Putting In An Offer On A Home – Tips And Strategies To Win
So, if you’ve seen the house of your dreams and decided on a winning strategy for buying it together with your Agent – the next step is putting in an offer.
Now, this is the step where many people fail.
If you’re been through this process already and lost a home at offer, then you already know what we’re talking about.
You can write an offer that is too high and end up spending more money than you wanted, or give an offer that is too low which will get rejected instantly and lead to you missing a house that you wanted.
This is why it’s crucial to find that golden middle point where both you, the seller and the Agents are all satisfied with their share.
If you have a good Real Estate Agent helping you, they’ll almost certainly have a pre-written offer template that they use and can assist you with coming up with the whole offer without you having to do all the work.
However, it is very useful and important that you also know the basics of what goes into an offer and how the process works.
After all, you’re the one who’s paying for everything, so you should know what everything means and how to approach the offer. That’s why in this article we will cover the following:
- What is an offer?
- What are the key elements of an offer?
- How to create a strong offer.
- Possible outcomes of an offer.
- Strategies for multiple offer situations.
What Is An Offer?
A purchase offer is a legal contract that contains proposed terms and conditions a buyer offers to a seller for a particular property.
An offer is not an official legal contract on its own, it becomes one only after it’s signed by both the buyer and the seller.
Looking at the whole real estate trading process, the official negotiations actually start when the buyer makes the initial offer, which is why it’s crucial to know as much as possible about it.
We’ll talk more about the potential outcomes later in the article.
What Are The Key Elements Of An Offer?
1. Offer price
Of course, the basic element of any offer is the actual price you’re offering to the seller.
Depending on the market conditions and the property itself, your Agent might advise you to bid higher or lower than the listing price.
2. Consideration window
This is the time frame when your offer is valid.
The seller can accept the offer only during this period, after which the offer is closed. You can set this to what you like – it you want to pressure the seller, you can make this a very short period!
If there is no response from the seller, the offer is automatically rejected and becomes null and void.
Deposits are usually used as signs of a good will – that you as the buyer are serious about buying the property – because if you give up on the deal, you may not get this back.
The deposit amount is usually around 1% to 3% of the total offer price – but this can vary depending on the market and your Agent will know what the ‘normal’ amount is. It is usually placed in a third-party trust account which neither side can access until the agreement is fulfilled.
Once the contract is signed, the deposit will be deducted from what you owe the seller upon closing on the house.
4. Inclusions and exclusions
Put bluntly, what you get by buying the property and what you don’t.
The property may be sold with all the fixtures, appliances, mechanical items, personal property and other elements without any additional costs. Or it may be sold unfurnished.
All of this depends on the seller’s choice and yours, of course.
5. Legal description of the property
This part includes a description of the property per its title. Depending on what you’re buying, it should include a combination of the subdivision name, block and lot numbers, the property’s numerical measurements, and descriptions of its physical boundaries.
Also, this part should mention if all government and property approvals have been received or some that may need to be obtained.
6. Closing date
Another basic element of an offer is the closing date – which is different to the date that your offer is accept (see #2). This is the date when the possession of the property (the property’s title) transfers from the seller to you, the buyer.
7. Disclosures and clauses
There is always a chance that something may happen between the time you sign the purchase agreement and close the deal.
But what is important for you, is to mention in the contract all the things that may cause a change or end to the contract – both financial and non-financial.
This may include home inspections that exposed some type of problem with the house you were unfamiliar with, appraisals that determined a different price than the one in the contract, hazard inspections that discovered the property is prone to pests, radon and lead paint – or some personal reasons (eg. financing) that allow you to walk out of the deal with no consequences.
If you’re working with an Agent, they can assess the situation and suggest which contingencies and clauses to include to get the best outcome of the deal.
Do note that all of them may not be approved and the other party may ask for a change or removal of certain clauses – these are usually also negotiated.
How To Create A Strong Offer?
Get professional advice
If you’re new to real estate and negotiations overall, it’s best that you hire a professional to assist you with writing the offer.
You not only have a professional Agent to come up with all the specifics and details but also someone who will do the negotiations on your part – which is something not many people are familiar with other than the odd times in life they do this (eg. buying a car).
And usually in Canada, using a Real Estate Agent to draft up the offer and negotiate for you is completely free.
Include a pre-approval letter/financing
Having a pre-approval letter from a financial institution can get you far in negotiations. It means that the bank deemed you capable of buying a property and that you’re seriously committed to buying one.
Additionally, if a seller has received an offer that is slightly higher than yours – but without an approval letter – they will may even accept yours instead of the other – so having this could actually save you money on your home.
Leave room to negotiate on price
Experienced Agents will often advise you to send in an offer slightly below what you are willing to pay for the property.
This allows you to go back and forth with the other party and find out more details about the property based on their behavior and how they negotiate.
For instance, if they seem nervous or inexperienced, you can be more aggressive with the offer, while if they are the aggressive ones, it could be because they might have other potential buyers they are currently negotiating with. You can use their behavior to adjust your strategy.
Include a deposit
Including a solid deposit – like the pre-approval letter – will also show the seller that you are serious about buying the property, not just sending in a bunch of offers to multiple sellers to find your best option.
We’ve seen sellers who didn’t want to believe an offer because ‘it seemed to good to be true’ – until our buyers included a healthy deposit.
Be flexible on clauses
Of course, everyone would love to have their property completely checked before buying it, but putting too many conditions on the seller can make them reluctant and unwilling to cooperate, which can end up losing you the deal.
Be as flexible as you can – perhaps on inspection periods or closing periods and show the seller you’re friendly and open – this will help in other areas of the negotiations (eg. on price).
Be most flexible on closing date
If you can, closing date is the one area where it helps to be the most flexible.
Usually, a seller has a specific period in mind in which they’d like to close the deal – whether it be 30 days, 90 days or 120 days.
If you meet them with exactly what they ask for, this is an easy way for you to get on good terms with them – so that you can then push them in other places of the negotiation (eg. price) – without it really costing you anything!
Possible Outcomes Of An Offer
After the offer is received by the seller, they discuss it with their Agent and decide between the following 3 options: accept the offer, decline the offer or counter it.
By far the most common outcome is that an offer is countered – it’s very rare that your first offer would be accepted. This is one reason to make sure your first offer isn’t your best!
The offer gets accepted
Although it doesn’t happen quite often, having the initial offer accepted usually happens when the offer is above or at listing price and all the other terms of the offer are in line with what the seller is looking for.
This may be because there are many buyers on the market fighting for a property and we didn’t want the property to slip away from our hands, so we made an offer that’s hard to refuse.
Or, if you and your Agent believe that a property is priced realistically, that’s also a good situation where you can send an offer close to the listing price.
The offer gets declined
The other result of the initial offer is having it declined – which is actually quite a rare situation (why would someone decline it when they can counter offer?).
There are mainly 3 reasons why an offer can be declined:
- The owner may believe the price that is offered is so low that they don’t believe a common price agreement could be met – it is so low that they don’t even see the point of a counter offer.
- Lack of knowledge of the opposite party or their inexperience in negotiations. The seller might not have an Agent by their side and represents himself/herself on their own. The position they’re in and the lack of knowledge can make them more conservative and cause them to decline an offer without even trying to counter it.
- If the negotiations between you and the seller have been going on for a while and the seller has received another much better offer in the meantime, so they end up declining yours as they don’t believe you’ll be able to match it.
The offer gets countered
The most frequent case during negotiations is getting a counter offer. This starts a cycle of going back and forth with the other party until both sides reach an acceptable agreement.
Counter offers and negotiations are exactly why we mentioned you need to leave that “wiggle space” in your first offer, so both you and the other party can have something to negotiate about.
There is no limited number of counter offers a person can make, so both the buyer and seller can potentially go back and forth for quite some time. What can happen is that they counter offer, then you counter-counter offer and so on.
Once both sides have reached an agreement regarding both the price and the conditions, the contingency period starts, when all the appraisals and inspections take place (if clauses for these were included).
A timeline is sent by which you have to have ‘cleared’ all the outstanding clauses and contingencies – after this time has passed, the contract becomes legally binding on you.
Putting In An Offer – Summary
Overall, this whole process can be quite exhilarating, stressful and hectic, but you will learn something new and hopefully have fun along the way!
Plus, if you’re buying another home at some point in the future, you will go into the process more experienced and with a lot more confidence.
Remember: in the current housing market in the GTA and surrounding areas, it is very rare for you to end up getting the first place you put an offer on.
So, expect to go through this process more than once – pay attention and see what you can learn from it – and make sure you have an experienced Agent by your side who has already learned these lessons.