The Basics of Making an Offer
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, I will make sure that’s included in your written offer and in the final completed contract.
As REALTORS® we 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. I will guide you through the offer, counteroffer, negotiating and closing processes. In NJ certain disclosure laws must be complied with by the seller, and I will ensure that this takes place.
If you are not working with a buyers agent, keep in mind that you forfeit the free expertise that is offered to you by me.
After the offer is drawn up and signed, it is presented to the seller by either me or by the seller’s real estate agent.
What is in an Offer?
The purchase offer you submit, if accepted as it stands, will become a binding sales contract, also known as a purchase agreement. So it’s important that the purchase offer contains all the items that will serve as a “blueprint for attorney review period.” 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 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 walk-through 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.
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 per-approved 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 usually are able to negotiate some discount from the listed price.
On the other hand, if the perfect house comes on the market and is well priced, you may need to offer the list price (or more) to beat out other early offers. I will guide you with comparable homes SOLD to make you aware of such a situation.
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 deposit to show “good faith.” Our office usually holds the deposit, which is applied towards your down payment during the process.
The Seller’s Response to Your Offer
You will have a binding contract if the seller, upon receiving your written offer, signs an acceptance. If the seller likes everything except the offer price, or proposed closing date, you may receive a counteroffer including the changes the seller prefers. You are then free to accept it, reject it or make your own counteroffer. Usually after 2-3 counteroffers an agreement is reached. However, before this contract becomes binding, you will have the attorney review period – usually 3 days – during which your attorney will check the contract and point out some clauses that he or she would like to change. After this review period, the offer becomes a firm contract still contingent on a satisfactory home inspection and the loan commitment. At this point the contract is binding for the seller.
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 during the attorney review period. The deeper you are in the transaction the more difficult it will be to back out without any penalties. 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 The Net Proceeds
In evaluating a purchase offer, the seller should estimate the amount of cash he or she will walk away with when the transaction is complete. For example, when the seller is presented with two offers at the same time, he or she may discover it may be better to accept the one with the lower sale price if the other has less of a down payment.
Once the seller has a specific offer, calculating net proceeds becomes simple. From the proposed purchase price the seller 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 the seller’s deposit money to be used for property tax bills and homeowner’s insurance. In that case, the seller will receive a refund of money left in that account, which will add to their proceeds.
Sellers: Counter Offer
When the seller receives a purchase offer from a buyer, remember that unless the seller accepts it exactly as it stands, unconditionally, the buyer is free to walk away. Any change made in a counteroffer puts the deal at risk.
Who pays for what items is often determined by local custom. One can, however, negotiate with the buyer any agreement who pays for the following costs:
- termite inspection
- buyer’s closing costs
- points paid to the buyer’s lender
- buyer’s broker fees
- repairs required by the lender
- home protection policy
The seller may feel some of these costs are none of their business, but many buyers – particularly first-timer buyers – are short of cash. Helping them may be the best way to get the deal done.