Make A Smart Offer

When you find the right place, ask your real estate agent to run a comparative market analysis to determine what a fair price would be based on recent sales of similar homes in the area. The less interest there is and the longer the house has been sitting on the market, the more power you’ll have to negotiate.

Beyond the price you plan to offer, you should also speak to your real estate agent about whether it makes sense to include any contingencies in your offer. A contingency is a stipulation included in an offer which states that if a particular condition is not met, the buyer is free to break the contract without any repercussions.

Although sellers often balk at offers made with contingencies, there are some contingencies worth making regardless of the seller’s feelings about them, especially if you’re negotiating from a position of power.

Mortgage Contingency

If your ability to afford the home is dependent on your ability to obtain a loan, you must include a mortgage contingency in your offer. This contingency will make it possible for you to back out of your offer if, for any reason, you’re unable to receive financing.

Even if you’ve been preapproved for a loan, you should still write this contingency into your offer. If you don’t, you’ll find that you’re still on the hook for the purchasing price regardless of whether you’ve obtained any funds.

Home Sale Contingency

If you’re planning to sell your home and require the funds from the sale to purchase this new one, you’ll want to ask for a home sale contingency. This contingency will provide you with a certain period of time within which to secure a buyer for your own home.

If you’re unable to find a buyer during that time, the home sale contingency will enable you to rescind your offer and reclaim your earnest money deposit without any recourse. Understand, many sellers will refuse this contingency, but it’s still worth a try in most cases.

Inspection Contingencies

Inspection contingencies are also worthwhile additions to any offer. After you make an offer, you’ll want to get the home inspected to make sure you have a full understanding of the home’s condition. It’s in your best interest to ensure that the seller is willing to do any work necessary before closing or take the respective cost out of the purchasing price.

With an inspection contingency, you’ll be able to not only renegotiate the offer based on any necessary repairs but also break the agreement if the home needs more work than you can handle.

The decision to include any contingencies in your offer should be made based on the transaction and your financial circumstances. If you’re in the middle of a bidding war, your agent will probably dissuade you from including any – as sellers are less likely to choose offers that require them. However, if there are no other offers on the table, it is worth the try. Contingencies can always be removed during the negotiation process.

Earnest Money Deposit

Along with your offer, you’ll also be required to provide an earnest money deposit, also known as an escrow deposit. This deposit is money that you provide up-front to show the seller that you’re serious about the offer, so the seller feels comfortable taking the home off the market.

The amount of money included in the deposit can be negotiable; however, an earnest money deposit is typically 1% – 3% of the purchase price. The money is held in an escrow account and applied to your down payment and closing costs at closing.

If you change your mind and decide that you won’t buy the home for any reason that is not specified in a contingency, the seller gets to keep your earnest money deposit. That’s why it’s vital that you consider the conditions in which you may need to pull out of the contract before you make an offer. Including a contingency in your offer can be the difference between keeping and losing your earnest money.