So you and your Realtor have looked at several homes and now you have found "the one". The next move is to actually put pen to paper and make an offer on the home. I always tell clients to take their time in deciding what they want in a home but when they find one they really like, don't wast any time. I've had clients who loved a property but they dragged their feet making an offer and lost the house to another buyer. How defeating! Make sure that you've already completed all of the previous steps in this series on buying a home so you will be ready to execute an offer when the time is right.
One of the most unnerving activities when buying a home without the help of a Realtor is working through the Offer to Purchase and all of the documents that go with a real estate transaction. We do have a lot of paperwork and the amount seems to grow on a yearly basis.
The major elements of an Offer to Purchase Contract
An Offer to Purchase Agreement is a bilateral contract (agreement between two parties). In order for this contract to be enforceable, it must be in writing and include the following:
- Identification of both parties - The full name of both the buyer and seller are to be listed as it appears on their driver's license.
- Property Address - Real estate is often referred to a "real property". In addition to the actual physical address, it's good practice to also include other identifiers like the legal description, property identification number, and even the MLS number for the property.
- Purchase price - Once the client finds the home to make an offer on, I will go to work analyzing if the listing price is overpriced or just right. There are a lot of factors in determing the best offer price and they are always based on the needs of my client. First of all, you have to understand real estate markets and I'll help you with that. Are you in a buyer's market or seller's market? In a buyer's market, for instance, there are way more properties for sale than there are buyers so buyers tend to be able to realize a price below the original list price.
I could write an entire article on this topic alone but there are a couple of points that I want you to think about. Of course you want the best possible price but that doesn't mean offering an irrational amount for the property is the way to go. If a home is listed at $200,000, was priced correctly, and is in reasonable shape an offer of say $150,000 is not rational. Some buyers feel when they extremely low-ball the seller, they will be able to buy the home at the best price. I know where you're going with this but I feel that it's the wrong tactic to take. For one thing, a really low offer may tick off the seller to the point where they won't even counter back your offer, thinking that you're not a serious buyer. This is obviously counter-productive if you really want the home. There's an art to breaking down the numbers and negotiating an offer in order to get you the best possible price. I can do that for you.
- Legal Purpose - Real estate contracts are void for illegal purposes.
- Consideration - This has to do with a term that you're probably more familiar with, Earnest Money Deposit or Good Faith Deposit. With every real estate transaction, earnest money or something of value must be offered when an offer is presented to the seller.
Although there isn't any "set" amount to offer as earnest money, different parts of the country have traditional amounts that are usually presented. Typically in Baldwin County, EMD ranges from around $500 to 1% of the sales price. An important factor to consider is this. Whether you offer $1, $500, or 1% of the sales price, the seller will take you more serious with a higher amount. When the Offer to Purchase is executed, your earnest money check will be deposited into escrow and credited back to you at closing. The only way you could lose this money is if you default on the contract.
- Competent parties - Parties who are under the influence of drugs or alcohol or who are mentally impaired may not be able to enter into an Offer to Purchase. Minors can but it's potentially voidable.
- Meeting of the minds - Each person who is party to the real estate transaction should have full understanding of the terms, rights, and obligations of the contract.
- Signatures - All real estate contracts must be entered into voluntarily represented by signatures of all parties.
There are a number of provisions and contingencies that also go along with writing an offer but I'll go into to more detail on that in Step 8.
Things to Consider When Writing an Offer
- When you write an offer to buy a home, there will more than likely be three prices: the price you want, the price the seller wants, and the price you agree on. Chances are, your offer will be countered so be ready for it. It's not very often that a seller receives an offer, signs it, and it's done. You as the buyer should have 2 prices in mind: your initial offer price and your bottomline price.
- Everything in a real estate contract is negotiable, including the closing date. Most of the time homes close within 30 to 45 days but that's just a typical time frame. In the end, closing is whatever you and the seller agree to and sign. It's all about negotiation. For instance, if you need to close quick but the seller wants a later date, you may have a better chance at getting your closing time if your offer price was a little higher than expected.
When the negotiations are over and all parties have signed off on the offer to purchase, you now have a ratified contract. At this point, I'll send you copies of everything that was signed and forward the contract to your lender and title company. You are well on your way to buying your next home!
For any questions about the Offer to Purchase and if you are wanting to buy a home soon, please contact me at:
eXp Realty Southern Branch
Step 1 - Determine How Much You Can Afford
Step 3 - Get Pre-Approved for Your Mortgage
Step 4 - Establish Your Needs and Wants in a Home
Step 5 - Time to Go House Hunting
Step 7 - Get Final Approval for Your Loan
Step 8 - Contingencies, Appraisal, and Repairs
Step 9 - Utilities and Insurance
Step 10 - The Final Walk Through