What to Include When Making an Offer
Besides addressing legal requirements, making an offer should specify price and all other terms and conditions of the purchase. After the offer is drawn up and signed, it will usually be presented to the seller by your real estate agent, by the seller’s agent, or often by the two together.
Your purchase offer, if accepted as it stands, will become a binding sales contract—also known as a purchase agreement, an earnest money agreement or a deposit receipt. It’s important, therefore, the offer contain every element needed to serve as a blueprint for the final sale. These purchase offers should include the following:
•A legal description of the property
•Seller’s promise to provide clear title (ownership)
•Expected date for closing (the actual sale)
•Amount of earned money deposit accompanying the offer; it could be a check, cash or a promissory note. It should also describe how the earnest money will be returned to you if the offer is rejected (or kept as damages if you back out of the deal for no good reason)
•Method by which taxes, fuel, water bills and utilities are to be prorated between the buyer and seller
•Terms about who will pay for title insurance, survey, termite inspections and the like
•The type of deed to be granted
•Other requirements such as disclosure of specific environmental hazards or other clauses
•A provision the buyer may make a last-minute walk-through inspection of the property just before the closing
•A time limit after which the offer will expire
If your proposal has “contingencies,” you are saying you will go through with the purchase only if that event occurs. The following are two common contingencies contained in a purchase offer:
• Financing:You, the buyer, must be able to get specific financing from a lending institution. If you can’t secure the loan, you will not be bound by the contract.
• Home inspection: The property must get a satisfactory report by a home inspector within a certain timeframe, for example. If it is not completed by that timeframe, the contract is voided. Be sure all inspection conditions are included in the written contract.
Negotiating the price
You’re in a strong bargaining position if the following conditions apply to your situation:
•You are an all cash buyer
•You have been pre-approved for a mortgage
•You don’t have a house that must be sold before you can afford to buy.
In those circumstances, you may be able to negotiate discounts from the listed price. It’s very helpful to find out why the house is being sold and whether the seller is under pressure. Keep these considerations in mind:
•Every month a vacant house remains unsold represents considerable expense for the seller.
•If the sellers are divorcing, they may just want out quickly.
•Estate sales often yield a bargain in return for a prompt deal.
Earnest money is a deposit you put down with your offer on a house. A seller is understandably suspicious of a written offer not accompanied by a cash deposit to show good faith. A realtor or an attorney usually holds the deposit. The amount becomes part of your down payment.
Buyers: The seller’s response to your offer
You will have a binding contract if the seller, upon receiving your written offer, signs an acceptance just as it stands, unconditionally. The offer becomes a firm contract as soon as you are notified of acceptance. If the offer is rejected, that’s that. The seller cannot change their mind later and hold you to the deal. You may receive a written counteroffer with the seller’s preferred changes. You can accept or reject it or to even make your own counteroffer. Each time either party makes any change in the terms, the other side is free to accept or reject the offer or counter again.
Buyers: Withdrawing an offer
In most cases the answer you can retract an offer right up until the moment it is accepted. If you want to revoke your offer, be sure to do so only after consulting a lawyer who is experienced in real estate matters. You don’t want to lose your earnest money deposit or get sued for damages the seller may have suffered by relying on your actions.
Sellers: Calculating net proceeds
When an offer comes in, a seller can accept it exactly as it stands, refuse it or make a counteroffer. Once a seller has a specific proposal, calculating net proceeds becomes simple. From the proposed purchase price, they subtract the following:
•Payoff amount on present mortgage
•Any other liens (equity loan, judgments)
•Legal costs of selling (attorney, escrow agent)
•Unpaid property taxes and water bills
•If required by the contract: cost of survey, termite inspection, buyer’s closing costs, repairs, etc.
When sellers receive a purchase offer from a would-be buyer, remember that unless they accept it exactly as it stands, unconditionally, the buyer will be free to walk away. Any change the proposed buyer makes in a counteroffer uts the seller at risk of losing that chance to sell. Sellers can, however, arrive at any agreement they and the buyers want about who pays for the following:
•Buyer’s closing costs
•Points to the buyer’s lender
•Repairs required by the lender
•Home protection policy