In a previous article, we explored some of the scenarios where a home buyer in…
How to Make an Offer on a House in California
For a first-time home buyer in California, making an offer on a house can be a nerve-racking experience. But with research and preparation, you can make a smart offer backed by market data, while increasing the chance the seller accepts it.
Summary: Part 1 of this guide explains how to make an offer on a house, in step-by-step fashion. Part two covers some common and costly mistakes to avoid along the way.
Part 1: How to Make an Offer on a House in California
Home buyers in California can benefit from taking a practical, step-by-step approach to this process. With that in mind, here are some tips and strategies for making a smart offer on a house.
Step 1. Research the market and the property.
Before you start house hunting, spend some time researching the local real estate market where you plan to buy a home.
Sure, it’s important to research individual properties before making an offer. But you also want to research the real estate market as a whole, with an emphasis on recent sale prices.
This kind of research will help you make a smart offer based on current market conditions. It could also prevent you from offering too much for a particular home.
You can conduct much of this research online for free. For instance, you can visit real estate websites like Zillow and Realtor.com to find out what homes are selling for in your chosen area.
These market-based insights will help you understand how much house you can get for the money, and also how much to offer for a particular property.
If the list price for a specific property closely matches similar properties that have sold recently, the home is reasonably priced.
But it doesn’t always work out this way. Sometimes, a seller will list their property well above recent comparable sales in the area. The reasons for this vary and are beyond the scope of this article.
The most important thing is to realize that not all properties are priced realistically. And that’s where your market research will prove useful.
Step 2. Determine your budget.
When you make an offer on a home in California, you might end up in a back-and-forth negotiation scenario. This occurs when the homeowner rejects your initial offer, but makes a counteroffer with a different sale price or other adjustments.
In this scenario, you need to have a maximum monthly budget in mind, so you don’t exceed it in the heat of the moment. Ideally, you’ll have a budget on paper before you even start house hunting.
This doesn’t require any advanced math. All you have to do is analyze your current income, expenses and recurring debts, to determine the maximum amount you can spend on housing costs.
Step 3. Get pre-approved for a mortgage, if applicable.
If you’re planning to use a mortgage loan when buying a house, you might want to get pre-approved before you start shopping.
Pre-approval offers many benefits. For one thing, it gives you a maximum price range to work with.
When you make an offer on your first home in California, you want to ensure you can afford the monthly payments (based on your income and mortgage financing). Getting pre-approved for a mortgage can help you identify your maximum price range.
Step 4. Use your agent’s advice, but make your own decisions.
California home buyers can greatly benefit from working with an experienced real estate agent. A knowledgeable agent can help you make a smart offer based on current market conditions such as supply and demand.
Ultimately, however, you’re the one who has to make the final call.
Your agent can help you validate the seller’s asking price based on recent sales data. But you’ll have to decide how much to offer for a particular house. That’s why it helps to establish a budget and get pre-approved by a lender.
Step 5. Understand and prepare for the negotiating process.
First-time home buyers in California tend to have a lot of questions about the offer process. And that’s only natural, considering they’ve never navigated the process before.
Here’s how the process unfolds, in a typical home-buying scenario:
- The buyer submits a written purchase offer to the seller, which includes the proposed purchase price, any contingencies, and other terms and conditions.
- The seller reviews the offer and may accept it, reject it, or make a counteroffer with changes to the terms and conditions.
- The buyer and seller negotiate the terms of the sale until they reach a mutual agreement.
- The buyer provides an earnest money deposit as a sign of good faith.
- The seller and buyer sign a purchase agreement, which outlines the terms of the sale including the closing date.
- The buyer arranges for a home inspection and other necessary inspections and appraisals.
- If the inspections reveal any issues, the buyer may negotiate with the seller to have repairs made or to adjust the purchase price.
- The buyer secures financing, if necessary, and completes the mortgage application process.
- The seller and buyer close the sale, which involves signing all necessary documents and transferring ownership of the property.
Making an offer on a house can be a nerve-wracking experience, especially for first-time home buyers. But with careful preparation, research, and guidance, you can make a smart and informed offer that increases your chance for success.
Part 2: Mistakes to Avoid When Making an Offer
We just covered the best practices for making an offer on a house. Next, let’s shift gears and look at some of the common mistakes home buyers should avoid during this critical stage.
1. Making an uninformed or ‘lowball’ offer
A “lowball” offer is one that is significantly below the asking price of a home. While it may seem like a good way to get a bargain, lowball offers can also hurt a buyer’s chances of getting the house.
Sellers are often emotionally attached to their homes, so they might feel insulted by a lowball offer. This could cause the seller to reject the buyer’s offer outright or refuse to negotiate.
A lowball offer could also make the home buyer seem like they’re not serious about buying the home, or that they’re trying to take advantage of the seller.
If you’re considering making an offer that falls well below the seller’s asking price, be sure to weigh the risks and benefits.
Ultimately, you have to ask yourself two questions: How much is the home worth based on current market conditions? And how much is it worth to you, as a buyer?
2. Failing to get pre-approved for a mortgage
Getting pre-approved for a mortgage demonstrates to sellers that you are a serious buyer who can afford the property.
Pre-approval is basically a kind of financial pre-screening process. You will provide information relating to your financial situation, and the lender will give you a pre-approval letter for a specific amount.
A pre-approval letter can strengthen your offer and increase the likelihood of it being accepted. In fact, most sellers will require such a letter from any buyer using a mortgage loan. This is common practice in California.
Not getting pre-approved before making an offer is a mistake that could cause the house to slip through your fingers.
3. Not considering local housing market conditions
Real estate market conditions can vary greatly, even within the same metro area.
So before you make an offer on a house in California, you want to research current conditions in the area where you’re planning to buy.
Questions to ask include:
- Is it a seller’s market, with high demand and limited inventory?
- Or a buyer’s market, with more options and less competition?
- How much are homes selling for in the area?
- How long do they stay on the market, before being sold?
- What’s the housing market inventory situation like?
Understanding local market dynamics will help you gauge the level of competition and adjust your offer accordingly. In a competitive market, you may need to make a stronger offer to stand out. While in a slower, less competitive market, you may have more negotiating power.
A lack of market awareness, on the other hand, can hinder your ability to make a smart offer. You might end up overpaying for the home, or losing out to another buyer.
4. Neglecting to work with a real estate agent
An experienced California real estate agent can help you navigate the complex process of making an offer. They do this by:
- Providing valuable market insights and knowledge
- Suggesting an appropriate offer amount based on recent sales
- Advocating for you during negotiations with the seller
Working with a reputable agent can also increase your chances of securing a favorable deal. Without such guidance, you might end up paying more for a home than it’s worth.
5. Getting emotionally attached or overbidding
Falling in love with a house early on can cloud your judgment and lead to overbidding.
It’s better to stay objective and assess the property’s value based on comparable sales, market conditions, and your budget.
Of course, this is often easier said than done. Anyone who has purchased a home in the past knows it can be an exciting process. Even so, you have to put your emotions in the backseat, as much as possible.
When you’re emotionally attached to a particular house, you’re more likely to make an offer that’s too high. This can lead to buyer’s remorse and financial strain.
6. Missing important deadlines
Pay close attention to the timelines specified in the offer. This includes deadlines for completing inspections, securing financing, or responding to counteroffers.
Failing to meet these deadlines could jeopardize the deal and result in the seller considering other offers. It might also cost you your earnest money, in the worst-case scenario.
Maintain clear communication with your real estate agent and stay organized to ensure you meet all of the necessary deadlines.
Your agent can help you keep up with details and deadlines. But ultimately, the responsibility rests with you, as the home buyer.
7. Failing to review the contract thoroughly
A real estate purchase agreement, or contract, contains several important items that buyers should pay attention to. These include the purchase price, included or excluded items, contingencies, earnest money deposit, closing date and more.
Some buyers make the mistake of skimming over parts of the contract, thinking that it’s all just boilerplate legalese. Some of it is, but much of it requires your careful attention.
Carefully read and understand the terms and conditions outlined in the purchase agreement. Seek clarification on any ambiguous clauses or terms you’re unsure about.