Basics of a Real Estate Purchase Offer
At last, you've found your ideal home, and you want to buy it. How do you begin the process? Start with a purchase offer.
A purchase offer is a written proposal that reflects your intentions and capabilities. It spells out your proposed terms and conditions for buying real estate. Unless and until you and the seller agree on everything included in your offer, it is just that -- an offer. Once signed by all required parties, it becomes a purchase contract. This is why your offer needs to be in writing. It is the foundation for a contract. And in real estate, that contract must be in writing to be legally enforceable.
What Your Offer Includes
What is included in a purchase offer varies from buyer to buyer and with the type and location of the property. Regardless, you must be sure to include everything that is required for you to be willing and able to go through with the deal. Though by no means an exhaustive list of everything that should be contained in your offer, some of the basic elements are such things as:
- Information that identifies the buyer and seller (full names and contact information)
- Property address, as well as a legal description
- Price you are willing to pay
- Terms of your offer -- for example how you will pay/finance, down payment amount
- Amount and form of your earnest money deposit and conditions for its return
- Target date for transfer of title and the date you will take possession of the property
- Provisions about who will pay for costs associated with closing the sale
- Description of seller's responsibilities in areas such as clear title transfer and deed type
- Clarification on which items of personal property are included in the sale
- Provisions for a final walk-through before closing
- Time limit for acceptance, after which your offer will expire
- Any requirements specific to your state/location
- Contingencies for closing
Add all conditions that must be met in order for you to close the deal. These are important because they provide you with a legal "out" if problems arise that are unknown at the time you make the offer. For example, the home may have a structural issue that even the seller is not aware of. Or you may not be able to get the mortgage financing that you want. Contingencies covering home inspection and financing would address these situations. In addition, include any other contingencies that, if not satisfied, would result in cancellation of the deal. Examples might be those that address an appraised value lower than the purchase price and your need to sell an existing home before you can close on this one.
Coming Up With Your Offer
Developing your offer requires careful consideration of elements such as your financial situation, property condition, and local real estate market status. Your finances impact the size of your down payment, type of financing sought, and your ability to pay closing costs. Property condition helps you frame contingencies for home inspection and repairs. And market conditions -- sellers' market vs. buyers' market - affect your offer price and terms. So, do your homework before you make an offer. If you are working with a real estate professional, he/she will help with this process. If you are selling on your own, seriously consider engaging an attorney or other closing agent to help you develop your offer. Because once signed by all parties, your offer is a legally binding contract that you are obligated to perform.
Information is for educational and informational purposes only and is not be interpreted as financial or legal advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.