Making a smart offer on a house

March 29, 2009 8:10 AM

How do we make the most strategically sound offer on a house, and how to best estimate the monthly costs (mortgage+taxes+insurance+PMI)?

Part 1:
I found out that a great house was being put on the market two days ago. Called the listing agent, who had just put the sign in the yard. $154.9K for 3/1, 1500sq ft + lots of extras. We saw the house yesterday, loved it, and decided to put an offer on it today; however, the listing agent left a message with our realtor that someone else had looked at the house yesterday as well, and was also putting an offer on it today. We are prepared to offer the full price, but if the other offer is super low, and the sellers would accept an offer of $150K from us, then it seems like we're just giving away $5K out of fear that the other offer is really high (which might be the case, since I'm assume the listing agent told them about us as well). However, if we offer $150K and the other prospective buyer offers $151K (or the full price), we'd lose out. Our offer goes in at 5:30pm; theirs goes in at 7:30pm. The house really is worth $150K easily (it sold for $150K in 1/05, and they've added nice, new appliances and all-new windows since then). $155K is definitely a fair price, though $5-$15K more than we'd planned on spending.

What should we do in order to maximize our chances of getting this house? (Note -- time isn't on our side: wife is pregnant with twins and may go on bed-rest in May, so we really need to find a place, but our backup plans are all short-sales, which take forever.)

Part 2;
What's the most accurate way to estimate our monthly house-payment (mortgage+taxes+insurance+PMI) on a mortgage of $144K in Jacksonville, FL (32205)? How accurate is the zillow mortgage calculator? I can't tell if it's taking the $50K homestead deduction into consideration nor how high/low it's insurance estimate is.

Thanks.

posted by whatgorilla to Home & Garden (13 answers total)

Part 2 your realtor should do for you. Ask for it for several mortgage amounts, maybe in $5,000 increments.
posted by palliser at 8:45 AM on March 29, 2009

Best answer: This is what an escalator clause is for. An escalator clause basically says from your perspective "I offer $X, but I'll beat any other offer by $Y, up to a maximum of $Z." So your X would probably be $150k, your Z would be $155k, and your Y probably around $500-$1000.

That's how we got our house -- they asked $X, we offered $X+4000 with an escalator clause in $1000 increments up to $X+9000. The next highest bidder had a similar clause, but only up to $X+8000, so we got the house at $X+9000.
posted by Doofus Magoo at 9:06 AM on March 29, 2009 [1 favorite]

Response by poster: So we can somehow find out what they bid to make sure that we're just paying $2K over it (if it's over our $150K)?

Also, if we say Z, $150K+$4,900, and they offer full-price ($154,9K), did we offer full price before them if our escalator clause-bid was put in first?
posted by whatgorilla at 9:23 AM on March 29, 2009

Response by poster: Or did they officially offer full-price before us because our offer was contingent on theirs, and theirs was full-price FIRST?
posted by whatgorilla at 9:36 AM on March 29, 2009

However, if we offer $150K and the other prospective buyer offers $151K (or the full price), we'd lose out.

Dunno what the housing market is like where you live, but here in the SF bay area if a seller was presented with two similar offers very close to one another in price, he or she would come back to the buyers to squeeze a little more money out of them allow them to differentiate their offers. That's what we did a couple of years ago when we sold our house and had two substantially similar offers within $2K of one another -- we went back to them and said, hey, we've got another offer that's just like yours, what can you do? (We ended up getting another $10K for the house, which made it seem like a worthwhile exercise.) So it's possible that regardless of the timing or what your escalator clause is, if your bid is very very close to another buyer's, and the sellers have not accepted another offer, they will come back to you to conduct an informal auction.
posted by harkin banks at 9:58 AM on March 29, 2009

When I have sold various pieces of real property, I did not just look at the price offered. I also looked at who I thought was most able to actually close on the property. For me and most house sellers, you want to get the house actually sold, not just under contract.

For example, on my first house sale, I went with the second highest offer because they were putting a HUGE amount down. I figured that they were most likely to be able to actually secure a mortgage and I had concerns in that regard on the highest bidder.

So in addition to the price offered, I look at the amount the potential buyers are putting down (this is especially important in this mortgage market), whether they are pre-qualified (not dispositive but it doesn't hurt), and any other non-contract information I could get my hands on, like whether the buyer(s) is employed and how.

I also think sellers like to see a high escrow/earnest money figure. When I buy properties, I put a larger than usual # there -- I think this gives the honest impression that I am serious about going through with the purchase. I ONLY do this, however, because in Texas, you have a "free look" period (usually 7-10 days) to back out of the deal and get the earnest $ back if the inspections do not go well. If they do, I am going to buy the property and the earnest $ is applied to the purchase of the house. Ask a lawyer or realtor if this is the case where you are. If it is, you MUST terminate the contract in writing before the end of the "free look" period to get the earnest $ back. No big deal, but please know what you are agreeing to if you go this route.

Also as a seller, I like to see a very short closing period. If someone wants to close the deal in a month, and another wants 2 months, I will go with the one month (or shorter) if all else is equivalent.

If you can put 20% down, that will avoid PMI and give an appearance to the seller that you will be more likely to get a mortgage. But DO NOT LIE on your contract by saying you are putting 20% down if you cannot or have no intention to do so. I had a buyer do that and it got them in a bind when they were really putting nothing down (long story).

I would also tell your realtor to convey information that will give the impression that you are likely to close on the deal (you have a good and stable job, for example). In your case, you may also want to mention the upcoming baby. Some sellers (not me) are more emotional in their decisions and like to think that their family home will be going to a nice young couple that will be starting a family there.

Just some thoughts. Good luck!
posted by murrey at 10:05 AM on March 29, 2009 [1 favorite]

One more thing, FWIW. I would never put an escalation clause in my contract. In my opinion, it shows your hand too much as to what you are actually willing to pay. If I was the seller and saw an escalation clause, I would just keep playing both parties against each other. And I would never accept the lowest # offered since I know the buyer is willing to and can pay more.

This does not mean that you should not convey that your offer is negotiable (assuming you are smartly not offering your highest offer from the get go). The seller should not be told, however, how negotiable it is. Again, just my opinion.

You mention that you are already pushing the boundaries of what you want to spend here, so I don't think that an escalation clause in your best interests. I got great advice from a real estate attorney friend that I have always kept in mind and I have NEVER regretted following this advice....which is "Do not get emotionally invested in real estate". This is a huge investment decision and if you get your heart set on a certain house, you are going to be more likely to overpay (either for what the house is worth or for what you can afford to pay).

I have always ben willing to (and have) walked away from a real estate deal and I have never paid the price for doing so.
posted by murrey at 10:28 AM on March 29, 2009 [1 favorite]

Response by poster: Yeah, we're not emotionally attached to the property and I think the market is on our side; however, time has now become an issue with a rapidly expanding wife who may be put on bed-rest due to the twins. We can convert the garage to an apt and already have someone willing to move in--which will mean at least $300 net for us (equal to about $60K more down on the house, if every $1K is $5/month).

I agree it shows our hand--but since we're okay with paying full price, I don't think we mind. If I was happy with the huge pot on the turn, why not show my four kings hoping that the guy with three aces will drop out before he might get an ace on the river?
posted by whatgorilla at 10:52 AM on March 29, 2009

Ok, I lied. Here is something else to consider. Don't be afraid to negotiate with YOUR realtor (do not do this with the seller's realtor). Presumably, you have a contract with your realtor to pay him/her 3 % of the purchase price. I have never used a realtor as a buyer, but he or she may be willing to come down on the percentage to get the deal done. As always, get this deal in writing if your realtor agrees to it.
posted by murrey at 10:56 AM on March 29, 2009

Don't sign a mortgage counting on someone to rent out the garage. That is a disaster waiting to happen, especially with babies on the way. Be sure you can easily pay the note if there is no renter. Then the rent can all go in to the diaper fund. Best of luck!!
posted by pearlybob at 10:58 AM on March 29, 2009

I completely understand the growing wife time urgency thing, whatgorilla. I am about to start a massive resident-displacing remodel on my home and am hoping to get it done before my 9/2/09 due date. It's not looking good but I have somehow gotten my arms around that too.

Best of luck!! On the house and the twins.
posted by murrey at 11:02 AM on March 29, 2009

I would also avoid the escalator clause, because (I'll whisper it) there's no guarantee that that other bidder actually exists. When I bought my own house several years back, what happened was this:

ME: Bids 6K below original asking price.
SELLER'S AGENT, via MY AGENT: Oh, look! We've got another bid that's higher than yours.
ME: Oh rly? Bye!
SELLER'S AGENT (WITHIN ABOUT THREE HOURS), via MY AGENT: Oh, look! That other bid just evaporated! Isn't that amazing?
ME: Uh-huh. (Purchases house for original bid.)
posted by thomas j wise at 11:40 AM on March 29, 2009

So! What happened?
posted by palliser at 8:38 AM on March 30, 2009