When home buyers begin the house hunting process, they often don’t realize just how many steps it entails. From securing a home loan, to finding a property you love, to negotiating the purchase, it can feel like the process will never end. Luckily, if you’ve made it to the offer stage, the finish line is finally within reach.
Together, with your agent, you can bid competitively on the home you desire and hopefully seal the deal. In order to improve your chances of getting a house with multiple offers, your offer needs to be as strong as possible, and may call for an escalation clause. What is an escalation clause? Well keep reading to find out, as well as some other factors to consider as we draw up your contract.
UNDERSTANDING WHAT AN OFFER CONTAINS
Unless you are acting as your own real estate agent (in which case, you should probably have a lawyer draw up the offer for you), you shouldn’t have to be the one doing any paperwork. Still, it’s important for buyers to understand the terms and contingencies that a typical offer contains.
In addition to the basics — like the address of the home and all of your personal details — the agreement will lay out the sale price, a target closing date, the amount of earnest money you will be required to put up front, and any other contingencies which you are asking for. Your offer will also give a time frame during which the sellers need to respond.
CHOOSING A PRICE
The price of the home is what most people are concerned with, in regards to the offer. Home buyers often have trouble deciding how much money to offer on a home, which is why it’s very important to work strategically with an agent you trust.
Remember that the housing market determines how much a property is worth, so your agent will compare similar homes that have recently sold in the area in order to help you come up with a reasonable offer price. In a competitive market, it is wise to add an escalation clause to your offer. An escalator stipulates that “I will pay __ price for this home, but if the seller receives another offer that’s higher than mine, I’m willing to increase my offer to __ price.” It also states the maximum amount that the purchase price can reach in case of multiple offers.
You should go into the negotiating process expecting to receive at least one counteroffer from the seller. This doesn’t mean that you should start off with a low ball offer to see how flexible the seller might be. In Northern VA, homes often close with multiple offers. If you submit a low ball offer without an escalation clause, your offer probably won’t even be considered.
TERMS AND CONTINGENCIES
While price is usually the most influential factor when a seller decides to accept or reject an offer, there are other terms and contingencies that may impact negotiations. Almost all real estate professionals suggest that you insist upon a home inspection, for instance, so that you have the ability to back out of the purchase if you find out the property has problems that aren’t obvious to the naked eye.
You may also want to write contingencies based on your ability to secure financing or the sale of your current house. Something as seemingly arbitrary as your chosen closing date might make a seller more likely to accept your offer–especially if they have already bought a new property and are anxious to move out.
As a general rule, you should choose your offer terms carefully based on the specifics of the home you are considering. Make sure to find a balance between making your offer as appealing as possible and protecting yourself against any potential issues.
SEALING THE DEAL
The final step, once you have come up with an offer you’re happy with, is presenting it to the seller. Negotiations can often be a game of telephone tag as your agent communicates with the listing agent, and then the listing agent communicates with the seller.
You have the right to back out of your offer for any reason up until it is accepted. If the seller comes back with a counteroffer, you also have the choice to either accept the agreement or write another counteroffer.
Once both parties agree on an offer, you will both be bound in a contract. You may not be able to change your mind without losing some or all of your earnest money. When you have finally sealed the deal, the home will officially be “under contract” as you await your chosen closing date.
Barring any unforeseen issues, a signed contract essentially means that you have bought yourself a house, so you can congratulate yourself on finally reaching the end of a long process!