Making an offer on real property is a formal process. Once buyers make an offer, they may have an obligation to follow through with the transaction should the seller accept their offer.
Choosing how much to offer for each property is important for buyer protection. What unique considerations may influence the right amount to offer for a property?
1. Financing and cash reserves
Buyers sometimes make the mistake of offering the maximum amount of financing for which they have received pre-approval. They might bid $320,000 on a home after receiving a pre-approval letter for that amount. What they have failed to consider the closing costs they have to absorb. Buyers typically pay between 2% and 6% of the total purchase price in closing costs. If they don’t have wiggle room in their mortgage, then they must provide that money in cash.
2. Balancing competitiveness with affordability
When the market is hot, buyers often offer the maximum amount they can reasonably justify to stand out from the crowd. On the other hand, people may undercut the listing price when the market is soft and there is a glut of available inventory. Buyers need to ensure that their offer stands out if there are likely to be multiple offers, but they also need to consider what they can truly afford on a month-to-month basis. The costs of repairs and upgrades are also key considerations.
3. Appraisal issues
A high bid can lead to a sizable appraisal gap. If the buyer can’t cover the gap between the amount they offered and the appraised value in cash, they may not be able to complete the transaction.
A real estate attorney can help buyers protect themselves when choosing the amount to offer and integrating contingencies into their offers. That approach can be significantly helpful, given all that is at stake.