As a home or property buyer, you’ll want to have your ducks in a row before you even start the search process. This will prevent you from losing the property you always dreamed of, when you do find it and want to make an offer, due to someone else being ready and getting there before you.
Buying Power – Prequals
The first thing you are going to want to determine is your buying power. Do you have enough in reserves to cash-flow your purchase, or are you going to need a loan? If you are purchasing land zoned for residential use, your are most likely going to be paying with cash, unless you are working with a lender who is funding the land along with a construction loan or purchasing a large acreage for farming or ranching. Residential purchases and buyers often qualify for a variety of different loans, so the best way to determine the best fit for you will be to give a lender a call and tell them you are looking for a “Prequal letter“. The lender will ask a few questions to determine your assets and liabilities, Debt-to-Income ratio (DTI), credit-worthiness, and fill out a loan application. Then the lender will take a look at your credit report to see what type of risk you might represent. Once that has been determined, he or she will prepare a notification in letter form from their institution that delineates exactly how much they are willing to lend you towards the purchase of your home, based on the information you provided. I usually recommend for my clients to call several different lenders and see who can offer them the best program and rate. Just MAKE SURE you tell them you are shopping for a lender so that they don’t all pull your credit report separately – that can cause a significant ding to your credit score! Once you find the property you want, call your lender and give them the address and ask to have your prequal letter updated to specify that particular property (this usually takes less than a day, and your offer can be put together simultaneously by your Realtor®). Your Realtor® can perform this task for you as well.
Proof of Funds
If your purchase is a cash deal, you’ll want to call your bank and ask for a copy of your most current statement, which will need to show an amount sufficient to cover the offer amount plus incidental (inspections, tests, reports, title, notary fees, etc.) and other escrow costs. This is called providing Proof of Funds. The account numbers and other sensitive personal information can be redacted from the statement – you are only using it to demonstrate that you are financially capable of closing the deal.
Putting the Offer Together
Once you have your financing in order, your Realtor® will ask you questions about how you want to have the property vested, how much you want to offer for it and how much you are going to put down as an earnest money deposit, if you have a preference regarding which title company to use, whether you want to have inspections performed, which ones you want and who will perform them, and who you want to have pay for them, along with any other responsibilities you might want to delineate in the contract. He or she will then fill out the contract based on the answers you provided and either email you a link to a website where you can digitally sign it, or print it out and go over it with you in person, signing or initialing the necessary spaces as you go along.
Making the Offer
After you have signed the purchase agreement, disclosures and any addendums your contract may require, your Realtor® will submit your offer to the sellers or their agent. The seller has 3 days (unless otherwise stipulated in the purchase agreement) to respond to the offer before it expires. Their response is either going to be acceptance, counter-offer, or rejection.
If the seller accepts your offer within the time period allotted, your agent will then call the title company you chose and open escrow.
When the seller is unwilling to accept the terms of your offer, he has the option of countering back with a set of terms that are acceptable to him. This is often a multi-step process, where your Realtor’s® efforts turn to contract negotiation, and each side counters and counters back until a consensus is reached. A good buyer’s Realtor® will have discussions with the seller’s agent to try and determine where you and the seller might be able to find some middle ground so that the transaction can move forward and multiple counter offers can be avoided. Once this happy medium is reached, whoever is presented with the acceptable counter offer will sign off on it and then escrow is opened.
Ah, the dreaded R-word. No one wants to hear that their offer has been rejected outright. This usually implies that the offer amount was too low or that the buyer’s demands were too outrageous for the seller to accept. It’s a good reality check, though. Having to start the search process all over again is a great incentive to be more realistic in your offer the next time around.