Once you find the home you want to buy, the next step is to write an offer – which is not as easy as it sounds. Your offer is the first step toward negotiating a sales contract with the seller. Since this is just the beginning of negotiations, we recommend you put yourself in the seller’s shoes and imagine his or her reaction to everything you include. Our goal is to get what you want, and imagining the seller’s reactions will help you attain that goal.
In an offer to purchase real estate, we include not only the offer price, but other details of the purchase as well. This includes how you intend to finance the home, your down payment, who pays what closing costs, what inspections are performed, timelines, whether personal property is included in the purchase, terms of cancellation, any repairs you want performed, which professional services will be used, when you get physical possession of the property, and how to settle disputes should they occur.
Determining Your Offer Price
We already know the list price of the property, but what price are you going to offer and how do you come up with that figure? Ours is a three step process for determining just that.
First, we look at recent sales of similar properties in the area to determine a price range. A real estate agent can access this data in the MLS. These are called “comparable sales.” Comparable sales are recent sales of homes that compare closely to the one you are looking to purchase. Specifically, we will compare prices of homes that are similar in square footage, number of bedrooms and bathrooms, garage space, lot size, and type of construction.
Then, we analyze additional data, such as the condition of the home, improvements made to the property, current market conditions, and the circumstances of the seller. This will help you settle on a price you think would be fair to pay for the home.
Finally, depending on your negotiating style, you adjust your “fair” price and come up with what you want to put in your offer. Also, your REALTOR may be able to tell you the average list price-to-sales price ratio for the area that the house is in.
You will be expected to provide a deposit or earnest money payment with the offer. This money will be kept in escrow until the negotiations are complete. If the contract is not completed due to the seller or certain contingencies that were written into the contract, you will get your money back. However, if you decide to back-out of the contract, you will probably forfeit the deposit to the seller.
Expiration of the Offer
The standard Purchase and Sale form includes a provision for you to specify how long the seller may take to respond to your offer. This prevents the seller from keeping you in suspense while waiting for a better offer.
Personal Property Items
List the items you want to be included in the real estate sale. These non-fixtures may include curtains, appliances, workbenches, etc. Items that are physically and permanently attached usually are automatically included in the sale except when the seller specifically indicates the exclusions in the sales contract. It is best to specify any items you want included so there will be no misunderstanding.
Contingencies in an Offer to Purchase Real Estate
When writing an offer, anticipate potential problems so that if something does go wrong, you can cancel the contract without penalty. These are called “contingencies” and you must be sure to include them when you offer to buy a home. Contingency clauses can protect you from possible problems or events. The more experienced your real estate attorney or agent, the greater protection he or she can build into the offer to purchase.
Including contingencies subject to your being able to obtain financing, inspection of the property must meet your satisfaction, and that the property appraises for at least what you agreed to pay for it are common contingencies that are often included in the purchase and sale agreement.
Contingencies protect you in case you cannot perform or choose not to perform on a promise to buy a home (for example, if the lender will not loan the amount of the mortgage). If you cancel a contract without having built-in conditions and contingencies, you could find yourself forfeiting your earnest money deposit.
Closing Date / Transfer of Possession
Your offer to purchase will also include your proposed closing date. A transaction is considered “closed” and the property changes hands once the deeds have been recorded. Typically, in our area, the closing and possession dates are the same. However, it is not always possible for you to occupy it immediately. This can happen for several reasons, but the most common is that the seller may be purchasing a home, too. Usually, their purchase is scheduled to close simultaneously with your purchase of their home – but try to be as flexible as possible if “glitches” arise.
Presenting the Offer
Once we have completed the contract, it is presented to the seller. If the seller accepts everything in the contract, including the price and all of the contingencies, the offer becomes binding on both the buyer and seller subject to the contingencies. If the seller wishes to negotiate, a counteroffer is made with either a new contract or with notations and substitutions made on the original document. You then receive the revised contract and can either sign it, if acceptable, or reject it and make a second offer.
Expect to make compromises. Do not be afraid to ask questions. Doing your homework will help you buy a house with the confidence and knowledge that you have made the best decisions.