Joe's fab five
Congratulations! You've scoured the online listings (Realtor.com, Trulia.com, LiveInDavis.com, etc), toured Davis area properties with Joe, (some more than once), and you've found your potential dream home. Let's help turn this dream into a reality.
1. Get pre-approved for your loan
Before writing an offer to purchase, meet with a local lender, (see the Expore Davis! page for lender links), and get pre-qualified or pre-approved for your mortgage, as your first step. We may prefer to have the lender wait on delivering the letter to us, via email, fax or hand delivery until a property is chosen, since the letter includes specifics (purchase price and/or loan amount) that are dependent on the particular property. The important point is that you know you -and the seller knows - that you are financially ready to close the transaction. Choose a lender with a solid reputation, one that the listing agent and, or the seller knows will fund the loan, and fund it on time. Be wary of out-of-town, or internet-based lenders who have no reputation to uphold here in Yolo County. If they're based in LA, or San Jose, it's not much skin off their back if they reject your loan (after initially pre-approving it), potentially imploding the transaction.
2. Know the comps
Even though the average home in Davis may sell for 97% of its most recent asking price, the actual purchase prices form a wide bell-shaped curve around this figure. List prices are often subjective - agents like myself arm our sellers with as much information as possible regarding recent solds, pendings, and active listings that have similar characteristics and are in like neighborhoods as the subject property, and we advise our clients on pricing strategy, but we don't ultimately set the prices, the sellers do.
It is imperative as a buyer, therefore, to know the real estate market. Does this potential dream home seem fairly priced based on the comparable sold properties during the last three months? Does it seem overpriced when stacked up against other active listings? Never write an offer for 3-5% under list price simply because that's the average selling price. Some homes are truly underpriced to attract multiple offers, and quickly, and may be worthy of selling well over their asking price. Other homes - I'm sure you've seen them collecting proverbial dust online - are so overpriced that to present an offer price of even 97% of the asking price would be an unwise endeavor for any buyer. When assisting my buyers, I always provide as much information as possible regarding the comparables, so together, we can make a well-informed decision.
3. Know the seller's interests
Asking the right questions to a seller prior to writing an offer can often make the difference between an accepted offer and a stalled negotiation, or in the case of a multiple offer situation, it could determine whether you win the negotiations, or spend the night licking your wounds.
Some contract terms may be of great significance to the seller, whereas only a slight inconvenience for you. For instance, we want to learn if the seller wishes to rent back from you after the close of escrow, and for how long - a few days, a week, a month or more. Perhaps you're in a month-to-month rental and your move date is rather flexible. Years ago, a couple I represented held firm on their initial offer price, when we countered the seller's counter offer. The offer price was $370,000, which was $33,000 below the asking price of $403,000, but my buyers smartly offered the seller a few months of free occupancy after the close of escrow, and the seller accepted. We knew this "free rentback" was invaluable to the seller.
Other times, we may discover that the seller is eager to get their proceeds as soon as possible, so we can write an offer with a very short close of escrow - we'll allow enough time to schedule and perform our inspections of the property, and provide the lender with sufficient time to fund the loan. In late 2006, I represented the buyers on the purchase of a property in Covell Park with a seven day close of escrow - and the lender funded on time. Ocassionally, the seller may desire a very long close of escrow of two months or more. Again, if the timing is no more than a nuisance for you, the buyer, accomodate the seller's wishes and you might reduce the purchase price by thousands of dollars.
4. Make a strong earnest money deposit
You'll want to submit an earnest money deposit to me when writing an offer. Payable to the escrow company that we select, (there are many reputable title and escrow firms within a block of the Coldwell Banker office), I present a photocopy of the deposit check with your offer. The check is eventually delivered by me to the escrow company no later than three business days after the acceptance of the offer. In Davis, it is customary that this initial deposit, together with an additional deposit, (usually made 17 days after acceptance) total 3% of the purchase price. Often buyers don't have such liquidity, so they may offer 1% up front, with an additional 2% at 17 days. This remains a strong deposit. Even when crafting a lowball offer, make the deposit a strong one if you can, and it will pay dividends in the end.
In Woodland and most other cities within the greater Sacramento area, a smaller earnest money deposit is the norm. Davis is a bit of an anomoly. Regardless of location, a higher deposit will strengthen your negotiating power with the seller.
5. Provide an appropriate time for the seller's response
Time is of the essence once you decide to take the plunge, especially regarding a newer listing in which the risk is high that other offers may soon arise. Ideally, you don't want to find yourself in a multiple offer situation, competing with other buyers - heck, this is YOUR dream home we're talking about. On the standard purchase contract, the seller is given until 5PM on the third day from receipt of the offer to respond, unless we write in a different date and time. If our offer is a relatively strong one, by all means speed up the time for the seller to respond - if we learn from the listing agent that the seller will be available to review the offer around 8PM tonight, we write the offer with a 9PM expiration. From experience, I know that some sellers will drag their feet, and not respond until close to the expiration date and time, partly out of hope that an even stronger offer will surface in the meantime. So, it behooves us to shorten the seller's response time considerably. The point is to reach acceptance before any other buyers get in the way. Period.
That said, if you write a lowball offer on a property that been ripening on the vine for weeks or months, our best strategy is the reverse, allowing the seller plenty of time (three days) to wait for other offers to surface. If the end of the three day period nears and you remain the only offer, the seller may respond with a favorable reply. In this case, patience is a virtue.
I enjoy writing offers with my buyers and negotiating on their behalf. Feel free to call me at your convenience to discuss writing an offer, or any other aspect of the home buying process.