Infographic - things you'll do when writing an offer (summary of steps listed in the article)Writing an offer on a home for sale takes time in Silicon Valley because here we front load a lot of the work, while in other areas, more is done in escrow or once the buyer is in contract.

Buyers and sellers do more in advance here

For instance, here it’s normal for buyers to have a pre-approval from a lender (not just a pre-qualification). In some areas of California, or other parts of the U.S., home buyers only apply for the loan after they are in contract.

On the seller’s side, it’s normal for the property owners to order and pay for inspections up front in the South Bay. These often include a home inspection, a roof inspection, and a termite or pest inspection (but there can be others).

Additionally, sellers provide completed disclosures upfront, including HOA documents, if that applies.

Since there are hundreds of pages in the disclosure packet provided, the sellers expect the buyers to read, accept, and sign off on them when submitting a purchase contract. In other, more rural parts of California, the seller might have nothing ready to review first, and the buyer would be expected to pay for all inspections after they are in contract. Things move much more slowly in those areas as compared to here.

In this article, I’ll go over what’s involved in writing an offer in the San Jose area and how much time buyers should allow. It is more complicated than it may appear, precisely because of the front loading I touched on above.

What is involved with writing an offer?

Deciding to submit an offer involves many elements, each of which require some time (not always done in this order):

  1. Learning about the property condition and anything that materially influences value or desirability (from reviewing the disclosure package, your buyer agent’s visual inspection disclosure & comments, and your own research on natural or environmental hazards, public school scores, crime, or anything else that matters to you).
  2. Determining the cost of needed repairs – the home inspection won’t provide pricing, but the roof, termite, pool, foundation, and other inspections will give approximate costs for recommended repairs. You may also want to factor in cosmetic improvements, however, please remember that most houses are not fully remodeled, nor fully original, but somewhere in between.
  3. Attempting to evaluate where the property is likely to sell or the probable buyer’s value (market analysis, comps provided by your agent and perhaps also your own research, factoring in Silicon Valley real estate market data, information on whether or not it will be a multiple offer situation and how many bids are anticipated). Don’t only look at closed sales, as they are at least 30 days old in most cases – the market is dynamic. Look for trends. Are prices going up or down?
  4. Deciding if the cost of the home, the competition (if any), seller’s expectations, the needed repairs, and what you think it will take to get your offer accepted will all work with your budget. You’ll want to make sure that you can be at peace with the results, whether your offer is accepted without a counter or if you lose it by $5,000. You neither want buyer’s remorse nor to be upset with yourself for not pushing yourself a little more.
  5. If you haven’t done so already, you’ll need to go through the purchase agreement or contract with your Realtor to understand the terms and to make choices. For my clients, I like to allow 2 hours to review it, though many can do it in 1 hour if they’ve read it ahead of time (or if they are not first time home buyers and have purchased another home somewhat recently.

In terms of #1, just reading the disclosure package can or should take hours. At minimum,  a normal disclosure package is over 100 pages, and if there is a homeowner’s association or HOA, the documents for that will likely double or possibly triple the size of the package. You don’t want to rush this since information contained in the disclosures can impact what you’d want to pay for the home as well as any risks you’d want to be aware of or any big pluses that aren’t evident to the eye from just walking through the home.

In some cases, the costs for repairs or needed upgrades are not hard to figure out since some of the reports will provide pricing info. Home inspectors in California are not allowed to bid the repairs or do them, and there is no license for them in this state as CA wanted a separation between identifying needed repairs and being able to charge to perform them. The other inspectors are usually licensed, though, and therefore can and do provide the costs. If the home inspection calls out electrical or plumbing issues, for instance (very typical), you may need to do some research to pinpoint the likely cost.

Calculating repairs and needed improvements

You don’t want to rush this! I find that in many cases, homes need about 1% or 1.5% of their value in repairs. A house selling for $1,250,000 might need $12,500 or more in fixes. It could end up looking like this:

  • $4,000 in Section 1 pest work (could be zero or could be more than 10k – each property is different)
  • $1,000 in roof “tune up” repairs / preventive work
  • Miscellaneous plumbing: $1500
  • Misc electrical: $1,000
  • $5,000 Upgrade old electric panel & sub panel, plus permits (seller thinks it’s fine, but home inspector says it’s potentially not safe)

Other possible expenses are related to drainage, insulation, a water heater or furnace near the end of its usable life, dual pane windows that need to be replaced, rodent proofing a home, chimney repairs, fence repair or replacement, and many other possibilities. The more work is needed, the more time you may need in chasing down the costs, and this will slow down your writing an offer. If the house is totally original and 50 years old, it may need much more than this rough estimate. And this does not include cosmetic items like “remodel the bathroom” because you don’t like the early 60s mint green look.

Where will it probably sell?

Your buyer’s agent should help you to estimate market value and the level of interest that a property may receive (competing bids), but you may check Redfin to see if it is labeled a “hot home” or Zillow to see how many views it’s getting. Or you may go back to the open house to see how busy it is – or isn’t. If there are a lot of offers, it is unlikely to sell at or close to list price in the current market. The current market conditions should play a significant role in your considerations as you draft your purchase agreement.

How much time does writing an offer take?

The first time you write an offer, I would suggest allowing at least 24 hours, but 2 – 3 days would be far less pressured for everyone, particularly if it’s a multiple offer situation. While it is physically possible to do just the contract, that’s not a winning strategy, and I do not recommend it. Better to meet the listing agent and seller’s requirements by turning in a complete package with the disclosure package reviewed and signed off, the proof of funds, etc.

If you don’t get a sale on the first attempt, the 2nd or subsequent offers will be faster to write. The main place where it’ll be shorter is in the actual contract. Many buyers say “same terms as the last offer, but on this one the price will be xyz”.