The Basics of Making an Offer
A written contract is the foundation of a real estate transaction. Oral promises are not legally enforceable when it comes to the sale of real estate. This proposal not only specifies price, but also all the terms and conditions of the purchase. For example, if the seller offered to help with $2,000 toward your closing costs, make sure that's included in your written offer and in the final completed contract, or you won't have grounds for collecting it later.
REALTORS® have standard purchase agreements and will help you put together a written, legally binding offer that reflects the price as well as terms and conditions that are right for you. Your REALTOR® will guide you through the offer, counteroffer, negotiating and closing processes. In many states certain disclosure laws must be complied with by the seller, and the REALTOR® will ensure that this takes place.
What is in an Offer?
The purchase offer you submit, if accepted as it stands, will become a binding sales contract (known in some areas as a purchase agreement, earnest money agreement or deposit receipt). So it's important that the purchase offer contains all the items that will serve as a "blueprint for the final sale". The purchase offer includes items such as:
• address and the legal description of the property
• sale price
• terms: for example, all cash or subject to you obtaining a mortgage for a given amount
• seller's promise to provide clear title (ownership)
• target date for closing (the actual sale)
• amount of earnest money deposit accompanying the offer, whether it's a check, cash or promissory note, and how it's to be returned to you if the offer is rejected - or kept as damages if you later back out for no good reason
• method by which real estate taxes, rents, fuel, water bills and utilities payments are to be adjusted (prorated) between buyer and seller
• provisions about who will pay for title insurance, survey, termite inspections, etc.
• type of deed to be given
• other requirements specific to your state, which might include a chance for an attorney to review the contract, disclosure of specific environmental hazards or other state-specific clauses
• a provision that the buyer may make a last-minute walk through inspection of the property just before the closing
• a time limit (preferably short) after which the offer will expire
• contingencies, which are an extremely important matter and that are discussed in detail below
Contingencies - “Subject to” Clauses
If your offer says "this offer is contingent upon (or subject to) acertain event", you're saying that you will only go through with the purchase if that event occurs. Here are two common contingencies contained in a purchase offer:
• The buyer obtaining specific financing from a lending institution: If the loan can't be found, the buyer won't be bound by the contract.
You're in a strong bargaining position, that is, you look particularly welcome to a seller, if:
• you're an all-cash buyer
• every month a vacant house remains unsold represents considerable extra expense for the seller
• if the sellers are divorcing, they may want to sell quickly
• estate sales often yield a bargain in return for a prompt deal
This is a deposit that you give when making an offer on a house. A seller is understandably suspicious of a written offer that is not accompanied by a deposit to show "good faith”. The listing real estate company or an attorney usually holds the deposit, the amount of which varies from community to community. This will become part of your downpayment.
Buyers - 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 sellers could not later change their minds and hold you to it.
Buyers - Withdrawing an Offer
Can you take back an offer? In most cases the answer is yes, right up until the moment it is accepted, or even in some cases, if you haven't yet been notified of acceptance. If you do 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 find yourself being sued for damages the seller may have suffered by relying on your actions.
Sellers - Calculating Your Net Proceeds
When an offer comes in, you can accept it exactly as it stands, refuse it (seldom a useful response) or make a counteroffer to the buyers with the changes you want. In evaluating a purchase offer, you should estimate the amount of cash you'll walk away with when the transactionis complete. For example, when you're presented with two offers at the same time, you may discover you're better off accepting the one with the lower sale price if the other asks you to pay points to the buyer's lending institution.
• payoff amount on present mortgage
• any other liens (equity loan,judgments)
• broker's commission
• legal costs of selling (attorney, escrow agent)
• transfer taxes
• unpaid property taxes and water and other utility bills
• if required by the contract: cost of survey, termite inspection, buyer's closing costs, repairs,etc.
Sellers - Counteroffer
When you receive a purchase offer from a would-be buyer, remember that unless you accept it exactly as it stands, unconditionally, the buyer is free to walk away. Any change you make in a counteroffer puts you at risk of losing that chance to sell.
• termite inspection
• buyer's closing costs
• points paid to the buyer'slender
• buyer's broker fees
• repairs required by the lender
• home warranty
You may feel some of these costs are none of your business, but many buyers - particularly first-timer buyers - are short of cash. Helping them may be the best way to get your home sold.