Oral promises are not legally enforceable when it comes to the sale of real estate. Therefore, you need to enter into a written contract. This proposal not only specifies price, but all the terms and conditions of the purchase of the home.
What the Offer Contains
The purchase offer you submit, if accepted as it stands, will become a binding sales contract. It's important, therefore, that it contains all the items that will specify all attribute for the final sale. The following are components of the offer to purchase form:
- Address and sometimes a legal description of the property
- Special Provisions (if any) such as fixtures, appliances, etc. that you would like to include with the sale
- Sale price and the breakdown of how you will pay for the home, such as amount of earnest money accompanying the offer. Earnest money 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 listing agent or an attorney usually holds the deposit. This will become part of your down payment when you purchase the home.
The earnest money is refundable. For example, when you put an offer on a home, most consumers make it subject to a home inspection. If the home inspection comes back with major work that needs to be done and the buyers and sellers can not agree on resolving what the home inspection had found, you would get your earnest money back. Earnest money is usually 500.00 to 1000.00 dollars. We will discuss this more in detail under Home inspections.
- Terms -- for example, all cash or subject to your obtaining a mortgage for a given amount
- Seller's promise to provide clear title (ownership)
- Target date for closing (the actual sale of the home) This is the day that you become a homeowner.
- Right to have the home professionally inspected for structural, electrical, mechanical, general condition. These are usually done through home inspections. We will talk more about home inspections later on Home Inspections.
- Right to have additional lead paint, termite and pest inspection, asbestos, Urea Formaldehyde Foam Insulation (UFFI) inspection. Note: Usually, the home inspection and any additional inspection is paid by the buyer. This is to protect the buyerâs interest.
- A time limit (preferably short) after which the offer will expire This line gives a deadline to the sellerâs to either accept or reject your offer
- Contingencies, which are an extremely important matter and discussed in detail below
If your offer says "this offer is contingent upon" (or subject to) a certain event, you're saying that you will only go through with the purchase if that event occurs. The following are three common contingencies contained in a purchase order:
- The buyer obtaining specific financing from a lending institution. If a loan cannot be obtained, the buyer won't be bound by the offer to purchase contract. It is usually best to get a commitment letter from a lending institution before buying a home. I have had clients who have found a home and have lost it, because another buyer had their financing in order and did not have to find out if they could afford their home.
- A satisfactory report by a home inspector "within 10 days (for example) after acceptance of the offer." Usually you have 10 days to have your home inspection and any additional inspections done to the home. The seller must wait 10 days to see if the inspector submits a report that satisfies you. If not, the contract becomes void.
- The sale of a home. For example, the buyer wants to buy the home, but they must sell their current home first. So, the sale is contigent upon the buyer selling their home. Sometimes sellers do not like this contigency, because the closing on the buyer's house could be delayed for an extended time.
You're in a strong bargaining position -- meaning, you look particularly welcome to a seller -- if any of the following apply:
- You're an all-cash buyer
- You're already pre-approved for a mortgage
- You don't have a present house that has to be sold before you can afford to buy.
In those circumstances, you may be able to negotiate a lower price than the listed price. On the other hand, in a seller's market, if the perfect house comes on the market, you may want to offer the list price (or more) to beat out other early offers.
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 extra expense for the seller.
- If the sellers are divorcing, they may need a quick home sale
- Estate sales often yield a bargain in return for a prompt deal
The Seller Responds to Your Offer
There are two things that can happen after an offer is presented:
1) Your offer will be accepted and it will be signed just as it stands, unconditionally.
2) The seller will counter offer.
For example, the seller may counter the offer of the price of the home, in which case you may accept the offer, reject the offer, or reject the offer and counter offer again. The seller may also counter with conditions such as not wanting to allow the washer and dryer to go with the home, or they may object to the proposed closing date.
The document becomes a binding contract only when one party finally signs an unconditional acceptance of the other side's proposal. Basically when the buyer's and the seller's signatures are both signed on the dotted line.
Each time either party makes any change in the terms, the other side is free to accept or reject it, or counter again.
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.
Now that your offer is accepted, it is time to see if the house is what it is cracked up to be. Its time for the home inspection.