Once you find the right apartment, you may feel the hard part is over. After all, your search may very well have taken months. However, you have reached a crucial stage. The process for submitting an offer is not merely about a price you are comfortable with and one you think the seller will accept.
You should familiarize yourself with the process since this can make the difference between an accepted offer and be hitting the pavement again to restart the search process.
Table of Contents
Considerations Before Making an Offer
The offer price
If working with an exclusive buyer’s agent rest assured he/she is on your side and has a fiduciary duty to you. An expert buyer’s agent does a lot of research to extract any information that is beneficial to you, such as the seller’s motivation and how long the unit has been listed and is obligated to pass it along to you. Be mindful to consider market conditions before submitting a lowball offer.
Crafting an offer price is part art/part science. It starts with using comparable prices, with specific information more heavily weighted. A similar sized unit in the same condition on the same floor in the building is the most valuable.
While many buyers fret over the proper price, trust your buyer’s agent experience and expertise. After all, he/she know the market and have done this plenty of times.
People tend to focus on the offer price, but other components can affect the likelihood of your offer being accepted.
Your offer needs to include how much you plan on financing, as a percentage of the purchase price. Co-ops have special rules, and it is not unusual for a New York City boards to require a minimum 20% down payment. You and your agent will know this and how much the building expects you to put down before viewing.
Many NYC co-ops also have rules on how much liquidity you need to have post-closing. Boards are looking for you to have enough post-closing liquidity, typically one to three years worth of maintenance and mortgage payments post-closing. This can affect how much you can put down as a deposit. Additionally, most co-ops want the debt to income ratio of no more than 30%.
Cash offers put you in the best competitive position with greater leverage for negotiations. After all, cash is king. After that, those without a mortgage contingency (the deal depends on you obtaining a mortgage within a certain period) comes next. As your down payment goes down, so does the strength of your offer.
It is essential that you obtain pre-approval from a lender before submitting an offer. This allows you to become more comfortable with the amount you can borrow. It also gives the seller more confidence since he/she knows you have been approved for a loan, easing their mind. Your offer should include your pre-approval letter, along with evidence that you have the down payment and sufficient cash reserves.
Pre-qualification is a less formal process, with the lender determining how much of a mortgage you qualify for, without verifying it with supporting docs. This is not as strong as a pre-approval letter.
If you plan on making an all-cash offer, send in the proof that you can fund the purchase, along with the closing costs.
Mortgage and Other Contingencies
A mortgage contingency weakens your offer, as we’ve already explained. However, there are other contingencies you can place on your offer. The more onerous, the weaker your offer. Naturally, sellers dislike contingencies. In a buyer’s market, you may be able to get away with certain conditions on your offer since you there might not be any competing. Since this is a seller’s market below $3 million, you should carefully consider whether you should put in any contingencies.
Typical contingency buyers like to put in involves selling your home. Although common in other cities in New York this is not an option, remember, if there is another offer that is similar to yours that does not have such a contingency, yours will not likely not be accepted. If you are a first-time homebuyer, naturally, you won’t have to put this in and have a potential advantage over an existing homeowner.
Your offer also includes a date you would like to close. The more flexible you can be, the better your offer and likely hood of getting your offer accepted.
REBNY Submit Offer Form PDF Download
Agents when selling resales in Condos and Co-ops often require a REBNY Financial Statement or Submit Offer form, to be included with your offer package. This asks for your assets, liabilities, income, and expenses. The key is to have your financials in order since this is fairly detailed.
There is specific other information, some of it optional to include. Your legal name and address belong on offer. You will also need to add your attorney’s contact information; this will show the seller you are ready to move fast should you reach an accepted offer.
Step-By-Step Process for Making an Offer
The offer process for a home can be stressful. Indeed, no one wants to overpay, which is balanced against potentially losing out on the particular apartment. There is a wide variety of negotiating strategies, and you may deploy multiple approaches for different homes you want, depending on the market conditions and the seller’s motivation.
Below we discuss how to prepare your offer so that you have the best chance of having it accepted.
A written offer is always the best
In New York, an offer may be presented in writing or verbally, but it is recommended you utilize the former method. It is further recommended you send supporting financial statements and a mortgage pre-approval letter as discussed above. Alternatively, the seller’s agent may request you fill out his/her submit offer form.
What price to offer?
There is a multitude of approaches to take when deciding what price to offer. Your buyer’s agent can be an immense help. He or she knows the market and works for you, and beyond that, owes his fiduciary duty to you. He or she must pass any information along to you that would help tilt the price in your favor.
When making an offer, it is essential to know the market. If it is a buyer’s market, any bid is welcomed. In a seller’s market, you may be competing with other offers, some of whom may be irrational. You and your agent should decide what to do in case a bidding war breaks out.
Estimating fair market value
The selling price should be in line with like-kind comparables. Your agent should provide you with a detailed comparative market analysis. The exact apartment one floor above or below is the best comp assuming it is a similar condition and it does not have a view break if higher in the building. If such a comp is not available or too stale, a similar apartment within the building is the second-best alternative. Finally, if these do not work, a similar apartment within the same zip code can be used.
The listing price is just a price. You should compare the recent sale prices to the seller’s list price. However, if there are unique traits that add value, such as a new kitchen, these should enter into the equation. Alternatively, if the apartment needs renovations, you should obtain a quote for the work and factor that into your offer.
You can also do your homework on the Internet, which can supplement your agent’s information. Accuracy varies from various consumer sites so having a buyer’s agent to validate the numbers is recommended.
Consider the sellers pricing strategy and motivations
Don’t assume the seller has priced in a buffer for negotiation. There are different pricing strategies. Some do not wish to bargain and price it according. Others may underprice it in the hopes of creating a bidding war, which makes a comparative market analysis even more critical since it will allow you to form your best and final offer.
Based on the estimated fair market value of the property, an offer in the ballpark, with wiggle room to negotiate, typically enables both sides to meet in the middle to reach a fair deal. After your initial offer, you will likely receive a counter. Again, this is dependent on the market, putting the ball back in your court.
Certain factors can give you more confidence that you can submit a lower offer than you usually would. These are instances of a divorce, an estate sale, or if the property is vacant.
Presenting a low-ball bid is tempting. This may be the best strategy based on market conditions or the seller’s position. However, you should be prepared to lose out on the property, particularly given the current state of the market. If you don’t receive a counter-offer, it is essentially game over.
What to expect when negotiating
Negotiations can also go beyond money. In New York City, with the preponderance of co-ops, an agent will also have to present your profile to the listing agent and seller. Getting the co-op board’ approval is an essential part of the process. A lower offer may win out based on the seller’s knowledge that you will pass the board.
Terms, conditions, and inclusions
Aside from the price, your offer should include all the terms and conditions of the purchase. Closing costs in a resale are rarely negotiable, unlike the scenes you may see on television shows appearing on HGTV and other networks. However, if you are seeking to buy a new development or from a sponsor/developer, it is a good idea to ask for city and state transfer taxes to be paid, although this is dependent on market conditions.
There are many other standard items included, such as the address, and how the purchase will be financed (e.g., all cash, subject to obtaining a mortgage). In New York, unlike other states, no deposit is required when you are submitting an offer. The deposit is usually 10% and due at contract signing.
You should also include certain items that you may want. If you like the furniture, ask for these items to be part of a side deal. If it is included in the sales contract, you will have to pay sales tax.
A time limit may or may not be part of the offer, depending on the situation. Your desired closing date for completing the deal will also be part of the proposal.
Mortgage or Home inspection contingencies
You may also wish to include certain contingencies. Two standard ones are that you can obtain adequate financing and a home inspection. Unlike other US cities, in NY it is not recommended that you request for a contingency in which your home must sell first before closing. This is a certain way to have your offer not considered.
Pay cash or put more money down when possible
An all-cash buyer is in a stronger position when purchasing a condo. For most co-ops buyers most qualified to pass the board application and interview is most important, not whether cash or financing. However that is if the co-op allows mortgage financing, many iconic luxury co-op’s do not.
When financing, there is no point in making an offer if not pre-approved for a mortgage, this also gives you a stronger hand should another buyer not have theirs ready if you are competing against another offer when possible consider putting more money down to seal the deal.
Many complex factors go into making an offer; this means there is a wide variety of offer strategies. While you can be dispassionate with an investment, it is tough to do so for a home. A buyer’s agent, who unemotionally tied to the purchase, serves as a valuable conduit to do the negotiating on your behalf. An experienced buyer’s agent that has seen the different types of markets and done dozens of deals can assess the situation and guide you going forward for you put forth a reasonable offer and winning bid.