06 Aug Making an Offer on a Home
Making an offer on a home is not as simple as it seems. Thankfully this video from Henry breaks down everything you need to do and think about when you decide to make an offer. Enjoy this valuable real estate advice.
“Hi, I’m Henry Wong from Remax. You’ve actually looked at a few properties, you found the one that you really, really love. This is the property you’re looking at making an offer. We’re here to go through all the different aspects of the offer.
The first part, obviously is the price. Number two, the deposit. Number three, if you’re paying cash or it’s not subject to finance … obviously there is no finance course, but if you’re borrowing from the bank, more than likely you will have a finance course.
Number four, more than likely as well, you’ll be getting a building and pest inspection done. You’ve got the building and pest, B&P, building and pest.
Number five, this depends on the contract. Most likely people wouldn’t have this, but there are times where you would have special conditions. I’ll go through that with you in more details later. Number six is the settlement. The settlement, that’s just the settlement like when do you want to take possession of the property?
The first part of the offer is the price. This is the first and foremost, most important part of the offer, especially form a seller’s point of view. The good thing is when you’ve actually made an offer on the price, is you should have a chat with the agent, or if the seller’s selling directly to you, have a chat with them and give them an idea on how did you arrive at the price. How did you arrive at the price?
This could be a combination of what’s sold in the past, what’s currently up for sale right now in the present, and as a result you’re offering whatever price you’re offering. Another thing is, what I want to tell you is you want to get to the point where you can walk away and you said, “You know what? I don’t want to pay more than X amount of dollars,” your walkaway price. Because the last thing you want to do is make an offer and then you said, “You know what? I’ll dig my heels in.”
If the owner wants $1 million for example, and you make an offer for $950,000, and you know what? “No, no, no. I want to get it for $950.” Then another buyer buys it for $980 and you know what? “I could’ve paid $990.” You don’t want to arrive there, so you need to let the agent know what your walkaway price is. If you can get it cheaper then great, but the key is you don’t want to lose a property because you paid too little knowing that you could actually pay more for the property.
At the end of the day, when you’re buying a property, you have to be happy with what you buy, but also you as a buyer need to be happy with what you pay for. As long as you have no regrets it’s all good.
The second part of the offer is the deposit. The deposit is pretty much a gesture of goodwill. Sure, you can actually buy a house without a deposit, but say you want to buy a house that’s $1 million. You know what? “Mr. And Mrs. Seller or Mr. And Mrs. Agent, I don’t have any deposit.” Very likely your offer will not get accepted. It just shows that, “Hey, I don’t have any money.”
Deposit is a sign of goodwill. Generally speaking, the more deposit you have, the more confidence a seller has that you really want to buy that property and that you can, I guess inverted commas, “afford” the property. I guess from our point of view is try to have around about 5 to 10% deposit on the contract. 5 to 10%. If you stay around 5% that’s okay.
You can go, “You know what? If the owner accepts my offer I can put a 5% deposit straight away after signing of the contract.” Or you can split the deposit into two parts. You can split it into, “You know what? I’ll pay $1,000 on signing and I’ll pay let’s say, the remainder of the 5% on unconditional.”
Say for example, you’re buying a house that’s $500,000. 5% of it is $25,000. You can go, “I’ll pay $1,000 on signing or on acceptance of the contract by the seller, and I’ll pay $24,000 on unconditional where my finance has been approved, my building and pest is okay.”
We’re onto the third part of the contract. If your offer is cash you don’t need to worry about this. If you need to borrow from the bank or if you have a finance clause, this is where we come into play.
The finance is generally you can have 7 days, 14 days, 21, but most people fall under the 14 to 21 days. Some people may fall under 30 days. The longer your finance clause is from a seller’s point of view, the less attractive the offer will be. Generally it’s around about 14 to 21 days for your finance to get approval.
With the finance, what happens is two things. When you’re actually borrowing from a financial institution, number one, what the banks do is to send a valuer out and they do a valuation on the property. If you paid too much for the property and the banks value it too low, they won’t lend you any money, the finance falls through, you generally will get your deposit refunded back to you.
Number two is the banks look at your ability to pay your loan. They obviously look at your pay slips, how much cash you have in the bank. They also look at your employment history. More than often, sometimes the bank might even call your employer to make sure you’re actually employed.
They will also look at any other debts that you have. The key is just be as honest as possible to your bank, because they would actually have to do a credit search or credit check. What the credit check reveals is any financial institution that you owe money to. You actually can’t hide that, to be honest.
There you have it. 7, 12, 21, 30 days. Generally it’s 14 to 21 days. The shorter your finance period, the more appealing to the seller. The bank will send a valuer out. They may or may not go to the property to get a valuation of the property, to make sure you pay at the market price. They’ll also assess your ability to repay the loan.
Say for example, if your contract is 21 days from contract day, at the end of the 21 days and your bank goes, “Look, sorry. We need to get some more information from you, or we need some more time to process this loan application,” you can extend the finance clause. You say, “Look, I need an extra 7 days.” If that’s the case, inform your solicitor to inform the seller’s solicitor that, “Hey, I need an extra 7 days.”
Talk to the agent, or if the seller’s selling it themselves, talk to the seller directly, that, “Hey I need extra more time,” and give them a valid reason as to why you need more time. From that point on, the seller could either hopefully grant you the extension if you need more time, or they can go, “You know what? That’s not going to work, they can terminate.”
The fourth part of the offer is your building and pest. You should get a building and pest done if you’re making an offer. Without a building and pest, I guess that’s entirely up to you, but generally you should get it done. The only time you probably won’t get it done is if you’re buying a piece of land. Obviously, there’s no building there so why would you spend money on building and pest?
There’s a building there, a good idea to get a building and pest done. At the building and pest, regarding the getting a building and pest inspector, when they come on site I generally recommend that you’re actually there on site with them, either yourself or your spouse is there because you’ll get a very, very thick report.
The report could be 20, sometimes I’ve seen ones up to 60 pages long. It doesn’t mean there’s something majorly wrong with the house, they’re just very, very detailed. They will comment on every nook and cranny. If the pant work, there’s a bit of scratches here, if the doorknob doesn’t work, they will outline everything pretty much.
They generally don’t comment on plumbing or electrical stuff. That’s completely separate. With the building and pest you want to be on site, either yourself, or a family member, or someone that you trust to be there on site with the building and pest, so they can explain to you anything that’s of concern.
Also another thing is when you get the report back, always compare things in context. For example, if you’re buying a 30 year-old home, you want to compare the condition of this property that you’ve bought with other 30 year-old homes. You cannot expect this to be in the same condition as a brand new house, because you won’t be, so you’ve got to be a bit reasonable.
Generally what I say when buyers buy, as long as you’re happy with the house, obviously taken to a context that this is comparable to other houses of this age and this nature, as long as they’re structurally sound and you’re not living with live termites inside the house, then it’s okay. Any other issues that are brought up, obviously you can just bring that up in the building and pest.
The building and pest, the conditions is generally between 7 and 14 days from the contract day. After you get the building and pest report, obviously you notify your solicitor to correspond with the seller’s solicitor saying that, “Yes, are you happy?” Or, “No, I’m not happy.”
If you’re not happy you have three options. You can say, “I’m not happy with the building and pest report. In order for me to be happy with the report, I want the owners to fix … “, whatever issues you want fixed.” Or I can say, “Instead of the owners fixing this, I’m happy with a price reduction.”
Or if it’s really, really bad, like it’s structurally unsound, the roof is going to fall, really, really bad, you can say, “You know what? I’m dissatisfied. I want to cancel the contract.” You have every right to do so because you have the building and pest condition.
When we look at fixing it you can say, “I’ve listed all these other items. I would like the owner to fix it.” You go back to the negotiating table and the owners can say, “You know what? I agree. I will fix all these little items.” Or they can say, “Mr. And Mrs. Buyer, I’m happy to fix this but I won’t fix that,” so I guess it’s what you agree to.
Another thing is with the price reduction, I guess you have to be a bit reasonable. If you get quotes, that would be great. You can say to the owner, “I’m happy with this building and pest provided you’ll reduce the price by X amount of dollars.” The owner can say, “Yes, okay,” or they can say, “No,” and countersign. As long as you both have agreement it would just carry on. There you have it with the building and pest.
The fifth part of the offer, most likely people don’t have this. It’s called special conditions. Special conditions is anything apart from the building and pest, and apart from the finance. With regards to special conditions, this could be anything like, “You know, I want to buy this house or this unit, however I need to sell my house first in order to buy.” It’s called subject to sell.
Or it could be, “Yes, I want to buy this property, however I noticed that the owner didn’t get a pool safety certificate,” so subject to the owner getting a pool safety certificate done. Special conditions could be anything. Anything that’s not finance-related or building and pest-related. It could even be due diligence. It could be subject to me doing due diligence to check with a counsel about this approval, that approval. It could even be that. We have those special conditions.
The last part of the offer is you have settlement. Settlement is when you’d like to take possession of the property. This could be a fixed date or it could be 30, 60, 90 days, depending on what a seller wants. Obviously, most sellers want a shorter settlement. 30 days would suffice. Some would be, “I need 60 days.”
In Queensland, every buyer is entitled to a statutory five business days cooling off period. This is something that you can actually waive or you can actually keep. It is within your rights as a buyer. If you choose to waive these cooling off periods, I guess that gives the seller more confidence to say, “Hey, I want to buy.”
If you choose to keep it that is fine. The thing is if you choose to keep the cooling off period and you want to use this as a reason to terminate the contract within five business days, you have to pay 0.25% of the contract price. To give you an idea of what that is, if you sign a contract at $1 million, .25% equates to $2,500. If you decide to get out of the contract and you use this as a reason, the cooling off period to say, “I’ve changed my mind, I’ve decided not to buy,” you have to pay the seller 2 1/2 thousand dollars.
If you had conditions like finance or building and pest, “Well, I can’t get finance,” then you say, “You know what?” You’re not getting out because of the cooling off period, you’re getting out because of the finance condition, generally you should get your deposit refunded back. There is no penalty for this. This penalty only occurs if you exercise your right to get out using the cooling off period, and that’s .25%. That is also within 5 business days of the contract date. That’s in Queensland.”