The Biggest Purchase of My Life – Part II
With pre-approval in hand and a game plan for what elements we were looking for in our first house, my wife and I set out to find our dream home. As my realtor would tell you, it took us a LONG time to find a suitable place in a desirable location. On top of that, in the early stages of the pandemic, sellers were not too keen on letting people into their homes, so the pickings were slim. All of a sudden, we get a beautiful listing from our realtor that had the perfect yard for our dog. This was it, we were on the cusp of freedom! Competition was very tight and the house already had a few offers. With the help of our realtor, we made the decision to forego the home inspection, opting for a pre-inspection. This seemed like a big risk at the time, but one that made the offer more attractive. After a night of stressful waiting, we got a call that another bidder offered more than $35K over the asking price! Talk about going downhill on the emotional roller coaster.
But, this story isn’t over yet … almost immediately after our first failed offer, we were shown a promising house that had not yet hit the market. Getting in before the competition was pivotal in securing a good deal. We needed to act fast, which sounds crazy for the biggest purchase of my life. The same day we toured the house, we entered into step 4, packaging an offer that couldn’t be refused. That is when you need to lean on your realtor’s expertise the most. As the housing marketing becomes more competitive, the offer structure becomes more important.
Important Offer Items:
- Write a letter to the seller! This could be the tie breaker between two equal offers.
- Establish escrow — neutral third party that handles the transfer of any money during the sale of a house from initial deposit to final funding and closing.
- Have an escalation clause — you are willing to pay $X over your offer if another buyer comes in higher.
- Consider time frame — 30-day settlement periods are often more attractive to a seller than 60-day settlement periods.
- Determine and establish an earnest Money Deposit — the initial deposit paid within 3 days of contract ratification. The money eventually goes towards the down payment or closing costs. A higher deposit (5%) shows strength and indicates to the seller that a buyer is serious.
- A buyer can lose the deposit if they back out (cold feet) without using a contingency.
- Consider contingencies — criteria the seller needs to meet in order to finalize the sale. For a buyer, it is an opportunity to back out of the contract or negotiate with the seller. Removing certain contingencies can make an offer more attractive, especially in a tight housing market. A few common contingencies include:
- HOA Review Period — consider a short review period to make the offer more attractive
- Home Inspection — shorter time period to complete (7 days vs 14 days) looks better in the seller’s eyes. Foregoing a home inspection absolves the seller’s responsibilities but removes the buyer’s ability to negotiate or renege on an offer if things need to be fixed.
- Home warranty
- Radon Inspection (7 day)
- Appraisal — less time to complete (14 days) looks more attractive.
- If an appraisal comes in lower than the offer price, the buyer can negotiate or bail. Alternatively, the buyer would need to make up the difference in cash, because the bank will not lend the full amount.
- Financing — typically 21 or 30 days. This ensures the bank provides the money.
- Settlement — pay additional closing costs and sign paperwork. Ask the lender for an estimate.
We learned a lot from the realtor, our lender, and my savvy coworkers. Our year-long search finally paid off with an accepted offer! Multiple years of saving and a year of searching all came down to a few hours. Stress was relieved, and all we needed to do was dot the i’s, cross the t’s, pay closing costs and settle. For the sake of this article, and to respect your time, I won’t go into that process. We were on cloud-nine and ready for step 6, enjoying our new home and all the Lowe’s trips that come with it… plus finally throwing a housewarming party when the pandemic subsides!
Buying a home will likely be the biggest purchase of your life, but it shouldn’t be scary, it should be exciting. If you want to talk, please reach out.
Read The Biggest Purchase of My Life – Part I Blog by Ryan Streilein, CFA, Equity Analyst »
Meet Ryan Streilein, CFA®, Equity Analyst »
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Resources:
1. Motley Fool Podcast (05/2019) - 5 Hot Tips for Buying a New Home
2. www.bankrate.com
3. The Margie Halem Group
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