If you’re like many buyers, you’re probably focused on finding the right home. While locating your dream property is a crucial part of the process, it’s important to also be prepared for the next step: making an offer. Given that you’re gearing up to make one of the most significant purchases of your life, there’s bound to be some stress involved. Knowing what to expect will simplify the process. Here, we’ll discuss how to make an offer on a home.
What Should be Included in Your Offer?
You might think that an offer consists of dollars and cents, but there’s more to it than that. There are a few key elements that need to be included for your bid to be considered complete.
- Purchase Price – the dollar amount you’re offering for your prospective home
- Deposit Amount – the portion of your down payment that you’re willing to provide upfront (typically 3-5 per cent)
- Other Items to be Included – the extras you’re asking for as part of the deal (such as a piece of decor)
- Land Survey Request – you’ll need a survey to clarify the boundaries of the property and other features
- Conditions – contingencies upon which your purchase is based (such as a successful inspection)
- Closing and Expiration Date – when you want to take possession of the home, and when your offer expires
Making Key Decisions
Deciding on a price, terms, and conditions isn’t always straightforward. Every decision should be made strategically in order to increase your chances of success. With your agent’s assistance, here are a few things you’ll need to consider.
The Dollar Amount
When settling on a purchase price, it’s important to remember that every situation is different. The list price, the market, and your comfort level should all come into play. You should also factor in probable taxes and utilities to ensure that you’ll be able to make your monthly payments.
Your agent will help you understand the property’s market value by examining prices for similar, recently sold homes in the neighbourhood. Some sellers underprice to encourage bidding wars, while others set their numbers high to test the market.
Once you understand the true value of the home you want to buy, your agent will help you create a strategy designed to meet your goal. Remember that lowballing could result in having your offer rejected out of hand, while offering too much may not serve you well in the end.
You may choose to include conditions that must be met before your purchase is finalized. These stipulations can protect you against worst-case scenarios.
One of the most common examples is a financing condition, which states that your purchase won’t be completed if you’re unable to obtain a mortgage. If you can’t acquire the financing you need, you’ll be able to back out of the deal without being penalized. Your deposit will be returned to you in full, without any deductions.
Inspection conditions are also used frequently. They stipulate that your purchase is contingent on your ability to obtain a satisfactory home inspection.
Your agent will help ensure that the conditions you add are there to protect you—without turning off the seller.
When you’re thinking about how to make an offer on a home, there are a few other things to mull over. These include the seller’s motivations, which may not be explicit.
While your offer should serve your best interests, you want to ensure that it’s also appealing—otherwise, there’s a good chance it won’t be accepted.
Does the seller want to move sooner rather than later? If so, an early closing date may be their preference. Would they ideally like to sell to a family with dreams of living in the neighbourhood? Perhaps including an offer letter that discusses why you wish to raise your kids in the community could improve your chances.
Your agent may or may not be able to decipher motivations based on interactions with the other real estate representative involved. While some sellers play it closer to the vest than others, this information may be helpful if you can obtain it.
The Irrevocable Period
The seller has a certain amount of time to consider your bid. It’s known as the irrevocable period—and you’re no longer committed to your offer once it passes.
The timeline varies, depending on what you’ve specified in your offer. The irrevocable period could be an hour or two (when you want to encourage quick acceptance), or it could be a couple of days.
After your offer has been drawn up, your agent will work with the sellers to find a time to present it. This process can occur in person (if circumstances permit) or virtually.
The offer presentation gives your agent the opportunity to explain and justify the contents on your behalf. You won’t be present at this time, though you’ll probably want to be available in case a counteroffer is made (in which case negotiations can begin).
During the irrevocable period, the seller can choose to accept, reject, or counter your offer with a different set of proposed terms (such as a higher price). You should be ready for some back and forth, as negotiations are common. With your agent, you’ll decide which concessions you’re comfortable making (if any).
As a local market expert who understands the negotiation process inside and out, your real estate representative is well-positioned to advise you during the process. They’ll help you reach an agreement that’s acceptable to the seller—but their primary focus will be securing the best possible outcome for you.
Once an agreement is reached, you’ll submit your deposit. This amount is due within 24 hours—constituting one business day—of offer acceptance. The onus is then on you to meet any applicable conditions laid out in the offer. Once they’ve been fulfilled, the contract (known as the Agreement of Purchase and Sale) becomes firm.
In a hot market, you may have competition for the home you want. While you won’t be privy to the contents of other buyers’ offers, it’s your right to know how many other bids have been submitted.
In a multiple-offer scenario, making your best bid first is sometimes (though not always) the right strategy. The truth is, you may not get another chance. Your agent will look at all the factors involved—including the market and how badly you want the property in question—and provide advice accordingly.
In some cases (such as when two or more offers are neck-and-neck), a seller may choose to negotiate. They can do so with one buyer at a time. You should be prepared for this possibility—and decide whether you can comfortably increase your offer (and by how much).
You may have heard the term “bully offer” before. While these bids are somewhat controversial, they can also help buyers secure acceptance in some cases.
Here’s how it works. In a hot market, sellers may opt to set an offer date—and refuse to consider any bids made beforehand. A “bully” is any offer submitted prior to this date. It’s a tactic a buyer can use to tempt a seller into accepting their bid before viewing any others.
Bully offers are usually significantly above asking—and they typically come with short timelines. Stipulating that a seller only has a couple of hours to consider a bid puts the pressure on, and helps ensure that they won’t consider other offers during this time.
Should you make a bully offer?
Ultimately, the decision of whether to make a bully offer is up to you. If you decide to go this route, be aware of how your bid may be perceived.
Sellers set a date with the intention of being able to review all of their offers at once. Some may be irked by pre-emptive bids that expire before they have a chance to take that step. Likewise, there are buyers who believe that these offers are unfair, as they give one potential purchaser an advantage.
On the flip side, one could argue that every buyer has the opportunity to make a bully offer—and that they merely provide the seller with more choices. There’s more than one perspective here, which is part of what makes discussing your options with your agent so crucial.
Lean On Your Agent
Have you been thinking about how to make an offer that will serve your best interests? There’s no denying that the process can be stressful. When your dream home is at stake, it’s bound to be. Fortunately, there are things you can do to make the offer process more relaxed—and increase your chances of success.
It all starts with a basic understanding of how offers work. From there, the right professional can help you make an informed decision by providing market insight, gentle guidance, and any advice you need. It’s all part of a seamless home purchase!