Fannie Mae Foundation: How to Buy a Home

Expected outcomes of
Lesson 3

1. To be able to judge key factors to consider before making an offer on a house.

2. To know the purpose of a purchase and sales agreement and how it is used.

3. To read and use a limitedguarantee.

Vocabulary
market value, purchase and sales agreement, terms, earnest money,
contingencies, guarantee

Deciding how much to offer
1. Ask students to brainstorm a list of factors that should be considered before making an offer on a house.

2. Explain to students that a buyer typically offers less than the asking price for a house. The seller may then make a “counter-offer.” This negotiation process may go back and forth several times before a final agreement is reached.

3. Go over each factor described on page 52 carefully and answer any
questions students may have.

4. You may want to mention the fact that most lenders will order a “property appraisal” to determine the market value of a house. If possible, bring in a sample property appraisal to show
students.

Making the offer
1. If possible, bring in a sample purchase and sales agreement. Students may be surprised at the length and the “legalese.” This is the point at which some people hire an attorney to represent them. The attorney may be invaluable to make sure costly mistakes are not made, but may not be necessary for some simple sales.

2. Ask students to talk with friends or family members who have bought homes. How much did they put down as earnest money when they made an offer on theirhome?

Comprehension check
Have students answer the questions individually. Discuss the answers with the class.

Going further
This lesson would be a good point at which to bring in a buyer’s agent.
Ask him or her to discuss how a buyer can be assisted in making the best offer on a house and the ways the negotiation for the price of a house can proceed.

Unit 2: Finding your dream home

Lesson 3: Deciding how much to offer

signing an offer

There are a number of factors you should consider before making an offer on a home:

Is the asking price about the same as the recent sales prices of similar homes in the neighborhood?

Records are kept on the sales of homes in every neighborhood. Using these records, a real estate agent can compare the asking price of the house you want with the sales price of similar homes in your area. This will give you an idea of what is called the market value of the home. It will help you decide if the asking price of the house is a fair one.

Is the house in good condition?

As you learned in Lesson 2, it is important to know about the overall condition of the house and calculate into your offer the cost of any major repairs that may be needed.

Are there any special factors to consider?

It may be that the owners need to sell the house quickly (perhaps because they have a contract on another house). Or the house may have been on the market for a long time. It’s a good idea to find out this information as well as what the seller paid for the house and when. This information may help you decide whether or not to make a lower offer.

How much can you afford?

Before you make an offer, you need to know if you can afford the house. If you have pre-qualified for a mortgage, you should have a good idea of the current interest rate for the mortgage loan you are considering and how large a monthly payment you can make. Don’t be tempted to offer more than you are sure you can afford.

Making the offer

You make an offer by signing and giving the real estate sales professional a purchase and sales agreement stating that you plan to purchase the house for a certain price under certain conditions called terms. The real estate agent gives the offer to the seller.

At that time, you usually give the real estate agent a check. There is no set amount for the check, but it should be enough to show you are serious about buying the house. In real estate terms, this is called earnest money. This check is not made out to the seller. It is usually made out to a financial organization or a real estate company. The money will be returned to you if the seller does not accept your offer within a specific number of days. If the seller accepts your offer and you back out, you could lose this money.

The purchase and sales agreement should include a complete legal description of the property, the amount of earnest money you are giving with the offer, the price you are offering, the size of the down payment, and how you will finance the rest of the purchase price. You should also write down any items of personal property (such as a washer and dryer) the owner has said will stay with the house, the date you would like to close the sale and move into the house, and the length of time the offer stands (usually three to five days). It may also include certain conditions that must be met called contingencies. (See the Looking further sections in this unit to learn more about contingencies.)

Comprehension check

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