What do I need in place to make an offer?

[Tanner Federspill]

I've spent countless hours listening to the BP podcast, reading books, and following these forums. I've put time into understanding the market and making connections through networking and my work in the title industry. I have realtors sending me the specific types of deals I'm looking for and practicing analyzing them. 

It hasn't happened yet, but when I run the numbers and feel I've found a good deal, what does it take to make an actual offer? Do I need the financing set with a lender already or can I make an offer and figure things out afterwards if it gets accepted? Also, how far into a deal can I get until I can no longer back out?

[Brendon Woirhaye]

Get pre-approved.  This is stronger than a "pre-qualification".  Talk to a lender and figure out what they will lend, but also what your target is, and get them to issue a pre-approval letter.  "Tanner Federspill is pre-approved to borrow up to $400k on a $500k purchase for a fixed interest rate loan at xx%.." or something like that.  In the past, I sometimes had my lender give me 3 or 4 pre-approval letters for different scenarios when I was shopping, or write me up a specific one when I had identified a property.

A seller will want to take an offer that they think is more likely to close, because if it falls out of escrow, they have lost time and need to re-market it.  If you were selling, would you be more likely to go with the offer that is "all cash" or the one which is "I will buy your place, but I need to sell this other property and scrounge the city for aluminum cans first...".  The pre-approval letter isn't as strong as "all cash", of course, but it puts you in a better position than the person who is planning to "figure things out afterwards".  

Of course, you do "figure things out" once you get the final offer accepted, things may be a little different than what your specific letter days.

As a first time buyer, you would need/want:

- your pre-approval letter

- a cash deposit of earnest money (or check, or photocopy of a check)

- a buyer's agent representing you who will go over this list in detail

- an inspector who will do a physical inspection for you and represents YOUR interests, not your realtor's interests or the seller's interests (ie: find one via referral)

Once you write up your offer and it gets accepted, your clock starts counting down.  Go over this with a realtor before you write the offer and they can explain all the "escape hatches" in the contract - things like a loan contingency (turns out the bank won't loan you the money - that's a way out) or the physical inspection (the inspector will always find something wrong - you can use that as a reason to back out).  Once the time limits for those contingencies run out, you will probably be on the hook for your down payment.

Some investors will make an offer to try to "lock up" the property for a few days while they do their analysis, and then back out.  I think this is dirty pool - make an offer when you have a property you legitimately want.  

I know its scary on your first one!