Finding Your Dream Home- Step Three: Making an Offer

Author: Spencer Mason
There are a few different kinds: Traditional; Sales which are the most common where the seller is not in any financial trouble, Foreclosure; where a bank has repossessed a home and is now trying to sell it at a reduced rate, and Short Sale; where an owner has contacted their bank and has begun a process of selling their home short of what they owe.

Making an Offer On a Conventional Property (In Illinois)
Our first advice to you is: do not fall in love with your Dream Home. This may seem weird but here’s why: If you are not able to walk away from this home your agent loses all of their power to negotiate. If you have a couple top choices it affords you a much greater leverage during the negotiation process.

Also – now is the time to contact your real estate attorney. Notice we did not say “attorney” we said “real estate attorney.” If your uncle or family friend is an attorney but does not have experience in such things, we recommend asking them for a referral of someone they know rather than using them. Real estate is a time sensitive affair and you need someone with experience who understands this or you could jeopardize your offer and worse yet, your earnest money.

Your agent should provide you with recently sold comparable units either in the building or area of the subject home you are interested in. using these comparables your agent will then help you determine an appropriate offering price. The next step is for your agent to prepare the paperwork and then walk you through the contract line by line. You should feel comfortable every step of the way. By this time you should already be pre-approved and have a letter from your lending institution stating as much. I recommend having them type you one that is property specific without a dollar amount on it. In other words: Jane Doe is approved for 123 Fake Street Unit 101. This way you are not showing all of your cards (your final approval amount) to the listing agent. This isn’t a must, just another advantage for your agent. Next you will need a copy of your earnest money check. For a conventional loan this can be a personal check or any type of certified funds such as a cashier’s check. Talk with your agent about what an appropriate amount of earnest money is based on the value of the home you are bidding on. This amount can often tell a buyer how serious you are. Remember that just like everything else on the contract, this is negotiable and you may receive a counter on it! The next step after signing the contract is for your agent to submit it to the listing agent. You should receive an answer with in a day or so (deadline is stated on the offer). Given that your agent is on the ball they will most likely be phoning the listing agent by the following day if they haven’t had a response. The beautiful thing about Illinois (and many other states) is that the rest of the negotiations is verbal until the terms are agreed upon. Meaning you do not need to keep re-submitting your offer back and forth in writing. Once your agent submits an offer they can call the listing agent, get their counter and then run the number by you all by phone. Once there is a meeting of the minds one more written contract typically an edited copy of the first page will suffice. Once the contract is signed by both parties it is known as an “executed” contract. At this point your agent has 24 hours to get the initial earnest money to the listing agent. Make sure your attorney gets a copy of the contract asap.

Making an Offer On a Foreclosure Property (In Illinois)
Foreclosures and Short Sales (distressed properties) are a bit trickier and we will discuss them one at a time. Assuming you have narrowed your foreclosures down to your Top One or Two, it is time to act! Typically the banks price these properties to sell and they can go quickly. In fact, the goal of many of these brokers is to list the property so cheap that they encourage a multi-offer situation. This is similar to a silent auction in the way that others will be bidding on the same property but you don’t know what they’re bidding. The difference will be that once they have decided to stop taking bids they will send around a call for “best and final offer.” This will give everyone who bid another chance to up their bid to make sure they come out victorious. This step can be tricky for you and your agent because you may be the highest offer already. In essence you could be bidding against yourself. What you and your agent have to decide is, whether your bid was good enough to begin with. It is common to bid higher than listing price and still be out-bid! There is no clear-cut advice that can be honestly given to navigate a “win” in this situation. With a qualified agent working with you giving you all of the comparable properties that have been listed and sold – go with your gut. If you’re not comfortable bidding more, don’t. Ask your agent to call the brokerage after the best and final bids have all gone through and ask them to let you know if you are not the top bidder because, if not you’d like to move on. Sometimes this works, and sometimes it does not, but it’s worth a try and can save you some waiting time. The final step here is, wait. Sometimes this can be a week sometimes a month or more. One silver lining to that cloud is that it is not in a banks best interest to hold on to this property and they want to sell it as much as you want to buy it.

Making an Offer on a Short Sale Property (In Illinois)
If you need to close on a deadline, do not pursue a short sale! Despite its name a “short sale” is the longest purchase you could endeavor for. If you are thinking about buying a foreclosure or short sale, make sure you have an agent that has references for successful completion of these. There is no end to the financial and time waste that can be associated with this type of purchase. When a person gets into financial trouble for whatever reason and realizes that they can no longer afford their mortgage one option they have before being foreclosed upon is to contact their bank and ask them if they may sell their home short of what they owe in hopes that they will not have to foreclose. This is attractive to the banks because often times they will get more for a home in short sale than they would in foreclosure, plus the seller is doing most of the work. The problem is that many agents, on both sides of the transaction, are under-educated about these. Often times the seller and the listing agent have no idea about what the bank will accept for this place so when they list the property on line it is a shot-in-the-dark at what they feel the bank would be willing to take mixed with how much of a loss the seller is prepared to absorb. Many times even if a buyer makes an offer for a place that is over what the asking price was this can still be declined by a bank, only it’s not that simple. If a bank gets an offer from a buyer that is below what they are willing to take they will not simply say, “no” or counter your offer. They will sit on your offer for one, two, three months to a year (no joke) waiting for a better offer to come in. When it gets to a point that they do not feel another better offer is coming, assuming you haven’t pulled out by then, they will counter your offer and the negotiation process will begin. Also, since many times short sales and foreclosures are not in the best condition, you had better have a strong down payment and good credit because your lender’s appraiser will be very picky about whether or not they will approve you for a loan on this type of property.

Bonus step: The Cover Letter
This is for any one of the three types of properties listed above. Something we have found to be useful in a multi-offer situation is a Cover Letter. A cover letter explaining your situation could make all the difference when a seller is looking at a bunch of offers that are all similarly priced. An example that has worked for one of our agents was a newly wed couple that put an offer in for a home that was right by where their mother lived and where they grew up. They now want to return to their home town and be close to relatives because they’re going to be adding a little one to the family and would love to be close to grandma etc. You get the picture. Some sellers want to know that their home is going to be handed over to someone who will really appreciate it. The cover letter, even if your story is not as engrossing as this example will show that you are serious enough about this home that you took the time to go the extra mile. Just like a good earnest money offer, sellers want to know that the prospective buyer is invested in buying this property and won’t back out on them and waste their time.