Make An Offer On A House

Once you have found a home that you can see you and your family moving into, it is time to make an offer.  Making an offer on a house in Chicago is somewhat delicate, and you want to make sure you do it right.

How Bad Is Too Bad?

A common mistake of buyers is to make an offer on a house in Chicago that is simply insulting to the seller.  Sure, you want to get a good deal, but you need to show the seller that you are a serious candidate to purchase their house.  Making a low-ball offer will signal that you are either too far apart to make a negotiation worthwhile, or that you don’t have enough money to actually get a deal done.  Your agent can help you get in the right range and compromise so that you still have some room to negotiate with the seller.

You found the right home, now it’s time to make an offer!

Use Your Offer As An Opportunity To Gather Information

Making an offer on a house in Chicago is a little like poker.  You want to engage the seller so that they are interested in negotiating.  Most likely they will make a counter-offer, and this is their tell. Based on the speed and amount they counter with, you will have an idea of how desperate they are to sell.  If they respond quickly and come down significantly on their initial asking price, then you know you have some leverage. If not, then they are most likely not in a huge rush to sell, and you can proceed accordingly.  But engaging them is the first step so you can take their temperature.

Use Your Offer As An Opportunity To Gather Information

Strength Of Offer

The obvious factor in strength of offer is the amount of money you are offering.  But aside from that, there are multiple factors that can set you apart from other offers or indicate serious interest and likelihood of getting to the closing table, including cash, earnest money, type of loan, type and amount of contingencies, and others.  Let’s take a closer look at how each of these factors can strengthen or weaken your offer.

There are more factors then just the price to show your offer strength.

Cash Is The Universal Language

There is nothing that says “strong offer” like a cash offer.  There are a few reasons for this. One, it signals to the seller that you will have little trouble getting to the closing table.  If you have the money in hand, then there shouldn’t be many unexpected hold-ups. In addition, cash offers usually mean quicker closings, because there won’t be any waiting process for the financing to get approved.  Needless to say, sellers’ eyes will light up if you are able to show them proof of funds.

If you can afford all cash purchase then you have some more leverage.

Conventional Loan: A cash offer is great, but most buyers are not able to afford a home outright.  Your next best bet is going to be an offer with a conventional loan. These are appealing to sellers because they include a high down payment, usually at least 20%.  When making an offer with a conventional loan, you will need to be pre-approved by the lender, and it strengthens your offer if this already complete at the time of the offer.

Consult with your lender prior making an offer so you know which loan program would be best for you.

FHA: An FHA loan is a great option if you don’t have enough money to make a large down payment.  Issued by the Federal Housing Agency, an FHA loan insures the lender that the money will be paid by the FHA if you are not able to pay.  It can be a great option for first-time homebuyers, as the down payment is usually around 3.5%. For this reason, it is not as appealing to sellers, first because of the low down payment, but second, because it may signal inexperience or possible problems arising before getting to the closing table.  An FHA loan also has more requirements than a conventional loan, one of which is the FHA appraisal. The FHA requires that they use their own appraiser for this process and if they find anything that does not meet their requirements it will need to be fixed before the loan can proceed, drawing out the process for the seller.

Depend on the property type and your financial situation, you may be qualified for both FHA or Conventional loan.

VA: A VA loan is offered through the Veteran’s Administration, and has similar requirements to an FHA loan, with a few additional requirements, including a pest inspection that the seller usually pays for.  Sometimes condo developments were not VA certified upon construction and that will need to happen with a VA loan, a process that includes a lot of time and paperwork. These extra requirements can add time and money to the closing process that can turn a seller off from a VA offer.

Veteran buyers can purchase homes with zero percent down payment.

Contingencies: The strongest offer will be devoid of contingencies, but most offers include a few common contingencies that sellers won’t have a problem with.  These include an appraisal in which the appraised value matches the offer being made and a home inspection. Other optional inspections include a pest inspection, well and septic inspection, and radon inspection.  If you feel the need to add these contingencies, offering to help pay for them can put a seller at ease. The least appealing contingency is “offer contingent upon the sale of the buyer’s current home”. This is a big red flag for sellers and a risk that they will probably not be willing to take.  Try to avoid adding this contingency if you can.

Contingencies are also the negotiation tools.

Earnest money: Earnest money is the good faith deposit that you include in the offer to hold you accountable for the deal.  This can be anywhere from $500 to 10% of the offer price, and the higher it is, the better the seller will feel about your offer.  If the deal doesn’t go through, you will retain this deposit, and if it does, it will go towards closing costs.

Earnest money is the good faith deposit.

Concessions: Buyers, unfortunately, carry a lot of the weight of closing costs, and therefore sometimes will ask for help with these costs from the seller.  Again, this is at your discretion, but the less you ask for, the more satisfied the sellers will be with your offer. Generally, you don’t want to ask for any higher than 3% of the sales price.

In some situation, asking for closing cost credit is the solution to buy a house when you are short on cash.

Your initial offer is an important milestone in the closing process.  Make a good offer, and you may be on your way to the closing table in no time.  Make a bad one, and you may find yourself looking for another house. Remember that your offer may not be the only one on the table for the sellers, so factor that into your decision.  Generally, the simpler an offer is, the more attractive it will be to sellers. If you are in need of real estate assistance, contact Delphine Nguyen of the Delphine Team with Baird & Warner real estate, to help construct the best offer to get you into your new home.

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