A written offer to purchase is the start of a real estate transaction. Oral promises are not binding when it comes to the sale of real estate. You need to enter into a written contract, which starts with your written offer. This proposal not only specifies price, but also all the terms and conditions of the purchase. For example, if the seller offered to help the buyer with $1,000 – $2,000 toward their closing costs, make sure that’s included in your written offer and in the final accepted offer.
REALTORS® have standard Contracts to Purchase furnished from their local board of Realtors. This will help you put together a written 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 all the way to closing.
After the offer is drawn up, dated, and signed, it will be presented to the seller’s Realtor by your Realtor.
What is in an Offer?
The Contract to Purchase you submit, if accepted as it stands, will become a binding sales contract. It’s important that the contract contains all the items that will serve as a ‘blueprint for the final sale.’ The Contract to Purchase includes items such as:
- address, tax id #, 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
- closing and possession dates
- amount of earnest money deposit with the contract, whether it’s a check or cash 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, deposits, propane tanks, are to be adjusted/prorated between buyer and seller and will appear on their closing statements
- provisions about who will pay for title insurance, survey, termite or any other inspections, etc.
- type of deed to be drawn up by an attorney
- other requirements specific to your state, which might include a chance for an attorney to review the contract
- a provision that the buyer may make a final walk through inspection of the property prior to 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 for example ‘this offer is contingent upon or subject to the sale of my present home’, you’re saying that you will only go through with the purchase if that event happens. Here are two examples of contingencies contained in an offer:
- the buyer obtaining specific financing from a lending institution: If the loan is denied, the buyer won’t be bound by the contract.
- satisfactory report by a home inspector: for example, ‘within 14 days after acceptance of the offer.’ The seller must wait 14 days to see if the inspector submits a report that satisfies the buyer. If not, the contract could become void. Again, make sure that all the details are explicitly stated in the written contract.
Buyers can be in a strong bargaining position, that is, you look particularly welcome to a seller, if:
- you’re an all cash buyer
- you already have a pre-approval letter from your lender
- you don’t have a present house that has to be sold before you can afford to buy
- you’re able to close and take possession at a time that is agreeable to the seller. In these circumstances, you may be able to get a better price 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 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 for example a job transfer. Keep the following considerations in mind:
- 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, but they are usually in an as-is condition
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 listing Realtor’s agency typically holds the earnest money in their non-interest bearing trust/escrow account, the amount varies. This will become part of your down payment and will be credited to you at your closing.
Buyers: the Seller’s Response to Your Offer
There’s only a couple of ways your offer can go. Seller rejects, makes a counter offer or the preferred, accepts! You will have a binding contract if the seller, upon receiving your written offer, signs an acceptance just as it stands. The offer becomes a firm contract as soon as you are notified of acceptance from your Realtor. If the offer is rejected, that’s that – the sellers could not later change their minds and hold you to it.
If the seller likes everything except the sale price, or the closing date, you may receive a written counteroffer including the changes the seller prefers. You are then free to accept, reject or even make your own counteroffer.
Each time either party makes any change in the terms, the other side is free to accept, reject or counter again. The document becomes a binding contract only when one party finally signs an acceptance of the other side’s proposal.
Buyers: Withdrawing an Offer
Can you cancel your 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 cancel 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, reject it (seldom a useful response) or make a counteroffer to the buyers with the changes you want. In evaluating an offer, you should estimate the amount of cash/net proceeds you’ll walk away with when the closing is 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 or has contingencies.
Once you have an offer before you, calculating net proceeds becomes simple. From the proposed purchase price you can subtract the following costs:
- payoff amount on present 1st mortgage or a 2nd mortgage
- any other liens (equity loan, judgments)
- broker’s commission
- 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.
You may have been escrowing in your payment taxes and insurance. Once you close on the sale of your home, your lender will close out your escrow account and you will receive the balance.
When you receive an offer from a buyer’s Realtor, remember that unless you accept it exactly as it stands, the buyer is free to walk away. Any change you make in a counteroffer puts you at risk of losing that chance to sell.
Who pays for what items is often determined in the contract. You can, however, negotiate with the buyer any agreement you want about who pays for the following costs:
- buyer’s closing costs
- points paid to the buyer’s lender regarding their loan
- repairs required by the lender
- termite, septic, and well inspections
You may feel some of these costs are ‘not your problem’, but many buyers – particularly first-timer buyers are short of cash. They have their down payment, but that’s it. Helping them may be the best way to get your home sold.