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A
written proposal is the foundation of a real
estate transaction. Oral promises are not legally
enforceable when it comes to the sale of real
estate. Therefore, you need to enter into a
written contract, which starts with your written
proposal. This proposal not only specifies price,
but also all the terms and conditions of the
purchase. For example, if the seller offered to
help with $2,000 toward your closing costs, make
sure that's included in your written offer and in
the final completed contract, or you won't have
grounds for collecting it later.
REALTORS® have standard purchase agreements and
will help you put together a written, legally
binding 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 closing processes.
In many states certain disclosure laws must be
complied with by the seller, and the REALTOR® will
ensure that this takes place.
If
you are not working with a real estate agent, keep
in mind that you must draw up a purchase offer or
contract that conforms to state and local laws and
that incorporates all of the key items. State laws
vary, and certain provisions may be required in
your area.
After the offer is drawn up and signed, it is
usually presented to the seller by your real
estate agent, by the seller's real estate agent,
if that's a different agent, or often by the two
together. In a few areas, sales contracts are
drawn up by the parties' lawyers.
What is in an Offer?
The purchase offer you submit, if accepted as it
stands, will become a binding sales contract
(known in some areas as a purchase agreement,
earnest money agreement or deposit receipt). So
it's important that the purchase offer contains
all the items that will serve as a "blueprint for
the final sale." The purchase offer includes items
such as:
-
address 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)
-
target date for closing
(the actual sale)
-
amount of earnest money
deposit accompanying the offer, whether it's a
check, cash or promissory note, 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, fuel, water bills and
utilities payments are to be adjusted (prorated)
between buyer and seller
-
provisions about who will
pay for title insurance, survey, termite
inspections, etc.
type of deed to be given
-
other requirements
specific to your state, which might include a
chance for an attorney to review the contract,
disclosure of specific environmental hazards or
other state-specific clauses
a provision that the buyer may make a
last-minute walkthrough inspection of the
property just before 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 "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. Here are two common
contingencies contained in a purchase offer:
-
The buyer obtaining specific financing
from a lending institution: If the loan can't be
found, the buyer won't be bound by the contract.
-
A satisfactory report by a home inspector:
for example, "within 10 days after
acceptance of the offer." The seller must wait
10 days to see if the inspector submits a report
that satisfies the buyer. If not, the contract
would become void. Again, make sure that all the
details are explicitly stated in the written
contract.
Negotiating Tips
You're in a strong bargaining position, that
is, you look particularly welcome to a seller, if:
-
you're an all-cash buyer
-
you're already have a
preapproved mortgage and 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 especially
convenient for the seller
In these circumstances, you may be able to
negotiate some discount 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.
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
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." A real estate agent
or an attorney usually holds the deposit, the
amount of which varies from community to
community. This will become 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 sellers could not
later change their minds and hold you to it.
If
the seller likes everything except the sale price,
or the proposed closing date, or the basement pool
table you want left with the property, you may
receive a written counteroffer including the
changes the seller prefers. You are then free to
accept it, reject it or even make your own
counteroffer. For example, "We accept the
counteroffer with the higher price, except that we
still insist on having the pool table."
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
unconditional acceptance of the other side's
proposal.
Buyers: 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.
Sellers: Calculating Your Net Proceeds
When an offer comes in, you can accept it
exactly as it stands, refuse it (seldom a useful
response) or make a counteroffer to the buyers
with the changes you want. In evaluating a
purchase offer, you should estimate the amount of
cash you'll walk away with when the transaction 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.
Once
you have a specific proposal before you,
calculating net proceeds becomes simple. From the
proposed purchase price you can subtract the
following costs:
-
payoff amount on present
mortgage
-
any other liens (equity
loan, judgments)
-
broker's commission
-
legal costs of selling
(attorney, escrow agent)
-
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.
Your present mortgage lender may maintain an
escrow account into which you deposit money to
be used for property tax bills and homeowner's
insurance. In that case, remember that you will
receive a refund of money left in that account,
which will add to your proceeds.
Sellers: Counteroffers
When you receive a purchase offer from a would-be
buyer, remember that unless you accept it exactly
as it stands, unconditionally, 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 by local
custom. You can, however, negotiate with the buyer
any agreement you want about who pays for the
following costs:
-
termite inspection
-
survey
-
buyer's closing costs
-
points paid to the buyer's
lender
-
buyer's broker fees
-
repairs required by the
lender
-
home protection policy
-
You may feel some of these
costs are none of your business, but many buyers
- particularly first-timer buyers - are short of
cash. Helping them may be the best way to get
your home sold.
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