The Importance of a Reasonable Purchase Offer

Buying a home can be exciting and stressful all at once. Most people look forward to making a move, but the financial aspect can be a bit unnerving - especially when it's to your advantage to find the best mortgage for your situation before you even start looking at homes.

While a mortgage pre-approval will help steer you toward the right price range for your budget, it's even more critical when it comes time to write an offer. When you complete the mortgage pre-approval process with a reputable lender, you demonstrate your ability to financially seal a deal since you have already completed the paperwork necessary to verify your income, net worth and credit worthiness.

Then, once you find the right home, there's just one more hurdle to overcome before you can start packing boxes - you and the seller must agree to the terms of a contract, and that process begins with an offer from you.

When writing an offer to buy a home, there are a number of things to consider. According to the National Association of REALTORS® (NAR), a typical purchase offer will cover many items such as the address and legal description of the property, sale price, terms, deposit amount, inspection clauses, seller warranties, closing and occupancy dates, personal property, time limit on the offer plus additional provisions and contingencies as needed.

Each real estate contract is unique, and many items are negotiable. That's probably why preparing an offer is actually one of the most nerve-wracking aspects of buying a home - you don't want to make an offer that exceeds the true value of a home, while an offer that's too low could shut down negotiations.

A reasonable offer should be based on comparable properties. Your Realtor can conduct a Comparative Market Analysis (CMA) which will provide a good foundation for you to make a proper offer. The sale price of similar properties in terms of square footage, upgrades, features, condition, school system and location can help determine the market value of a home you are interested in buying. From there, the decision on what to offer is yours alone.

"A lot of buyers are savvy, they have a good feel about value in the market, while other buyers have to find out the hard way that things are selling many times at or near the list price," Herm Hoge, who along with his wife Kris owns the RE/MAX Realty Associates office in Munster which serves Lake and Porter counties as well as Chicago's south suburbs, said. "A common misconception of some buyers out there today is that you can be pre-approved for $150,000 and look at homes in the $200-$250,000 range. That's just not reality."

Another scenario that Hoge attributes to the fact that values here in northwest Indiana have not fallen to the extreme levels of other markets across the country, involves buyers who really want a home that is priced right for them.

"For most buyers, probably 95%, it's emotional," he said. "They've narrowed their decision down to a particular area, a particular neighborhood and a particular home in their price range. But, because of what they've been seeing on TV, they may go too low with their initial offer and lose out to another buyer who presents a more reasonable offer. They also run the risk of insulting the seller who then becomes emotional as well."

The fact that we are currently experiencing a buyer's market also has people thinking they can be successful with an offer that's significantly lower than a listed price. However, the real value for buyers right now is in the interest rate, according to Hoge who points out that a 4% interest rate is worth much more over the life of a loan than $2,000 in the purchase price.

"For the most part, listings in our area are priced right," he said. "Many times the homes that are in the best shape at a particular price range are selling at the list price. We're seeing more demand right now as people are starting to pay attention to Indiana, and people from the Chicago area are especially interested in northwest Indiana since our real estate taxes are much more affordable."

Moving forward, Hoge anticipates seeing more urgency from buyers this spring and summer. Although, with the mild winter we've been experiencing, he says his office has been staying busy with a good number of people out and about this winter.

"There's a pretty good inventory right now, but with the number of showings we've had on the listings in our office, I think the cream of the crop, the really good properties with the best values, will be gone soon," he said. "I urge people to take advantage of this window before reality sets in and interest rates start to rise."