You have found the perfect property in Hawaii paradise. Now it is time to make an offer and settle into your dream abode.
Written Purchase Contract
First of all, an offer must be in writing, and in Hawaii, real estate agents usually use a Purchase Contract to make an offer. This Purchase Contract includes information about the following (and more!):
- Agents who represent the buyers and the sellers
- Initial earnest money deposit
- Offer price
- Description of the property
- Closing details
- Title issues
- Financing information
- Inspection, maintenance, and survey information
- Termite provisions
The Purchase Contract should be thoroughly reviewed when making an offer, and your real estate professional or an attorney can assist you in understanding the legal terms. But for now, here is some important information that you will need to consider before submitting a Purchase Contract for an official offer on your dream property.
How much should I offer?
The answer to this question depends on a number of factors: the number of offers, days the property has been on the market, the recent sales prices of homes in the neighborhood/building, and your budget.
Your pre-approval letter or amount of cash (for cash offers) will determine the maximum price you could potentially offer. Pre-approval letters should be submitted with the Purchase Contract, and the amount on the letter should be changed by your lender to match your offer.
What are other properties going for? Looking at comparable properties that have been sold within the past year, or “comps,” will assure your offer is reasonable. Your real estate professional can assist in giving you more information on comps.
Also, pay attention to the days the property has been on the market. If it has only been for sale for a week or two, the seller may hold off on accepting an offer that is under asking price. However, if the property has been on the market for a while, the seller may be more flexible.
Hawaii is known for its competitive housing market. So keeping this in mind, it is advised to offer your best offer first, as you may not have another chance. If the home is priced right, there will likely be multiple offers.
Tip: Another strategy to secure the property is to offer to add additional cash if the final appraisal is low. For example, you could say you will add an additional $15,000 if the appraisal is low. Even better, a large down payment will make your offer attractive, because even if the appraisal is low, the loan could still go through.
How much should the initial earnest money deposit be?
While an initial earnest money deposit is not required to make the offer or contract binding, buyers typically do include an initial earnest money deposit to make their offer more competitive and make the seller know they are serious.
The initial earnest money deposit can start around .5% of the offer price. You could put in a higher amount for your initial earnest deposit, and the seller could also counteroffer this deposit amount. A personal check can be used for this payment, and it will be placed in escrow if the seller accepts your offer.
How much for the additional money deposit?
The additional money deposit, which is due after you approve the inspection, can be around 1%.
The Offer Waiting Game…
After you submit your best offer, the next step is to wait. The seller could respond within 48 hours an astounding, “yes!” Congratulations your offer was accepted and you’re on to the next step – closing!
Or you could be waiting for a response from the seller indefinitely. The seller has no obligation to the buyer until the contract is signed, and they could be waiting for more offers to come in.
If the seller does not respond to your initial offer, says it is too low, or says they have more offers, you could offer more via a counteroffer. Often an increase of $5000 is not much when put into a loan; for example, at 4.5% interest, a $5000 increase costs approximately $0.84 per day.
The seller may also make a counteroffer. Keep in mind, they could withdraw this counteroffer at any time, as a contract is not binding until it is signed by both parties. So if the seller’s counteroffer is reasonable, it is best to respond immediately before they receive another offer from another buyer.
Offer Rejection Tactics
Sorry, your offer has been rejected. But you can still keep an ounce of hope and try these tactics. If possible and reasonable, go back with a higher offer. If the seller did not accept an offer, they can still look at all offers, and your higher offer may be the winner.
If the seller did accept an offer, you could request to have your offer be a backup offer. If the offer they accepted falls out of escrow, your backup offer would automatically be the winner. The great part about a backup offer is that if you find another property or change your mind, you can always cancel. You can also cancel for any reason during the inspection period, so there is minimal risk.