Buying a Property? Here Is How to Make the Best Offer
November 14, 2020
Finding a property that suits your needs and requirements is the first part of making a good deal. The most crucial activity comes next: making an offer.
The right offer is the one that decides the amount of profit you can make and whether you will be able to purchase the property in the first place. So, you must gather all the information needed to make an initial offer and fix a favorable price in the negotiations until your offer is accepted.
Here are some tips and strategies to help you make the best offers on any property.
Stick To A Range
You have to determine the lowest and highest price range that you can afford to buy a property. You cannot go around looking for an expensive property with no proper financing options. So, get started by preparing your finances and making your documents ready.
Arrange for a possible down payment, at least 1% of it as the earnest money, and look into mortgage and financing options. Earnest money is like a token advance that is paid to the seller by the buyer under a legally binding purchase agreement. It may or may not be refundable depending upon the local state laws.
Sellers will find you attractive if you have ready cash available or have pre-approved financing options to make the purchase. If it is not possible to finance the entire amount in cash, you can prepare a proof of funds or get a mortgage agreement in principle. This way, you know how much you can afford and show the sellers that you have money in place and are making an authentic offer.
Notice The Drop
As you search for a property, never lose sight of how market values are changing. You must know, real estate markets are always evolving and changing depending on factors like nearby development projects, state of the constructions, transport facilities, economic growth, state policies, loan terms, and so on.
If you happen to notice a drop in the prices, make sure to adjust your offer accordingly. But you will have to remember that once a final offer has been accepted by both parties and entered into an agreement contract, you will have to oblige. In these cases, you may include a clause in your agreement to make the contract assignable, so you can sell it to another investor.
Do The Calculations
An offer you make on a property should not just be reflecting on the value of the property but also on how much it is going to cost you in total. The total cost of buying a property includes your registration costs, attorney fees, maintenance costs, taxes, utility costs, and so on. Ensure you do your calculations to reach a figure that lets you cover all the expenses and still end up with a profit when you make a resale.
Consider the rate of appreciation and possible rental incomes as well.
Research The Neighborhood
This should come as no surprise because researching is the first step to finding a good property. Getting to know the neighborhood is essential to know the actual value of the property and notice any possible drop in prices. Inspect the area and research well before you go about making offers. This makes you more comfortable with the neighborhood and to make offers confidently.
Get to know the asking prices and sold prices of similar properties in the neighborhood. You can also look into properties of similar size and area as the property in which you are interested. The more research you do, the better offer you can make as you will be confident that your offer matches the worth of the property, and sellers will find it attractive. Some ways to research the market value are:
- Conduct comparative market analysis.
- Consider the time on the market and other market indicators like local demand. You can make use of real estate listings to know how long the property has been put out for sale.
- Get to know the seller’s motivation to sell. Motivated sellers are easy to close a deal with. For instance, sellers in debt or fear of foreclosure would want a faster closing as they need the money and may agree to the first best offer they come across.
- Get to know of the other competing offers on the property made by other investors or buyers. If there are multiple offers, then you may have to negotiate accordingly and be quicker.
Make A Counter Offer
So after careful deliberations and research, you make an initial offer to a seller. It would be great if the initial offer is accepted and now you can move on to sales proceedings. But that rarely happens, and there will be a period of back and forth negotiations where the seller makes an offer back to you, making a counteroffer and finally getting to an agreement.
You should know that sometimes your competitor might also make offers to the same property, and there is a chance that you might lose the property if you don’t make counteroffers on time.
In your offer document, you can mention a consideration window up to which the offer’s terms remain valid, and if the seller does not respond within that deadline, you can go ahead and make a new offer.
Follow a bidding strategy that suits you. You can make your best offer as the first offer. This helps you avoid a drawn-out and unnecessary negotiation process.
Otherwise, you can start with a lower offer, get the seller to respond, bargain, and negotiate to get a better offer if your first offer is rejected.
Don’t Be Hasty
As mentioned earlier, remember to stay within your fixed range and never go beyond your minimum possible profit calculation when you make counteroffers.
In the heat of the moment and due to competition, you may be egged on to raise the price than what you can afford. So, repeat the calculation process for each counteroffer and only settle for a win situation for you. Don’t act hasty, and always make sure to put your offer in writing for documentation purposes.
Here are some document related terms and preparations you should be ready with when you make an offer.
- Your earnest money deposit
- Research into neighborhood and property inspection. Inspect the general living conditions, neighborhood facilities, and infrastructure, sewage, water, and transport facilities.
- Calculate the total purchase price and available financing options. Get approvals for financing and be ready to show the seller you can afford and will be able to close the deal within the stipulated time.
- Assessments on taxes, maintenance, closing costs and such
- Estimated closing and delivery dates.
Conclusion
A good property does not necessarily mean a good deal. A good deal is made when you can acquire or sell a good property on a winning offer that gives you profit. Preparation is key to making good offers. Do not let your emotions play during price negotiations and always base your offers on hard research data and estimates.