What to include when making an offer
Your purchase offer, if accepted as it stands, will become a binding sales contract. 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:
- Address and sometimes a legal description of the property
- Sale price
- Terms—for example, this is an all-cash transaction, or the deal is 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 and 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)
- Provisions about who will pay for title insurance and survey.
- A provision the buyer may make a last-minute walk through inspection of the property just before the closing
- Contingencies (finance and inspections to name two)
If your proposal says, “This offer is contingent upon (or subject to) a certain event”, you’re 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. There are time limits specified.
- Home Inspection: The property must get a satisfactory report by a home inspector “within a specified number of days after acceptance of the offer”
- Current home sale: This contingency states that you have to sell your current home in order to buy your new home. It’s difficult to get a seller to approve this contingency
Negotiating the price
You’re in a strong bargaining position—meaning you look particularly welcome to a seller—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. On the other hand, in a hot seller’s market, if the perfect house comes on the market, you may want to offer the full list price (or more) to beat out other 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 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. The amount varies but it’s usually 1% of the sales price and it 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.
If the seller likes everything except the sale price or the proposed closing date 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. The document becomes a binding contract only when one party finally signs an unconditional acceptance of the other side’s proposal.
Buyers: Withdrawing an offer
In most cases the answer is yes, right up until the moment it is accepted—and in some cases even if you haven’t yet been notified of acceptance.
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 with the changes they want.
In evaluating a purchase offer, sellers estimate the amount of cash you will walk away with when the transaction is complete (net proceeds).
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)
- Broker’s commission
- Legal costs of selling (attorney, escrow agent, title company)
- Unpaid property taxes
- 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 puts the seller at risk of losing that chance to sell.
Who pays for what items is often negotiable. Sellers can, however, arrive at any agreement they and the buyers want about who pays for the following:
- Termite inspection
- Buyer’s closing costs
- Buyer’s broker
- Repairs required by the lender
- Home protection policy (home warranties)
Sellers may feel some of these costs are not their responsibility, but many buyers—particularly first-timers—are short of cash. Helping a buyer may be the best way to get a home sold.
As soon as both parties accept the written offer, you have a legal contract.
What is the difference between list and sales prices?
The list price is how much a house is advertised for and is usually only an estimate of what a seller would like to get for the property. The sales price is the amount a property actually sells for. It may be the same as the listing price, or higher or lower, depending on how accurately the property was originally priced and on market conditions. If you are a seller, you may need to adjust the listing price if there have been no offers within the first few months of the property’s listing period.
Are low-ball offers advisable?
While any offer can be presented, a low-ball offer can sour a prospective sale and discourage the seller from negotiating at all. Unless the house is very overpriced, the offer will probably be rejected. You should always do your homework about comparable prices in the neighborhood before making an y offer. It also pays to know something about the seller’s motivation.
What contingencies should be put in an offer?
Most offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers’ ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction.
What items are sold along with the home?
Fixtures, items that are permanently attached to a house (such as drapery rods, built-in bookcases, tacked-down carpeting, etc) automatically stay with the house unless specified otherwise in the sales contract. But anything that is not nailed down is negotiable. This most often involves appliances that are not built in (washer, dryer, refrigerator, for example).
What are some tips on negotiation?
The more you know about a seller’s motivation, the stronger a negotiating position you are in. So-called “motivated sellers” include people going through a divorce or who have already purchased another home.
Remember, that the listing price is what the seller would like to receive but is not necessarily what they will settle for. Before making an offer, check the recent sales prices of comparable homes in the neighborhood to see how the seller’s asking price is correct.