How To Buy A House - Part 3 - Before the Offer
Having read part 1 and part 2 (if you haven't click the links and you can!), you’re ready for what’s next.
You've completed your “house hunt.” You’ve seen all, or at least most, of the houses on your list, and found... THE ONE. You found the house that sets your heart a-flutter and creates a maddening urge to nest. Mazel Tov! Now what?
The next step should be to circle back around and look at those budget numbers in preparation for writing your offer. For most people, buying a home is a big life event that’s easy to get emotional about it. That said, buying a home is also one of the largest investments you will make in your life and doing this wisely is of the utmost importance. You can begin your financial analysis by looking at the numbers that are specific to you and the property in question.
If you've got a savvy agent, and a great lender, you should already know the general numbers for your mortgage, down payment and closing costs on the houses you've been seeing. It's now time to get specific and analyze the numbers on the house you've chosen. It may have some unique factors that were not originally accounted for in the initial estimates like Homeowner’s Association fees, seller’s concessions or incentives, the property’s specific taxes (if they are being escrowed), and insurance estimates. All of these numbers can be discussed and calculated to help you decide how you want to start your negotiations when crafting your offer.
Hot Tip: Did you know the age and condition of the house can affect how much your insurance policy costs? Because of this, you’ll want to try and get an insurance quote for the property so you can be confident in the totals.
Time to Write the Offer!
When planning your offer, one of the biggest elements you negotiate is the sales price and as you prepare that portion, you’ll want the facts about pricing. Thus, the next set of numbers you will need to see will be found on your agent's comparative market analysis or CMA (see above image).
A CMA is the report the buyer's agent pulls with all the homes that have sold in the last 90 to 180 days in the area that are similar to the house you've chosen and using it to provide their opinion of value. * It's important to note that this is an opinion of value and not a substitute for an appraisal or tax assessment. * There are a lot of factors that go into determining appropriate comparable properties and it’s not a step you want to skip because it tells you whether the house is priced correctly.
"But Emerald! I don't care about the price, I'm going to DIE in this house, I love it! Why should I care if it's a little overpriced?!"
Believe it or not, I've heard this before, and it's a fair question. If this is going to be the last house you ever own, ever, and you’re paying cash, and you don't care what happens to it after you die, bless your heart, you go right ahead and do what you want! You've earned it! I'll still give you my professional opinion regarding pricing, and you can tell me to chew my shoe if you'd like. I'll still love you and give you the best possible service.
However, if you are not paying cash, and have a loan on the property, making sure you're not overpaying is paramount to protecting your investments. And tellin' me to chew my shoe about pricing, may not be so wise.... For example, if the house is priced $10,000 over market value and you offer the seller what they are asking, you may now run the risk of having appraisal issues that you can’t afford.
I'll explain. Let's say the sales price on the contract is $300,000, but the appraised value comes in at $290,000, the bank is only going to give you a loan based on the $290,000 appraisal. Now, who is paying the $10,000 appraisal difference? See the problem? This is why making educated decisions based on solid information, and being smart from the start, is how this game must be played. If you’re not planning from the beginning, you could lose the house, valuable time, and potentially thousands of dollars. It is your agent’s job to help prevent these potential losses and proper data analysis is exactly how that’s done. These pricing analyses are important for new construction homes too, but they are their own beast and I'll write about them later (stay tuned).
The Takeaway:
When you’ve found the right home, before you write the offer it’s important to know the numbers that impact your mortgage. Knowing the right sales price for the property, your monthly payment details, closing costs, and any amounts necessary for concessions will help you craft a win/win offer to land the perfect place within your budget.
I know some of these posts have sounded a lot like a "get a real estate agent!" rant, but it's because I'm passionate about making sure everyone has a great experience in real estate. The best way I know to do that is to urge you to surround yourself with experts that not only know their craft, but care deeply about the service they bring you and your unique experience. And, as always, I leave you with the reminder, if you have questions, please ask. Questions give me purpose, and they give me more blog topics too.
Happy Hunting!
Emerald Scott-Farmer, Agent/Owner of
The EMERA Group of Keller Williams
Emerald@emeraldsellshomes.com 214-533-8191
** I am not an attorney and cannot give legal advice. **
(But I know some good ones if you want recommendations)