July 17, 2022
What first time buyers should know before making an offer
Assisting a first time buyer as they complete a home purchase is a big responsibility that requires both hard knowledge and soft skills. When it comes to making an offer, even experienced homebuyers need reminders. Here are the most important things you need to make sure homebuyers knows before they make an offer.
When your customer finds a home they fall in love with, the first step is to make sure it’s worth the asking price. The real estate market is red hot, and with prices to match, you’ll need to provide concrete support for any offer that is made.
First-time home buyers may not understand the importance of looking at comparable properties (comps) in the neighborhood and area. They may have decided on a range they’re willing to spend and looked at houses based on that. This is the traditional strategy, but in some cases their dollars can go further if they look in different areas that are close to their desired location. Pulling — and explaining — neighborhood and area comps can expand their options and may allow them to buy more house.
Terms of the offer
Customers understand that the property address and a brief description are part of making an offer, but agents know there’s more to making an offer than that.
Education here is key. They need to understand:
- 1. What earnest money is and what happens to it if the sale falls through (and if it doesn’t)
- 2. How long the seller has to respond to an offer
- 3. Who is responsible for an inspection
- 4. What happens if an inspection reveals significant problems that require repair
Contingencies are the if/then function of making an offer. Some buyers feel locked in the second they decide to make an offer, but coaching them through available contingencies can help.
The most common of these include:
- 1. Backing out and retrieving earnest money if an inspection reveals serious structural issues
- 2. Basing their offer on the sale of their existing home
- 3. Basing their offer on getting financing approved
Of course you want the sale to go through, but explaining contingencies in a contract reduces stress for home buyers and builds a feeling of trust and good will between you. It shows that you are not just after a commission but want them to be comfortable with the process, too.
You are your customer’s best advocate when it comes to evaluating seller concessions. Asking for concessions in a buyer’s market is a good strategy if the seller wants a quick sale. They can also be useful if the home requires significant repair.
Seller concessions are less beneficial when homes are selling quickly, but each situation is unique. It’s up to you to help your customers make the decision that works best for them.
There’s nothing like sitting down at the closing table and staring at a number that is 3% to 6% more than the price of the house. These additional fees can feel like a gut punch, and it’s up to you to make sure your client doesn’t feel taken advantage of when the papers are signed.
Buying in a neighborhood with a homeowner’s association? Then get out the checkbook. Buyers may be responsible for a prorated amount of the HOA fees for the remainder of the year.
Annual property tax
As with HOA fees, homebuyers are responsible for prorated property taxes if they have not already been paid. And if they have been paid, a prorated amount will be refunded to the seller at the closing.
Homeowner’s insurance is required for any properties that are financed. Even if your buyer is paying cash, they should plan to purchase at least a basic insurance policy. This may be required by law depending on where you live, but it’s a small price to pay to protect a buyer’s investment.
Private mortgage insurance
Buyers who put less than 20% down are required to carry private mortgage insurance (PMI). You should help buyers decide if they would like this premium to be part of their closing costs or if they want to roll it into their monthly mortgage payment.
Estimated closing costs
Homebuyers will receive an estimate of closing costs prior to closing itself, but it’s important to explain what those might be before you make an offer. Don’t forget:
In some states, buyers are responsible for Realtor fees for both parties. Explaining this to a homebuyer helps them make better decisions about how much home — and attendant closing costs — they can afford.
Timeline for closing
First-time homebuyers often have unrealistic expectations when it comes to the speed with which they will move into their new home. In a busy housing market, closing may not occur for 60 days or more. Manage expectations by explaining this up front.
Other important info
You will have lots of conversations with your customer before they make their first offer. You can generate a simple form to help keep the conversation on track, but don’t forget these final crucial bits of information.
Obtaining a mortgage preapproval letter is one of the strongest weapons in a buyer’s offer arsenal. This allows them to skip the financing contingency and makes them a rosier prospect in the seller’s eye.
But many inexperienced buyers offer the limit of their preapproval. This doesn’t allow them any room for negotiation, and buyers may also not be considering closing costs.
Interest rates have less to do with the seller and more to do with when a buyer decides to make an offer. Lenders place a time limit on locking in a favorable interest rate. Home buyers need to know that their offer should fall well within this limit.
Preventing buyer’s remorse
With 60% of homebuyers expressing at least some level of buyer’s remorse, it is important that you help them understand their rights. While it is possible to back out of a deal before closing — at the cost of their earnest money — there is little to be done once the paperwork is signed.
The key to preventing buyer’s remorse? Make sure potential homeowners understand everything that is involved in buying their home. From the pros and cons of the home itself to navigating inspections and anticipating unexpected costs, answering all of a home buyer’s questions up front is a crucial and important part of a real estate agent’s job.
To keep reading the most up-to-date information in the real estate world follow our blog https://whiteandbluetitle.com/blog/.
Source: Luke Babich
Subscribes to Our Newsletters
Subscribe to receive updates and to hear what’s going on with our company!