how much you love a house, and how good your offer, you won’t always win. Rather than overpaying, be prepared to walk away.
There will be more homes for sale that meet your needs and wants. It’s possible that your true “dream home” is still out there.