Friday, September 14, 2007

Writing An Offer

For those of you who are out there looking to buy your first home, it is important you realize that there is a lot more to it than just shopping. Once you have been pre-approved and have discussed the details of what you are looking for with your Realtor, it is only a matter of time before you find the right place. When you see a house you are seriously considering, you will first request to see a disclosure package for that house. That package contains anything and everything (and more) about the property including the seller's disclosures, any and all inspections that have been done, a preliminary title report, a building report which includes permit history, etc. I will probably cover each disclosure separately in the future. Once you have reviewed the package and decided you want to move forward, it is time to write the offer. In San Francisco, the offer is a seven page contract where you will outline the amount of the purchase as well as all of the terms. There are many things you can do to make an offer more attractive to the seller besides simply raising the purchase price:

Initial Deposit: Ideally this will be 3% of the purchase price. This is also known as Good Faith Money, letting the seller know you are invested in the sale.
Down Payment: The larger the better for your loan and for the seller's confindence in the sale.
Contingency Periods: I will outline the specific contingencies, but I wanted to give you an overview first. If your offer is accepted, you will have a contingency period that has been agreed to in the contract to fully approve of the property before you move on with the sale. In this time, you will do your inspections, appraisal, and secure your loan. You will also be looking over any disclosures that you did not receive before the offer was made. In the offer, you will specify the length of time, in calendar days, that you will need for each contingency. Once the contingency period is up, assuming you are satisfied with your findings, you will remove those contingencies in writing thus fully committing yourself to the sale. The seller will always prefer shorter contingency periods because the chances of the buyer backing out of the sale once contingencies are removed is much smaller.
Financing Contingency: Although you want to make this as short as possible, you also want to make sure you have enough time to complete the task at hand. This is a very important reason to do your homework before offer time. If you have already been working with your lender and they have already fully approved of you as a borrower, all that is left for them is to approve of is the property you are purchasing. Check with your lender and see how much time they need, and that is how long you will make your contingency period.
Appraisal Contingency: Again, your lender can tell you how quickly they can get this done as they will be ordering it. You will pay, but it will be added on to your closing costs at the end of the escrow period.
Inpection Contingency: Give yourself enough time to schedule the inspections and then receive the written reports a couple of days later. Anja and I will often schedule the inspections before we know whether or not the offer will be accepted. That way we can get into the home in the next day or two and the buyer is confindently able to remove them a couple of days later. Remember, after the first inspection you may find something else that needs to be looked into, so you want time for a second inspection if that should happen. Like I said, you want enough time to satisfy yourself, but time is of the essence.
Escrow Period: An average escrow period in San Francisco is 30 days. Again, shorter makes it more attractive to the seller. If your lender says that your loan can be fully approved in 14 days, you can try a 21 day close. Remember at closing you will need to come in with all of your cash for down payment and closing costs. You may also need to consider a rental lease, and when it would be best to give notice to your landlord. It is a good idea to give yourself a week or so of overlap. That way you can take your time with the move and possibly have a thing or two done to the new house before you move in, like flooring or painting.

Those are a few things you will need to consider when making an offer. If you are in a competitive situation and you have the same purchase price as another buyer, your terms may very well be what sets you apart. Be cautious but competitive. Decide how much you want the house, and that will help you set your limits on what you are willing to give.

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