Show them the Money
In addition to how much you’re willing to pay for the home, the offer will also include details about how you’re going to do that. The seller is going to want to know that you have financing in order and that it’s solid. A pre-approval letter, should be a requirement for you, before you begin the home search. While all of the sites out there have shown your estimated payment amount, the lenders may see things differently. It always helps to know exactly what your buying power looks like, before you start the home search, much less making offers. It also allows you time to go over different loan types, programs, down payments, speak with multiple lenders, etc… Most importantly, the letter will demonstrate to the seller that you are working with a lender, and that the lender is willing to loan you the money needed to finance the home.
The “Trust Money”
You’ll likely be asked to write a good faith “Earnest Money/Trust Money” check or money order. If the seller accepts your offer, the check will be placed into an escrow account and used as part of your down payment. Earnest Money/Trust Money is essentially a deposit and shows the seller that you are serious. Without it, you could be making offers on several houses at the same time, costing sellers precious days on the market. How much should you put down? Your agent should help advise you what’s customary for the market. It can range from 1 percent of the purchase price to 10 percent or more in a particularly hot market. It’s the money you are putting at risk if you back out for reasons not outlined in the offer.
Contingency or Escape Route
Almost every offer is written with contingencies that allow the buyer an “escape route”. The most common are inspection and financing contingencies. With an inspection contingency, your offer will specify that the seller has to make the home available within a certain number of days for you to bring in a professional inspector. The offer will also outline what happens if the inspection unearths any problems you’d like to have addressed.
Another common contingency is based on financing. If you can’t secure a loan, a financing contingency will let you get out of the sale without losing your earnest money. This is rarely a problem if you’re truly pre-approved and it won’t help you if you simply decide you don’t like the interest rate you’re getting.
There is also the appraised value contingency. Where the home’s appraised value must be equal to, or exceed the purchase price agreed upon. If the price comes in lower, the buyer can make up the difference with cash, the seller can lower the price, the buyer and seller can split it somehow, or, either party can say “no” to what is proposed. As long as that it accomplished within the correct time frame, the buyer gets their “trust money” deposit back and back to the drawing board.
In a seller’s market, each one of these escape routes is going to count against you and you’ll be tempted to avoid them, especially if you’ve lost out on houses before. But think very hard about making an offer with no contingencies. Sometimes it can’t be avoided but it’s usually a bad idea. Instead of eliminating an inspection contingency altogether, consider shortening the amount of time you give yourself to complete it.
Call Miller [email protected] for any help with the buying or selling process.
Part 3 of 3 will post Monday Feb. 24, 2020