Buyers – Do Not Make These Mistakes On Your Offers
It’s a very competitive real estate market. Many of South Florida’s local markets currently favor the seller’s side of transactions. There is a lot of demand and oftentimes not enough inventory. It’s common for a property listed for under $500,000 to be under contract within two weeks of going live on the MLS and the internet / social media platforms. It’s not uncommon for buyers to be involved in multiple offer situations. With this consideration I’m going to provide you with a list of common mistakes that I’ve seen made recently that have cost buyers to lose out on the properties they’ve made offers on. Make sure you do not do the things below and you will increase the likelihood of your offer turning into a contract tenfold.
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Lets’ get on with it then…
Do Not Send An Offer Without A Pre-Approval
As primarily a listing agent (on the seller’s side of residential real estate transactions) I cannot emphasize to buyers how important it is to give confidence to the recipients of their offer. When presenting a contract to the owners of the home you would like be the future owners of, do not undermine your position by not providing a pre-approval letter. I’ve had situations wherein the property I am marketing has just hit the market and there are multiple offers at full or above asking price. Which offer do you think sticks out like a sore thumb when I am presenting the various contracts to sellers with a plethora of options to choose from? The offer subject to financing without a pre-approval letter gets tossed to the side immediately by the wary sellers that are looking for the opportunity that is going to yield them the best terms and security – they want to make sure (as much as possible) that the party they enter into contract with has a strong chance of making it to the closing table.
There are many moving parts to a real estate transaction. There are many hurdles to overcome for both parties to make it to the closing table. Sellers are wondering if the deal will make it past the inspections. Will the property appraise? Will there be any issues that the title company uncovers? The primary concern however for all sellers that are contemplating contracts subject to financing (the large majority of residential real estate transactions) is the qualification of the buyers. Sellers want to be able to accept a contract subject to financing with the security that the buyers have already submitted their income and asset documentation to their lender and that their credit has been reviewed by the same and there are no issues from this preliminary step in the application process that raise any red flags. Sellers want to know that they are taking the property off of the market when they enter into a contract with a buyer that is not wasting their precious time. As a buyer if you want the home, do yourself and everyone a favor and get pre-approved prior to getting in the car and making offers on homes.
Do Not Low Ball Your Offer On A Newly Listed Property
I don’t recommend low balling period. Sending a low ball offer on a property that just hit the market and is listed within market value however – that’s a surefire way to have your offer flat out rejected without even a counter offer. In the South Florida marketplace you have a large pool of would be homeowners, both local and from out of state (United States and worldwide). Properties listed within the parameters of fair market value in their respective neighborhoods are typically going to be receiving lots of showing activity from buyers in the marketplace at that particular time of the year. Sellers are typically feeling pretty confident about their endeavor when their home is showing multiple times a week. Why do you feel that they would contemplate an offer below market value at such an early stage of their home selling journey? Their first reaction to a low ball offer is to scratch their head and think to themselves – “why on earth would we do that”?
Some might think that a low ball offer opens the door to negotiations that will lead to a final fair market price but at the lower end of that spectrum. I will say as a listing agent that most sellers in the beginning stages of being live on the MLS and other sites will just not take a low ball offer seriously and not bother countering.
Mark my words here – I am speaking from experience.
The 15 Day Inspection Period
Do you really need over two weeks to finalize inspections?
Most residential real estate transactions in the Miami-Dade, Broward and Palm Beach County markets utilize the Far Bar As Is 5 contract as their contractual template. This contract gives potential buyers the right to perform an inspection via licensed home inspection vendors on the property they have entered into contract to purchase. Within the inspection period of the contract the purchasers have the right to cancel pretty much for any reason / whim and have their earnest money deposit refunded. This inspection period starts from the effective date of the contract, wherein both parties have agreed / finalized terms on paper and all signatures / initials are executed.
Want to make your offer more attractive to the sellers? Reduce your inspection period to seven days. A week is more than enough time for you to have your termite, roof, pool, structural and internal inspections completed. Rather than the sellers having to take their home off of the market for two weeks and wait around for you to perform your due diligence, narrow it down to a reasonable seven days. As a buyer you are protected to ensure that you know the condition of the home you are purchasing and the sellers will feel much better about knowing whether or not they will have to be placing the home back on the market in seven days instead of fifteen.
The 45 Day Loan Commitment Period
As a seller would you wait around 45 days for a buyer to find out whether or not he is qualified for a mortgage to purchase your home, when lenders are qualifying people in 30 days or less? From the seller’s standpoint they want to move past the buyer contingencies on the contract as fast as possible. If you truly want the home and you’ve been pre-approved for your financing to purchase it prior to entering into contract, why ask the seller to risk an additional two weeks from the norm off of the market?
Prior to making your offer on a property your lender should already have received and reviewed your income documentation; credit report; asset documentation and a lot of lenders are even offering pre-underwriting these days to the point that your final approval should only be subject to an appraisal, title work and an executed contract. If you come prepared to the negotiating table and you “have your ducks in a row” there is no need to make the contract subject to a 45 day loan commitment timeline. To the point many savvy buyers that have entered into contract on some of the properties I’ve sold have come in with 21 day loan commitment periods to make their offers more enticing to my sellers. By the time we’re executing a contract they’re already pretty much done with the hurdles buyers have to overcome in the mortgage application process.
The Sale of your Home Contingency
I understand that many buyers do not qualify for a mortgage to purchase their future home so long as they are still encumbered by a mortgage debt on another residence. Most sellers are not going to be willing to accept this contingency on a contract to purchase their home however in a hot market. As a buyer you do not have to place your interests at risk either. It’s all about logistics.
The simplest approach – work out a post-occupancy agreement with the purchaser of your current home and have your prospective future home identified. Once you have received the clear to close from your buyer’s lender go ahead and pull the trigger on making an offer on the home you wish to own next. Should something go wrong on the sale of your home you will have the inspection period on the contract of the home you are buying to cancel the contract and not risk your earnest money deposit – but with the lender’s clear to close it will be a rarity that your sale falls apart.
The other option is of course to be prepared to close on the sale of your home and live in temporary quarters until you close on your future residence. Though not the most convenient, this is the approach that will expose you the least contractually on a purchase agreement.
Low Ball Earnest Money Deposit
I’ve received offers on some of my listings with zero or next to nothing as earnest money deposits. There’s not much for me to say on this subject as I feel it’s clear cut. You’ve got to have some skin in the game.
As a purchaser in South Florida you’re likely going to be entering into contract under the Far Bar As Is 5 template guidelines. You are protected by your inspection period; loan commitment contingency; right to receive and review condo documents (if purchasing a property deeded condominium); appraisal contingency and the seller’s title responsibilities outlined in the contract. Show the seller of the property that you’re committed to abide by the timelines and provisions of the contract by giving an earnest money deposit equal to at the very least three percent of the sale price.
Oscar Rodriguez with EWM Realty International
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