You’ve found a home that’s a good fit for you, so what’s involved in making an offer to purchase that property? Depending on the type of market you are in, you may have to act quickly or you may have time to negotiate.
Know the Market
Before you write up the offer you will want to know what similar homes have been selling for. Your Realtor will run a quick Comparative Market Analysis (CMA) that will let you know how this home is priced in comparison to similar homes that have recently sold. In today’s market of multiple offers, it can also tell you how much over list price these similar homes have sold for. This information can guide you in determining the price you offer for the home.
In addition to price, the type of market will further guide your decision. If you are competing for the home with other buyers you want to present the strongest and cleanest offer possible. By that I mean you want to go in with your best price and want to minimize contingencies, or speed them up if possible. If the home has been on the market for awhile or if you are in a buyer’s market, then you may have time to negotiate to see if you can get a reduced price, seller paid closing costs, etc.
Know the Home
As part of your offer to purchase the home you will need to acknowledge receipt of the Seller’s Property Disclosures. These documents are a declaration from the sellers of all material facts that may affect your future use and enjoyment of the property. There may also be city inspections that have been performed as part of the sale which will state if there are any items that need to be addressed by the seller prior to closing. Depending on the property, well, septic system, and condominium/townhome disclosures may also be involved.
Make your Offer
The following are key items included in the Purchase Agreement that you and your Realtor should discuss in making the strongest offer possible.
- Earnest Money
- The amount of money you will put down with the offer that will be held in a trust account until closing. It will then go against your down payment for the home. The amount that you put down can show your strength as a buyer and your confidence of closing on the home.
- Personal Property
- Are you asking for the standard items included in the purchase or over and above?
- Purchase Price
- How will you pay for the Property?
- Are you an all cash buyer or will you be financing the purchase? If you are financing what is the total amount you will pay for in cash and how much will be financed?
- Closing Date
- Do you have to close on a certain date or can you be flexible and work with the sellers time frame?
- If you are financing what type of financing will you be using? The different types of financing can show strength of a buyer. Also different types of financing like FHA and VA loans may cost the seller more in closing fees and may have more stringent appraisals. Consider offering the seller a date when all your appraisals and underwriting will be completed.
- Seller paid Closing Costs
- Are you asking the seller to pay part of your closing costs?
- Are you having an inspection and how long will you need to have it inspected? What different types of inspections will you need?
- Do you have a property to sell or close on before you can complete this purchase?
- How will property taxes be prorated?
- Who will pay for any special assessments that are outstanding, pending or levied before closing?
- When will you take possession of the home after closing?
- Will you be purchasing a home warranty and who will pay for it?
Obviously any of these points can be favorable for the buyer or for the seller. That is all part of working with your Realtor in producing an offer that is appropriate for the situation and negotiating with the seller to produce an offer that everyone is happy with.
In some cases the seller will neither accept or counter your offer. They may decide to reject the offer altogether. This is their right as sellers and usually occurs in multiple-offer situations or where the buyer has put forth a low-ball offer that offends the seller. It may also occur if the seller believes the buyer will be unable to perform.
Can I Withdraw my Offer and Get Back my Earnest Money
- You can withdraw your offer right up to the point of acceptance by the sellers. Your Realtor should notify the listing agent in writing that you are withdrawing the offer. After the offer has been signed and accepted by the sellers you are under a binding, legal contract and can only get out of the contract based on the contingencies that you have included.
- The inspection contingency allows you to cancel the purchase agreement within the specified time frame stated in the purchase agreement.
- The Financing contingency offers some protection in allowing you to cancel the purchase agreement should you be unable to obtain financing.
- The Common Interest Community Addendum (condos and townhomes) allows you ten days after receipt of all documents to cancel the purchase agreement.
- Other contingencies like the sale of your current home, or well and septic inspections.
To receive a cancellation and refund of your earnest money after the sellers acceptance requires the agreement and signatures of all parties or a court order. In some cases one party or another may not be willing to sign a cancellation for whatever reason. Should a cancellation not be received neither party can move forward until one is.
- Always include a Pre-Approval from your lender with your offer.
- If you are a cash buyer you will need to present a statement with Proof of Funds to the seller or a letter from your banker stating you have the funds available to complete the sale.
- Some buyers include a letter about themselves with the offer. I have seen this help both in multiple offer situations and in situations where price was a factor.
- Do you want your offer reviewed by your lawyer before submitting to the seller?
You have an accepted offer
That was a lot of work. You’re getting close but you’re not there yet. You still have to get through inspections, appraisals, and underwriting. Remember your Realtor is there to guide you through this process and make it easier for you. Concentrate on making good decisions based on the information you are receiving and let your Realtor take care of the details, that’s why you pick one you could trust. In step 6, From Contract to Closing, we’ll talk about the inspection process and negotiations as well as handling the final steps of underwriting.