In The Art of War, Sun Tzu wrote,
“The general who wins the battle makes many calculations in his (or her) temple before the battle is fought. The general who loses makes but few calculations beforehand.”
Sun Tzu
When you’re considering putting an offer down, there are many calculations to make throughout the process to improve your quality of life. Buying a home is tricky, and it’s easy to get wrapped up in the excitement. You can avoid the noise and get the best living situation, for the best price, on the best terms if you conduct the following due diligence when making an offer on your next home.
1. Thoroughly Research the Area
When it comes to making an offer, check out the area before you make your decision. You can get to know a neighborhood by driving around at different times of the day. Nobody wants to find out the traffic on the surrounding streets is brutal or that there’s a noisy railroad crossing nearby.
When deciding on a home, ask yourself, how far away is your job? Are you going to be able to see the same barber, gym, or other businesses you rely on for goods and services? What about schools? You can also find out the city’s plans for the neighborhood, especially if there’s ongoing construction.
Buying a home is more than a physical property; it’s about your current and future quality of life. Ensure the home you’re making an offer on closely meets your needs.
2. Speak With the Neighbors
Much of your neighborhood research can be discovered through neighborly conversation. If you’re driving around (in a non-creepy way), try to strike up a casual conversation with another homeowner. You can ask about amenities, HOA, schools, and other pertinent information. Conversing with a local homeowner is the best way to find out if he or she enjoys where they live.
3. Put the Home Through a Gauntlet of Inspections
There will be several professionals who inspect your future home, from its structural integrity to its perceived value. You’ll do an initial walkthrough to make sure you like the home in person and not only the listing pictures.
After you’ve made an offer on a property, consider paying for a home inspection. The home inspection is a visual check of electrical, plumbing, structural, and other areas of the home. These inspections are crucial to identify potential problems that could result in significant repairs or safety concerns. Since these inspections are visual, some homeowners will require additional examinations such as termite checks.
After the inspection, your lender may require an appraisal. Many lenders require appraisals to guarantee their loans. After all, if homeowners default on their mortgage, the lender will need to recoup their investment. The appraiser will formulate an opinion of value based on your home’s condition versus comparable properties in the neighborhood.
About 24-72 hours before closing, you’ll conduct a final walkthrough with your real estate agent. This final inspection ensures everything is maintained throughout the transaction and that any requested repairs were completed.
4. Check Your Comps for Price Accuracy
Comparable properties are the driving force behind valuation in the real estate industry. Appraisers, agents, and homeowners use similar properties in their local neighborhoods as a benchmark for value.
QUESTION:
So, what happens when one or more of these comparable properties doesn’t have the correct price tag?
ANSWER:
You can spend much more on a house than intended.
Your real estate agent can pull the comparable properties in the area and use them as a gauge to formulate your offer. Sometimes the seller’s listing price isn’t near fair market value (FMV), and if there aren’t many homes in that specific neighborhood, you might not know otherwise. Checking five to seven comparable properties and underlining the home’s unique features can give you leverage when you make an offer—especially if the home has been on the market for a considerable amount of time.
5. Review Utility Bills
Getting hit with a massive utility bill once you move in is the last thing you want as a new homebuyer. Take gas, water, electricity, HOA fees, and other services into account before you make an offer.
The seller will occasionally have these documents prepared, but there’s no harm in asking. It’s vital to get 12 months of utility bills so you can compare the costs through seasons and calculate the average. Some states’ utility companies will provide this information if you’re concerned about asking the seller.
Once you know the costs, tack them onto your monthly mortgage payment and ensure it fits your budget.
6. Review the Seller Disclosures
Many states require sellers to disclose specific conditions, including housing hazards, property damage, toxic smells, and even death in the home. In certain circumstances, you’ll be able to justify asking for credits due to current or future problems that need attention. Consult with your agent if you have any questions or concerns about the home’s current condition.
Reviewing the seller disclosures and understanding the potential costs and problems is imperative before you purchase a home.
7. Be Comfortable With Your Financing
When it comes to financing your home, there are a few essential steps you’ll want to take:
1. Know your monthly budget threshold and stick to it.
2. Get a preapproval and determine how much you want to use—you don’t have to borrow more than you need!
3. Don’t engage in purchases or activities that will result in hard inquiries during the homebuying process.
4. Verify that you have direct access to your funds for your earnest deposit, down payment, and closing costs.
These steps are essential when you want to stay financially healthy throughout the homebuying process. Sellers will appreciate the transparency, and your real estate agent will be able to push the deal through faster if there are no financial snags.
8. Making the Offer
Once you’ve thoroughly vetted the home, the surrounding area, and your financial situation, it’s time to make an offer. Determining the offer amount requires a bit of tact.
Best practices include:
- Working with your real estate agent to find comparable properties
- Understanding local market trends
- Building an efficient strategy to land on the correct number
Price isn’t the only factor inside your offer; you’ll need to include relevant contingencies. If you own a home already, you could include a home sale contingency—which gives you time to find a buyer for your current property. Other popular terms amongst buyers include inspection, title, financing, and appraisal contingencies. Discuss your options with your real estate agent and include contingencies that meet your needs in the offer.
Finally, negotiate with the seller if he or she makes a counteroffer. Know what your budget thresholds are and don’t exceed them. Keep other properties in mind as potential opportunities if the seller refuses to work with you or the price isn’t right.
The Bottom Line
When it comes to buying a home, it’s best to conduct due diligence before making an offer. Inspect the neighborhood, the home itself, and determine your financial situation before rushing into a mortgage. Use your real estate agent’s wealth of knowledge to formulate the best offer possible and check comparable properties in the area to make sure you land at the right price.
