When you buy a home, one of the most important pieces of the process is the submission of your offer. Out of all the pieces in the process – the shopping for a home, the mortgage application, the saving for a down payment, and so forth – the submission of your offer arguably requires the most diligence and thought behind it. The reason for this is simple: the offer is the amount you’re going to pay for the home, it’s the amount which ultimately determines what sort of monthly mortgage payment you’ll have and the total down payment you’ll need to save. Submitting a successful offer isn’t an easy task. You need to do research on the home, as well as research on the local market and local neighborhood. You need to think about how much you want the home. And you even need to consider the psychology of the seller: how badly does the seller want to sell? Do you want to buy less than the seller wants to sell?
In this post, we will discuss 3 basic tips which can help you when you go to create an offer on a home. Again, there can be plenty of other tips to help you in this process; these are just 3 among many others. Submitting an offer is a time-consuming, labor-intensive task; this is why you need to consult with a talented real estate agent when you make an offer.
Don’t Offer the Entire Pre-Approved Amount
Before you make an offer, you need to make sure you’re pre-approved for a mortgage loan (if you’ll be obtaining one). When you’re pre-approved, you’ll know exactly the amount of money which you’re pre-approved for – i.e. $250,000, $300,000, and so on. When people are pre-approved, one of the most common mistakes they make when submitting an offer is to offer the entire pre-approved amount right away. Remember, just because you’re pre-approved for a certain amount doesn’t mean you must take out a loan for that amount. If you’re pre-approved for a loan of $350,000, start with an offer for less than that loan amount. Offer $275,000 or $300,000. Beginning lower will give you room to compromise, and then you’ll likely end up settling on a number midway between your original offer and your maximum pre-approved amount.
Don’t Make a Lowball Offer
This should be very intuitive, but it’s also important enough to worth mentioning specifically here: when you submit your offer, make sure it’s not a lowball offer. One tricky thing about this piece of advice is that there’s no clear boundary which separates a lowball offer from an acceptable offer. How low is too low? Answer: it’s always a case-by-case thing. It’s one of the those things where you’ll know it when you see it. Also, be sure to point out the reasons behind your offer is your offer appears to be lowball to the seller but seems reasonable to you. Perhaps the seller underestimated how much a particular defect or damaged area would cost; if that’s the case, then perhaps your seemingly lowball offer isn’t lowball at all. In any case, make sure your offer is reasonable, otherwise you could create a negative reaction and this could have very bad consequences for the deal.
Don’t Make an Offer without Researching Everything
This tip is extremely important. In order to make a reasonable offer, you need to have a full understanding of all the things which affect the value of the home. This also makes intuitive sense, but it’s important enough to merit special attention. You need to understand what’s going on in the local market, and have a grasp of other external conditions (such as neighborhood quality) which can affect the selling price. Remember, the reason why sellers ask for a certain amount isn’t just a matter of how much the house is worth in a purely material sense. In many cases, you could buy the raw materials and create the same house as the one you want to buy for considerably less than the asking price. But that’s because the asking price includes the other things which affect the home’s value. And if you have a firm understanding of these other things, you’ll be a much more effective negotiator when you’re submitting an offer.
Car companies do the same thing which they accept a car for “trade in” value: the car companies don’t merely value the car in terms of its materials, but in terms of its popularity. In other words, they value it for what it could conceivably sell for on the market.
Long story short: you need to research everything relevant to the selling price before you go to submit your offer. This is how you’ll be able to negotiate effectively.
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