Submitting an Offer
Before we get into the common costs of making an offer, take a look at this list of things you will need to have or to know before you can place an offer. Most of this information is required for filling out the contract.
You will need:
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Pre-qualification letter from your lender
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Your loan type and interest rate (Conventional, FHA, VA, Cash, etc)
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Closing Date – confirm this with lender so you know it is possible to close within the proposed amount of time.
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Due Diligence Date ~ This is the date in which you must have completed all your inspections. Your agent should be able to connect you with her preferred inspectors and secure dates within your due diligence period.
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Earnest Money Deposit check
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Due Diligence Money Deposit check
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Name of Attorney for closing
All these different elements are taken into consideration when the seller reviews your offer. In a buyer’s market, the price holds much more value than in a seller’s market, when many offers are full price or higher. When multiple offers have the same or similar prices, the sellers and their agent then look at the secondary elements of the offer to decide which one is truly the best. For example:
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Which offerer is most likely to back out? (Probably the one with the lowest Due Diligence Deposit.)
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Which lender is most likely to delay closing? (Probably a mega-bank or out of state lender or one the agent knows from experience is less reliable.)
These smaller items become increasingly important the more competitive the market is.
Common Costs to Expect When Submitting an Offer
The costs associated with your offer will vary based on the property. The following are guidelines with estimated costs, but your agent will consult with you based on the individual property. In some cases, these costs may be unnecessary or non-applicable.
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Earnest Money ~ A Deposit that communicates to the seller that you are serious about purchasing and have the financial means to do so. This deposit is refundable if you terminate the contract before the due diligence period ends. (See Due Diligence Deposit) However, if the due diligence period has passed, the earnest money deposit is forfeited to the seller as compensation for his loss. A general rule of thumb is a 1% deposit, under balanced market conditions. However, that amount can increase or decrease as market conditions change. For example, if multiple offers are apparent or expected, increasing the deposit can make your offer appear more competitive. If inventory increases and there aren’t as many buyers, a lower deposit may be sufficient.
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Due Diligence Deposit ~ This deposit is paid by the buyer for the right to inspect the property during the due diligence period. The Due Diligence Period is a specified period of time negotiated by the buyer and seller during which the property is investigated to uncover any issues that would preclude the buyer from buying. This deposit is applied to the purchase price at closing, but if you decide not to purchase the property for any reason, or for no reason at all, the Due Diligence Deposit is non-refundable and will remain with the seller as compensation for removing his home from the market and allowing you to inspect it. The average rule of thumb in our current market is .1%, but again, this depends upon conditions surrounding specific property. In the most competitive areas we are seeing very high due diligence deposits as buyers struggle to outbid one another.
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Home Inspection ~ $350-500, depending on size of the home.
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Radon gas inspection ~ $150
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Wood Destroying Insects inspection ~ $75
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HVAC Inspection ~ (recommended for systems more than 5 years old) ~ $85-$100
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Septic Inspection and Water Quality Inspection ~ Usually around $700-$900 for well, septic and water quality combined.
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Survey ~ Price is based on size of the property and topography, but a standard city lot usually runs a minimum of $400. Surveys are important because they uncover encumbrances that the sellers may not be aware of. Did the seller complete a survey before installing their privacy fence, driveway or garage addition? If you don’t discover these during your inspection period, you could be held liable and required to move these structures in the future if they do, in fact, encroach on the neighboring property. Your current neighbors might not care, but when they sell their home, the buyers may do a survey and may not want your property encroaching on theirs.
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Appraisal ~ Usually done by your lender but paid for in advance. About $400
