What Goes into Making an Offer on a Home?
Making an Offer
A written contract is the single most important piece of paperwork in the real estate buying process. A written contract first starts with a written proposal, which not only specifies price, but also the terms and conditions of the purchase contract. Everything that you want to happen during a transaction must be included in the purchase contract or you won’t have the legal capacity to collect it later. For instance, if you want the seller to pay the closing costs for a transaction, then this must be included in the purchase contract.
One benefit of using a Realtor to facilitate the complicated process of buying a home is that Realtors use a variety of standard forms that are frequently updated to reflect current laws. When you hire a Realtor, all of these forms will be used in the home buying process, so you can be sure there will be no paperwork issues that arise during the transaction. Additionally, Realtors are well versed in disclosure laws that the seller must comply to. A good real estate agent will make sure that you have all the pertinent information when buying a home.
If you decide to not work with a Realtor, you must draw up a purchase offer or contract that conforms to state and local laws while incorporating all key items of the deal. State and local laws vary, so it is vitally important that you have someone to guide you through this complicated process.
What’s in an Offer?
The purchase offer that you submit eventually becomes the binding sales contract that completes the purchase of the property. Since the purchase offer serves as the ‘blueprint’ for the final sales contract, it’s very important that the purchase offer contains all the things that must happen during the transaction. A purchase offer typically includes such things as:
- The address of the property
- Proposed sales price of the property
- Terms of the contract
- Seller’s promise to provide clear title (ownership)
- Closing date of the sale
- Amount of earnest money deposit (if any) that accompanies the offer and how that money is returned to you if the offer is rejected
- How real estate taxes, utilities, and rents are to be adjusted between buyer and seller
- Who will pay for title insurance and all applicable inspections
- An offer expiration date and time
- Any contingencies accompanying the offer (explained below)
What are Contingencies?
Contingencies are used when you anticipate a potential problem occurring during the real estate transaction. Contingencies allow a buyer to cancel a contract without penalty if something goes wrong during the purchase. Some common contingencies written in purchase offers include:
- If a buyer cannot get a loan to finance the purchase, the buyer will not be bound by the contract.
- An offer is contingent on the buyer selling their current home. If they cannot sell within a certain time frame, then the buyer will not be required to purchase the home.
- If a home inspection report does not satisfy the buyer, the contract is voidable.
Negotiating the Price of a Home
There are certain situations that allow a buyer to have more leverage in the home buying process. You’re in a strong buying position if:
- You’re a cash buyer
- You’ve already been pre-approved for a mortgage
- You don’t have a present house that has to be sold before you can afford to buy
- If you meet one of these criteria, you might be able to negotiate more on the purchase price of a home than buyers who do not have this bargaining power. This is usually only true, however, in a buyer’s market. In a seller’s market, if a highly desirable property comes on the market, chances are it will go fast and sometimes for the actual list price.
It can also help in the negotiation process, if you know why the house is being sold. There usually is more room to negotiate on the offer price if the seller(s) have moved out and are paying a mortgage on a vacant property or are in a hurry to sell.
Earnest Money Deposit
Earnest money is a deposit that you give when making an offer on the house to show the seller that you are a serious buyer. This deposit shows your “good faith” – as sellers are generally suspicious of a written offer with no earnest money deposit. If the offer is accepted, this money will become part of the down payment on the house. While the negotiation is occurring, the earnest money check will either be held by your Realtor or an attorney.
Seller’s Response to Your Offer
If a seller signs your offer as it stands, it becomes a firm contract as soon as you hear of its acceptance. On the other hand, if the offer is rejected, then that decision is final – the seller cannot later change their minds. If the seller likes some of your offer, but not all of it, then they can sign back a counteroffer, with the changes that they want to make. After receiving a counter offer, you have the opportunity to sign the offer as it stands or write back another counteroffer.
Every time that a counteroffer is made, the other side has the opportunity to accept or reject the offer, or to counter again. The offer only becomes binding when one party signs and accepts it as written.
Withdrawing an Offer
A lot of buyer’s ask if you can take back an offer after it has been written. Most of the time the answer is yes; however, you can only take an offer back if it hasn’t been accepted – or even in some cases if you haven’t been notified of its acceptance. It is usually a tricky process to rescind an offer, as you could risk losing your earnest money deposit or being sued for damages by the seller. If you want to revoke an offer, be sure to contact an attorney who is well versed in real estate contracts.
Who Pays for What in an Offer?
Who typically pays for what items in an offer is sometimes determined by local customs. But remember, everything in an offer can be negotiated. Typical offer items that are negotiated include:
- Inspections: Termite, Radon, General
- Property Survey
- Closing Costs
- Points on a buyer’s loan
- Buyer’s broker fees
- Repairs required by the lender
- Home protection policy
Offering to pay for some or all of these costs on either side can help facilitate a transaction. Since many home buyers are short on cash before a transaction, a deal might be more easily consummated if the seller agrees to pay some or all of these costs. Likewise, a seller may be more apt to deal with a buyer if they agree to take on some of the burden of related closing costs.