The Basics Of Making An Offer

A written proposal is the foundation of a real estate transaction.  Therefore, you need to enter into a written contract, which starts with your purchase offer.  This proposal not only specifies the price but all the terms and conditions of the purchase.  There are a variety of standard forms used by agents and bound by both the law and local practice. After the offer is written and signed, it will be presented to the seller by your agent in the presence of the seller’s agent, or by the seller’s agent alone.

What the Offer Contains-

The purchase offer you submit, if accepted as it is written, will become a binding sales contract (known as a purchase agreement). It is important that it contains all the items that will serve as a "blueprint for the final sale." The purchase offer includes such items as:

• Address and legal description of the property

• Sale price

• Terms: for example, all cash or subject to the buyer obtaining a mortgage for a given amount

• Seller’s promise to provide clear title (ownership)

• The target date for closing

• Amount of earnest money deposit accompanying the offer, and whether it will come in the form of a check or cash. Also included may be the disposition of the deposit should the buyer back out of the deal at a later date.

• The method by which real estate taxes, rents, fuel, water bills, and utilities are to be adjusted (prorated) between buyer and seller

• Provisions about who will pay for title insurance, survey, termite inspections, and other details

• Type of deed to be given

• Other requirements such as disclosure of specific environmental hazards, seismic hazards, or other locally-specific clauses

• A provision that the buyer may make a final walk-through inspection of the property just before closing

• Any contingencies

THE PURCHASE AGREEMENT-

Your agent will use a standard form of Purchase Agreement, developed by the Association of Realtors ®, a local Association of Realtors ®, or a private publishing company, depending on the custom in the area.  You can make changes – but the seller must agree to each of the changes you make.

In the United States, oral contracts are not enforceable – real estate contracts must be in writing. Even if you give me, your agent, permission to bargain on your behalf, I must have a Purchase Agreement signed by all buyers before I can present your offer.

When you read the Purchase Agreement, try to imagine yourself as an independent party who has no knowledge of the transaction other than what’s included in the contract. Is the meaning of each clause clear? For example, to avoid miscommunication list all personal property you expect to be included in the transaction. Also, it’s a good idea to stipulate the exact date and time of possession – if you’re not specific, you and your moving van could arrive and find that the seller is still inside the home!

Specify in the contract that the seller is obligated to repair any damage (along with the conditions causing such damage) noted in the pest control report and the reports of other inspections.

ELEMENTS IN THE PURCHASE AGREEMENT-

Sales Price:

Self-explanatory, but still the most important term.

Earnest Money:

Along with your Purchase Agreement, you will submit earnest money to demonstrate your seriousness about the home.  “Earnest Money” is generally between 1% and 5% of the purchase price.  If your offer is accepted, the earnest money becomes part of your down payment or closing costs.  If the offer is rejected, your money is returned to you. If you back out of a deal against the terms of the contract, you may have to forfeit the entire amount.

Title:

"Title" refers to legal ownership.  The seller should provide the title, free and clear of claims by others not acceptable to you, the buyer.  Title insurance will assure that the home is free of "unacceptable liens" or "encumbrances."   It’s negotiable who will pay for the title insurance policy.

Mortgage Clause:

A clause that specifies that the obtaining of a mortgage loan on the property on terms and conditions acceptable to you is a condition of the sale, and provides for the refund of your deposit if you fail to get the mortgage loan.

Pest Inspection:

This clause provides for a pest control inspection and report by a licensed pest control operator.  Sometimes sellers will provide this report prior to the purchase agreement. If not, it provides for a method of allocating whether the seller, buyer or both will pay for the repairs disclosed by the report.  Your lender may require a certificate from a qualified inspector stating that the property is free from termites, pests, and dry rot.

Home Inspection:

I strongly recommend an inspection and written report by a home inspector who is a licensed general contractor to determine the condition of plumbing, heating, cooling, and electrical systems, the structure of the home, the grading, roof, siding, windows, and doors.  Most buyers prefer to pay for inspections (generally between $400 - $1,000) so that it’s clear that the inspector is working for them, not the seller.  I also strongly recommend that you request any such additional inspections as may be recommended by your home inspector, such as a separate roof inspection, foundation or soils inspection, pool inspection, etc.  These additional inspections may reveal conditions or defects beyond the ability of a general home inspector to ascertain.

Contingencies:

You can specify, in your Purchase Agreement, that certain conditions must be met before the sale goes through.  Contingencies are crucial, so be sure to speak up and tell me what’s important to you, so that all of your concerns are reflected in the offer.   They may include:

• Your ability to obtain specific financing from a lending institution.  This contingency will ensure that if you can’t find the loan, you will not be bound by the contract.

• The home inspector you hire provides a satisfactory report within 10 days (for example) after the seller accepts your offer.  With the proper contingency, if the report does not satisfy you, the contract becomes void.

• The sale of your existing home.

Obviously, in a slower home sale market, sellers are more willing to accept contingencies than they are during more active circumstances.  Too many contingencies in a strong real estate market may prevent your offer from being accepted.  Make sure your contingencies are clear.

Earnest Money:

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 cash deposit to show "good faith."  The real estate agent usually holds the deposit, the amount of which varies from community to community.  This amount will become part of the down payment.

Escrow Company:

In most instances, the buyer will select the escrow company which is also the title company providing the title insurance policy after close of escrow.  In some counties where the custom is for the seller to pay for the title insurance policy, the seller will select the escrow and title company.

Closing Costs:

You can negotiate which closing costs you will pay and which will be paid by the seller.  However, be aware that longstanding custom regarding the handling of the allocation of these costs makes many of them hard to negotiate on terms different from local custom.  If a seller was obligated to pay a certain closing cost when he or she bought the property, they will expect you, the buyer, to pay the same cost on your purchase. 

Withdrawing an Offer:

In most cases the buyer may withdraw an offer right up until the moment the offer is accepted.  Consult us as to the best and safest way to withdraw your offer.

The Seller’s Response to the Offer:

You will have a binding contract if the seller, upon receiving the written offer, signs an acceptance just as it stands, unconditionally.  The offer becomes a firm contract as soon as the signed offer is delivered to you or me, your agent.  If the offer is rejected, then the offer is no longer valid.  If the seller likes everything except the sale price, or the proposed closing date, or the terms of your offer, you may receive a written counteroffer, with the changes the seller prefers.  You are then free to accept or reject the counteroffer, or even to make your own counteroffer.

Each time either party makes any change in the terms, the other side is free to accept or reject it or counter again.  The document becomes a binding contract only when one party finally signs an unconditional acceptance of the other side’s proposal and that final, unchanged document is delivered to the other party or their agent.

How the Seller May Counteroffer:

• The buyer and seller can negotiate and agree on any of the terms, conditions, costs and who pays for them. Some terms and conditions that are negotiable include:

• Termite inspection fee and costs to repair any damage

• Closing costs

• Points to the buyer’s lender

• Repairs required by the lender

• Repairs of conditions or defects disclosed by the seller, uncovered by inspectors, or required by governmental agencies

• Date for the close of escrow

• Date and time for possession by buyer

• A holding over, or rent back, by the seller after the closing of escrow