If you're gearing up to step into homeownership and find yourself pondering the intricacies of making an offer on a house, you've landed on the right page. We get it – every time you scroll through your social feed and spot yet another friend posing proudly in front of their new home, it stirs that itch to carve out a space of your own. But, let's face it, directly asking about the price tag is a bit awkward.
However, if you've discovered your dream abode and are ready to take the plunge into homeownership but feel a bit lost on the how-tos, it's time to demystify the process.
Prioritize Your Finances in Home Buying
First Consideration: you've found the perfect home, and the excitement is palpable. But, before you jump into making an offer, here's a crucial spoiler alert – your finances need to be in order. According to our founder, Spencer Rivers, one of Calgary-based real top estate experts, the first stride towards your dream home involves mortgage pre-qualification. Understanding your purchasing power is equally crucial. In simpler terms, what can you realistically afford?
Shopping in the wrong price range is far from enjoyable, as Spencer points out.
Start by using this mortgage calculator to get a preliminary grasp of your financial situation.
Then, take the next step and consult with a mortgage professional for a realistic assessment of your affordability. Lenders will investigate basic financial details about your debts, assets, and income. These figures will not only provide you with a budget ballpark but also determine if you can secure a home loan. Once you're pre-qualified for a mortgage, the thrilling journey of house-hunting begins.
Deciding Your Initial Offer: How to Come About The Right Offer
So, you've sorted out your financial situation and identified your dream home – what's next? Make an offer.
Making an offer on a house is an exhilarating moment, especially for first-time homebuyers. Trust me; I've been there. Now, let's dive into the actual process of crafting an offer and sealing the deal.
If you're working with a real estate agent to negotiate on your behalf, seek their insights into market analysis and sold price history. The list price is what the seller is asking for, while the sold history reveals what a previous buyer actually paid. Additionally, take a look at other homes in the neighbourhood to complement the market analysis your Realtor provides. This will enhance your understanding and help you arrive at a well-informed initial offer.
Once you're well-versed in the market, factor in the home's condition, how long it has been on the market, and the seller's current situation. These considerations will play a pivotal role in shaping your offer.
According to Spencer Rivers, one of Springbank Hills Top Realtors, there's no need to overanalyze your initial offer – it's just that, an offer. He suggests thinking of it as a reservation on a home; it doesn't automatically make the property yours.
Nevertheless, it's crucial to find a balance. While you shouldn't overthink, you want to ensure that you're comfortable with the price and that the conditions allow you the time for due diligence, just in case your offer gets accepted promptly. As Spencer wisely advises, a bit of back-and-forth in the residential purchasing process is entirely normal. So, don't be intimidated by it.
Approaching Negotiation: What You Should Know
Negotiations can be a manageable source of stress, especially when you have a dedicated real estate agent on your side. Treat it like a salary negotiation – it's your chance to showcase your commitment to the purchase. With pre-approval, a trustworthy lender, and a willingness to put down a deposit, you become an appealing candidate for sellers.
Your real estate agent takes charge, engaging with the seller's agent to convey your offered amount for the property. Subsequently, your agent awaits the seller's response, which could be acceptance, rejection, or a counteroffer.
In real estate negotiations, the back-and-forth can extend with no set limits on counteroffers. Similarly, the scope of negotiation is wide open. Be ready for the possibility of the offer bouncing between parties, sometimes up to five times, before resolving—either an acceptance or, regrettably, a rejection. Negotiations can wrap up swiftly within a day or extend over a week.
Crucially, transform your verbal offer into an official, written document. As Spencer of Rivers Real Estate emphasizes, "Oral promises are not enforceable by law."
Related Content: How to Best Negotiate Your Home Purchasing Price
What Should Your Purchase Offer Look Like?
When your offer is accepted, it transforms into a binding sales contract, commonly known as a purchase agreement. According to Spencer, your offer must encompass the following key elements:
- Purchase Price: Clearly state the agreed-upon price for the home.
- Property Details: Include the municipal address and legal description of the property.
- Purchase Terms: Outline the terms of the purchase, specifying whether it's contingent on securing a mortgage or an all-cash transaction.
- Deposit Amount: Typically around 5% of the purchase price, this deposit demonstrates your commitment and is applied to the home sale upon closing.
- Purchase Conditions: Define any conditions that must be fulfilled before closing, such as a home inspection or the sale of your current property. You can also include requests for the sellers to address certain issues before possession, like professional cleaning or repairs.
- Inclusions or Exclusions: Specify items within the home that you expect to remain (e.g., window coverings, appliances) and any items the sellers wish to exclude from the sale (e.g., a hot tub).
- Possession Date: Clearly state the official possession date, the day when the property's title is legally transferred, funds are exchanged, and new homeowners can take occupancy.
Related Content: Tips on Selling Your Home For The Right Offer
What To Do After Your Offer Is Accepted
Once your offer is accepted, the property transitions into a "conditionally sold" status. A conditional sale implies that the stipulations outlined in your proposal must be fulfilled before the closing or possession date. Typically, these conditions involve obtaining mortgage approval and conducting a satisfactory home inspection.
With your offer on the table, it's time to address your closing costs as a buyer. Be prepared to cover the deposit (if required), home inspection fees, mortgage insurance (if your down payment is less than 20%), legal fees and disbursements, land transfer tax (dependent on your province), and title insurance. Additionally, consider expenses like prepaid property taxes, utility bills, and property insurance.
Drawing from personal experience, after consulting with our real estate agent, Spencer Rivers, and submitting our initial offer, we engaged in negotiations with the sellers, countering four times before reaching a final agreement. The negotiation marathon started on a Friday at 4:00 pm and concluded at 11:30 pm. In just 7.5 hours, we progressed from "potentially finding our home" to submitting a $10,000 deposit, marking the transaction's official status.
Making an offer on a home can either unfold gradually or, as in our case, swiftly. Having a real estate agent on our side was crucial for navigating negotiations and ensuring that the terms and conditions we needed, such as a tight possession date turnaround, were met. While making an offer involves a compromise between buyer and seller, when your offer is accepted, it's a victory for everyone involved.