It’s one thing to have a general understanding of the overall home buying process, however it’s another to have a solid grasp of the information that’s needed for your Realtor to draft an offer to purchase on the home or condo you want to buy in Wisconsin. If you’re like many people who are serious about the home-buying process, you’ll want to think carefully about the decisions that factor into what’s needed to draft an offer to purchase. Apart from the all-important question of how much to offer (which is going to depend on the latest comps plus current market conditions), here are ten basic questions Realtors need answered in order move forward on drafting an offer on a home or condo in the Madison WI real estate market:
Who Is Buying This Home?
Full name(s) of all individuals purchasing the property. Note that if you’re obtaining financing on the home, the lender will pull the credit scores of all prospective buyers included in the offer to purchase.
How Much Earnest Money Should I Offer?
How much earnest money you would like to include in your offer. Is this in addition to the price of the home? No, it is not. Think of earnest money as a mini downpayment on your next home. This amount comes off the top of what you’ll owe at the closing. Also, in competitive situations more earnest money to than the usual 1-2% will make your offer more attractive. More earnest money means more “skin in the game” and therefore is interpreted as a more serious buyer and a more serious offer.
When do I Want to Close?
Is the home vacant? Is the seller of the home building a home that’s not completed yet? Do you have a home you need to sell before you can close on a replacement property? There are many variables involved in determining what the best closing date is. Since this can be tricky, we’ll address this in more detail in a separate blog post.
How Am I Going to Pay?
Most people do not realize that in the Wisconsin offer to purchase you are required to state what type of financing you intend to pursue with the purchase of the property. If you’re not paying cash, you will need to state what type of loan program you intend to apply for (e.g. 30 year mortgage, amortized over 30 years with 20% downpayment at, say, 4%). You will also want to consult with your lender to determine how much to “pad” the interest rate in your offer in the unlikely event that rates spike up right before you lock in your rate. The last thing you want to do is cause a seller to counter your offer on the interest rate because you set it too low and it’s being interpreted as a “back door” to getting out of the transaction. If there are other offers, you might even lose out if the seller can accept a different offer without the need to counter back. At the risk of stating the obvious, anytime a seller counters an offer they are running the risk that the buyer may walk away from the deal.
Do I Have to Sell Before I Can Buy?
Does your offer need to be contingent on the sale of another property and, if so, what is the address of that property? If you already have an accepted offer on your primary residence, should you eliminate the “bump clause” altogether and simply make your offer contingent on the closing of that property? Do you qualify for bridge financing in the event that another buyer comes along without a home to sell and tries to “bump” you? The inherent challenges of buying when you still need to sell a home will be covered in another post as this can be a tricky situation and there are a lot of different ways this can be handled depending on location, timing, credit, inventory, whether the properties in question are vacant, access to temporary housing, and each individual client’s risk profile.
To Inspect or Not to Inspect
In a competitive real estate market like the Madison market, it is not uncommon to see many buyers waive their home inspection contingency. Although we do not recommend that, it can be the right choice depending on your experience buying and selling homes, whether you have access to a recent home inspection report, or whether you’re in the trades and perhaps feel you don’t need a home inspection. If you do decide you want a home inspection, you will need to decide if you’re willing to let the seller make repairs if defects (that the seller wasn’t previously aware of) are identified during the inspection. If yes, only the defects that have not already been disclosed in the Real Estate Condition Report will be eligible for repairs. Bear in mind that cosmetic items or deferred maintenance items are not eligible in these situations, nor is something that is nearing the end of its useful life. According to the WI Offer to Purchase, a defect is defined as “a structural, mechanical or other condition that would have a significant adverse effect on the value of the property, that would significantly impair the health or safety of future occupants of the property, or that if not repaired, removed or replaced would significantly shorten or have a significant adverse effect on the expected normal life of the property. Defects do not include structural, mechanical or other conditions the nature and extent of which buyer had actual knowledge or written notice before signing this Offer.”
To Test or Not to Test
Many buyers are unaware that in Wisconsin, you have to decide upfront in your offer to purchase whether or not you intend to do any special testing. Examples include testing for radon gas, mold, asbestos, and lead-based paint. Consult with your buyer’s agent to decide what types of testing, if any, are appropriate for the house or condo you’re buying depending on the property’s condition and the market conditions you’re operating in.
Pre-Approval Letters & Proof of Funds
Do you have a copy of a pre-approval letter from a local lender or can you provide proof of funds if you intend to pay cash? (if you need a lender referral, we can assist). Proof of funds can be a letter from a banker, a checking or savings account statement, or an investment account statement. You can tweak your offer to show that you do not intend to pay cash (but could do if you wanted to). It’s simply a matter of reserving the right to obtain financing.
Choosing a Binding Acceptance Date
How much time would you like to give the seller to accept your offer? Note: if the seller wishes to counter your offer, they can do so in any timeframe they like, ie they do not have to counter back by the binding acceptance deadline in your offer. But if your offer is perfect and the seller wishes to accept, they would need to do so by the binding acceptance deadline in the offer. Other considerations include whether or not the listing brokerage is holding back offers and presenting them all on a certain date and time. This is a common tactic in a competitive market.
What Items Are Included?
Included items: What items is the seller automatically including in the sale? Do you, as a buyer, want to include other items that the seller says are negotiable or will it weaken your offer if there are other offers on the table (or other offers that are expected)? Do you want to exclude certain items that the seller intended to include, for example a hot tub? You might be unduly encumbering your offer if you exclude items the seller intended to leave with the home. Every case is different but it is worth thinking carefully about including excluded items so that you do not inadvertently weaken your offer. Lastly, if you were obtaining financing, it is generally not a good idea to include items that may effortlessly increase the value of the home. Your lender will not want to see those items included in the sale. Examples include a riding lawnmower that the seller is willing to include in the sale. Generally speaking, these items can be given or sold to the new buyers using a simple bill of sale. Another option is for the seller to leave these items at their convenience and to tag them in the offer as having no value.
Of course it should go without saying that in today’s market of serious and prolonged inventory shortages, you may find yourself in the unfortunate situation where there are multiple bids on the same property. This can more often than not be the case when you’re bidding on a hot property in a desirable area such as downtown Madison, Middleton, McFarland, or the Near West Side or when it comes to a hot property on one of Madison’s lakes. In those cases we offer our buyer clients even more options for improving their chances of obtaining an accepted offer from the seller of a hot property. These things require a lot of thought because, at the end of the day, you have to live with the choices you made and ideally you want to be happy with the outcome, no matter how it turns out! Yes, that might sound crazy, especially if you don’t land the home of your dreams but there can be a silver lining even if you don’t get the first home you go after—a better one might come along or you might decide you won’t feel good about things if you have to pay too much for it or give up too much trying to put that property under contract. Ultimately it’s your decision so it’s important to think things over carefully so you don’t have any regrets. In sum, regardless what you choose, choose to be happy!
Please register on our website to be put in contact with the broker to discuss these options or contact the broker, Jolenta E. Averill, MBA directly at (608) 628-9701 today. We look forward to serving you!