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Making an offer on a home

Once you've found your dream home, you have to make an offer on it. In this video learn how making an offer on a house works and the various steps and pitfalls in that process.

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Video transcript

- So let's say that this house has been on the market for a couple of weeks, and the asking price is $310,000. And you say, well, you know this looks like the type of house, and you're in the market to buy a house, you say, "Hey this is "a type of house that I could imagine "me and my family living in. "I would like to buy this house." But you think, you know this price has been on the market for a couple of weeks. Maybe I think I could get a better deal than this, so you decide to make an offer. You decide to make an offer for, let's say, a little bit less, for $300,000. So the question is, how do you go, or how does your agent go about actually making an offer? Well, the way it goes is, you don't just walk up to the seller, or the seller's agent, and say, "Okay, we're gonna offer you $300,000," because they don't know whether you're serious. They don't know whether you actually have the money to do it, whether you are in a position to do it, or whether you're just kind of playing around, or just wasting their time. And so, to prove that you're not wasting their time, you create, or you fill out, an offer contract. So let's think about what should go, or what might go in an offer contract. So, likely your agent, if you're using an agent, or even a real estate attorney, or you could even find some of these forms on the web, you would create a contract, and there's some basic information that you would want. You would obviously want info, info on the property, what's its address, the property, who's buying, yourself, so the buyer and the seller, this is just to kind of know, hey, what is this contract about? It's about this property, and who's getting into this contract, and then you'd want to put some information about the actual offer, so, you would put your offer in. You'd say, "Okay, I'm going to offer $300,000." And then you also want to prove that, look, you're not just playing around with them, that you're serious about this. This offer is made in earnest, and so you will give a deposit when you make this offer contract, or it's typical to give a deposit, and it will vary. The higher the deposit, the better, because it shows the more earnest you are, the more serious that you are about actually going through with this offer contract. It's typical for these deposits to be anywhere between, I've seen one percent, two percent, three percent, four percent, five percent of the actual home price. Three percent is what I'm most familiar with, but it doesn't have to be three percent. It's really, this is just an indicator to the seller that you're serious about this. So you're gonna write a check right now, along with the offer contract, for let's just say three percent of the offer price. So three percent of $300,000 is $9,000, that's a $9,000 check. Some places, it's not a percentage, some people say, "Okay, you just give $1,000, "or give $2,000," whatever it is. But this money, once again, this is a check that you're writing with the offer contract. This shows that you are serious about this, that if for whatever reason you don't meet your end of the contract, then the seller might be able to just keep this money, so this shows that you are serious. This shows that you are serious right here, that they should take you seriously, and that they should go through the process of trying to close on this property, and we'll talk in future videos more about what closing is. Now, you're probably thinking, "Okay, look, "I'm just not gonna buy this outright. "I've toured the home, I like it. "I like the neighborhood, it seems to be "in good condition, but I don't know for a fact "that it's in good condition, "unless I have a chance to inspect it, "unless I have a chance to get some experts in there "and make sure that the house is in good condition." And to make sure of that, it's typical to throw some contingencies in your offer contract. Now, the most typical contingencies are things like inspections, so you might want to inspect for termites, you want to inspect the foundation, you want to inspect the plumbing, the electrical, and make sure that it's all on the up and up. If something comes up in the inspection that makes this house not what you thought it was, it allows you to get out of this contract, and hopefully get your deposit back. Now, other things that you might want to put a contingency on, well you think that you're going to be able to get $300,000. Maybe you have saved enough for a deposit. You've saved, let's say 20 percent of this, so you have saved say, $60,000, or maybe you've saved 70 or 80 thousand dollars, 'cause you also need some extra money for closing costs, and whatever else, and we'll talk about that in future videos, and maybe to buy furniture, whatever else, so you've saved 70 or 80 thousand dollars, but the remainder of it, you're going to need to borrow. And you're going to need to borrow it from a bank. The bank has written a letter to you saying, "Hey, based on your income and your credit score, "we feel we have pre-approved your loan, "we think you're going to get the loan." But that's not the same thing as actually getting the loan. Something might happen, the bank might realize that they didn't notice something about you, or the financing conditions might change in between the time that you got your pre-approval and the time that you actually need your loan. So another typical contingency that you might have is a financing contingency saying, "Look, I really do want to buy this house, "but I'm clearly not going to be able to buy it "unless I get some financing." And then other things that might be there are things like insurance. Why would you need a contingency on insurance? Now this one's less typical, so I'll put a little asterisk there. Well, there might be a place that has a lot of floods, and the old owner had flood insurance just because they already owned it, but now the insurance companies aren't issuing new insurance, because it's so prone to flooding, or something like that, so flooding insurance might be there. There's a clear title, is obviously something that you would need if you wanted to buy this house, or that you probably should need, and once again there's other videos on that. So these are all things that if, for whatever reason, if these things fall through, it allows you to unwind it. Now if you're in a really hot real estate market, where there's many, many people bidding on the same property, and some of them are coming with really juicy offers, where maybe they're offering to pay it in cash, or they're offering other things, then it's not atypical to have fewer contingencies, because, remember, from the seller's point of view, they want the most serious buyer, and if someone is willing to waive their contingencies, they're like, "Hey, look, I know this is crazy, "but I'm just willing to get the house "in whatever condition it is," that's a lot more attractive to the seller, because the seller feels good that the transaction won't fall through because of one of these things. But that's in a very, very, very hot real estate market. In a more typical real estate market, I suggest you talk to people, realtors, other people in the industry, to figure out what's going on in your market. It's more typical to have stuff like this, especially the inspections, the financing, and the title. Now, the last part of it, and I'm glazing over a lot of details, in future videos, we might actually look at an actual offer contract, you would want to throw out the closing date. So it may be this offer contract, let's say it's made on October 15th of 2015, and let's say that you want to close, so that you want all of this stuff to get done, and you actually want to get the seller the whole amount of the money, and you want to get the title to the house, let's say you want to have it in two months, so 12/15/2015. And once again, from a seller's point of view, the closer in this closing date, the more that they feel good that this transaction is actually going to happen. So if you wanted to make a very tempting offer to a seller, you would have as few contingencies as possible, and you would make this closing date as soon as possible, but if it's not a super-hot real estate market, you don't need to go through all of that trouble, and it's fairly prudent to get inspections, and have contingencies on all of these, or things like this, not necessarily all of them, but things like this.