Ron Denhaan, Realtor (949) 290-3263. Orange County real estate specialist.

Let's write an offer

When you have found the right home, it's time to write an offer. Before we write it, you should once again review my web page, Seven mistakes to avoid while shopping for your home. This will help you, even at the offer stage. Before writing the offer, you should always look at "comps" (comparative sales) for the neighborhood in which you are buying. The comparables will give you a good idea of the actual market values in the area, and they will provide you with a good baseline of where your offer price should be. One thing to note: Do not focus on list price. Instead, focus on comparable sales prices.  You will see why, below. 

What price should you offer?

Write offer

This is often the first question I am asked, and my answer is this: I will never tell you what to offer. This is your call entirely!. However, if you ask my advice, I may suggest a price range that I believe will be acceptable to the seller. Please be sure that you agree before writing the offer! It will be your decision in the end. 

I always suggest that you be reasonable in your offering price. We all want a deal, but remember, prices have fallen greatly over the past few years. Most homes are now selling for much less than they did two or three years ago. On top of this, many sellers have reduced prices even further if their home failed to sell quickly. Today, you are already getting a deal - It's already priced in. For example, I recently sold a short sale in which the buyer picked up a home for over $200,000 less than what the unfortunate seller had bought it for two years earlier!

There are many cases in which an offer lower than list price is appropriate. 

  • If the property is a "fixer upper", go ahead and offer lower. You will want a reasonable margin to repair and rehabilitate the property

  • If the home is above comps, certainly offer lower. The owner and agent may be testing the market a bit to see if there are any takers. 

  • If the home seller is an "equity seller" (also known as a standard sale, not a short sale or bank owned), the owner and listing agent typically "pad" the offer a bit. Again, check comps and if the asking price is obviously padded, offer less.

There are also cases in which an offer price at list or higher than list price is appropriate.
  • On a short sale with a "teaser" price. If a it looks too good to be true, you can bet that it is!.

  • On a highly competitive bank owned property. They are almost always priced below market to attract multiple offers. To win it you will need to compete!

  • When you find the perfect home after many months of looking. At that point, buy it!

    What happens next?

 

Forms used for your home offer

Buyers studying forms

To write your offer, we will use California Association of Realtors (CAR) approved forms. These forms contain language that outlines all of the terms and time tables of the home purchase process. The forms also offer contractual protections for both buyer and seller. There are many different forms that may be used, depending on the individual circumstance of each purchase.

The Residential Purchase Agreement (form RPA):  This is the actual offer form. In this form we will write your offer price, down payment, financing terms, length of escrow, buyer and seller costs, contingency period, offer expiration date, and many other terms of the offer. It is important that you review each page and ask questions if you have any. 

Agency Disclosure (form AD): The agency disclosure outlines the duties and responsibilities of the buyer's agent (selling agent) and listing agent. 
 
Wood Destroying Pests (form WPA):  This is also known as a termite inspection and repair form. Traditionally, the seller pays fro the termite inspection and for immediate repairs. No longer used as of Dec 2014.
 
REO advisory (form REO):  If you are buying a bank owned, or REO property, you will sign an REO advisory form which alerts you to several factors involved with buying a bank owned property. For example, bank owned homes are not required to provide you with certain disclosures, since the lender usually lacks knowledge about the home's history. 
 
Short Sale Addendum (form SSA): This is a form that is similar to the REO advisory above, but applies to the purchase of a short sale property. This document lets you know about time tables, possible other offers, and lender approval requirements. 
 
Contingency Of Purchase (form COP): If you are purchasing a property on a contingency, we will use form COP to outline the terms. A contingency may include your need to sell your existing home in order to complete the purchase of the new home, or perhaps you need to find a replacement home before completing the sale. You can read more about writing a contingent offer on my web page, here.
 
Purchase Agreement Addendum (form PAA): This is an all-purpose form that is used with the Residential Purchase Agreement to define many other terms of the sale. It is typically used to outline secondary financing. If you are acquiring more than one loan to purchase a property, you will need to complete this form to outline the secondary financing terms. It is also used to outline things like seller to remain in possession for a certain period, for backup offers, assumption of an existing loan, and many other optional items. 
 
Addendum (form ADM): To cover any other items that may not be covered using the forms above, we often use the generic (blank) Addendum form. There are no specific terms written into this form,. Instead, it is used to write in any terms that we may request in the offer. This may include things like buyer or seller credits, inclusion of furniture or appliances, mandatory repairs, or anything else that we may want to include as a condition of our offer. 
 
Counter Offer (form CO): Very often the buyer and seller will counter the terms and conditions offered by the other party. Most often it is used to present an alternative selling price. However, the form can be used to cancel and restate any other terms or conditions of the original offer (or previous counter offers). If there are several counter offers involved in a purchase, it is important that the buyer and seller understand which terms and conditions are still in effect and which ones have been superceded by subsequent counter offers. 
 

Offering too low a price

As I said, we all want a deal. This is especially true when we buy a home because of the costs involved. In the current real estate market, homes are already priced very low compared to prices just a few years ago. Trying to get "steal" might work, but don't count on it. Offering too low a price on a home is known as "Low Balling". This is one of my seven home buyer mistakes. Many buyers believe that in this "buyer's market", a seller should be happy to receive their offer, even if it is 30% below asking. Inevitably, You will lose a few properties before you find out that this is certainly not true!  What you may find out is that this is a competitive market. Buyers are snatching up quality properties very quickly and in some cases, paying higher than list price. Why is this?

  • The list price on many properties is meaningless -  For example, on Short Sales many listing agents list properties with "teaser" prices (read all about it, here: all about short sales ). Because of this, many short sale properties actually close much higher than list price. As I said above, don't dwell on a list price, especially if it is a teaser. Check actual market values and be prepared to pay a fair price. 

  • Most homes are already priced to market - Most ethical listing agents price homes at today's market values, not yesterday's. If the home is already priced at market, there is usually not too much room to go down. 

  • In the Traditional home buying model, you always offer less than list - But there is nothing "traditional" about today's real estate market. The rules have changed and the sooner that this is acknowledged, the quicker you will be a home owner instead of a disappointed buyer.

  • Last, you may get beat by another buyer. It's very disappointing for me to go back to my buyer and say that another buyer's offer came in much higher (this is usually after the buyer assured me that the market was falling and he was already overpaying with his low offer).

You definitely need to decide whether your priority is a home or a deal.  In many cases, we had found the perfect home for the buyers, but the transaction fell apart over a difference of $5,000 or $10,000. This was the result of too much focus on the deal instead of on the home!  This does not mean that you can't offer a lower price, which you definitely can! It just means be reasonable. Most sellers will work with you if you are sincere. 

 

Can you make an offer and then change your mind?

You can, but only for legitimate reasons. You often cannot simply withdraw your offer just because you changed your mind. After your offer is accepted, you typically have a contingency period (due diligence period) in which to review disclosures, work on your loan processing, inspect the home, etc. This period is often 17 days before you have to remove all contingencies. After this, if you cancel, your earnest money deposit will be at risk. If you do decide to cancel, try to do so within the contingency period. 

There are many legitimate reasons to cancel an offer. These may include, negative items discovered on the seller disclosures (e.g., mold, leaks, many others), an excess of items needing repair (found perhaps through a professional home inspection), issues with the home owner's association (lawsuits, assessments, etc), the home didn't appraise for purchase price, or your inability to get final loan approval. Also, for short sales, some buyers lose patience waiting for lender approval (which often can take months) and decide to opt out of the short sale. If you provide a reasonable cause for canceling the offer, the listing agent and seller will usually agree to cancel. 

 

 
 
 
 

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Congratulations on your decision to purchase a home! If you are looking for assistance with your first home purchase, looking to up-size or downsize, or are looking for an investment property, you have come to the right place!  Please call me to arrange a consultation with my team. We can help you all phases of your purchase, from showing you your home to referring you to financing.

   Ron Denhaan

Contact me

Ron@rondrealestate.com

BRE# 01728866

Ron Denhaan, Realtor


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