Writing an Offer to Purchase Real Estate

Once you find the home you want to buy,the next step is to write an offer – which is not as easy as itsounds. Your offer is the first step toward negotiating a salescontract with the seller. Since this is just the beginning ofnegotiations, you should put yourself in the seller’s shoes andimagine his or her reaction to everything you include. Your goal is toget what you want, and imagining the seller’s reactions will help you attain that goal.

The offer is much more complicated thansimply coming up with a price and saying, "This is what I’llpay." Because of the large dollar amounts involved, especially intoday’s litigious society, both you and the seller want to buildin protections and contingencies to protect your investment and limit your risk.

In an offer to purchase real estate,you include not only the price you are willing to pay, but otherdetails of the purchase as well. This includes how you intend tofinance the home, your down payment, who pays what closing costs, whatinspections are performed, timetables, whether personal property isincluded in the purchase, terms of cancellation, any repairs you wantperformed, which professional services will be used, when you getphysical possession of the property, and how to settle disputes should they occur.

It is certainly more involved than buying a car. And more important.

Buying a home is a major event for boththe buyer and seller. It will affect your finances more than any otherprevious purchase or investment. The seller makes plans based on youroffer that affect his finances, too. However, it is more important thanjust money. In the half-hour it takes to write an offer you are makingdecisions that affect how you live for the next several years, if notthe rest of your life. The seller is going to review your offercarefully, because it also affects how he or she lives the rest of their life.

That sounds dramatic. It sounds like acliché. Every real estate book or article you read says the same thing. And they all say it because it is true.

Contingencies in a Purchase Offer

In most purchase transactions there maybe a slight challenge or two, but most things will go quite smoothly.However, you want to anticipate potential problems so that if somethingdoes go wrong, you can cancel the contract without penalty. These arecalled "contingencies" and you must be sure to include them when you offer to buy a home.

For example, some "move-up" buyersoften agree to purchase a home before selling their previous home. Evenif the home is already sold, it is probably a "pending sale" and hasnot closed. Therefore, you should make closing your own sale acondition of your offer. If you do not include this as a contingency, you may find yourself making two mortgage payments instead of one.

There are other common contingenciesyou should include in your offer. Since you probably need a mortgage tobuy the home, a condition of your offer should be that you successfullyobtain suitable financing. During the escrow period you are likely torequire certain inspections, and another contingency should be that it pass those inspections.

Basically, contingencies protect you incase you cannot perform or choose not to perform on a promise to buy ahome. If you cancel a contract without having built-in conditions andcontingencies, you could find yourself forfeiting your earnest money deposit. Or worse.

Earnest Money Deposit

After you have come up with an offerprice, the next step is to determine how large a deposit you want tomake with your offer. You want the "earnest money deposit" to be largeenough to show the seller you are serious, but not so large you areplacing significant funds at risk. The Earnest Money Deposit amount isusually determined by the Seller and will be listed on the MLS print-out.

As with practically everything in realestate, there are exceptions to this rule. During a hot market theremay be multiple offers on the property that interests you. A largedeposit may impress a seller enough so they will accept your offerinstead of someone else’s, even when your unknown competitor is offering the same price or slightly higher.

Since large deposits do impresssellers, you may also find that by making a large deposit you canconvince the seller to accept a lower offer. More money up front may save you money later.

The Closing Date

It is absolutely essential that youinclude a closing date as part of your offer. This way both you and theseller can make plans for moving, and the seller can make plans forbuying his or her next home. Though most transactions actually do closeon the right date, do not be so inflexible that a delay creates insurmountable problems.

For example, if you are renting andneed to give the landlord notice that you are moving out, you may wantto allow a little flexibility. Otherwise, if your purchase closes a fewdays late you could find yourself staying in a motel with yourbelongings packed in a moving van somewhere while you pay storage costs.

There are also times when closing canbe delayed by weeks, through no fault of your own. Have back-up plans prepared for such a contingency.

Transfer of Possession

A transaction is considered "closed"once the deeds have been recorded. Then you own the home. You will normally be able to move into your new home immediately.

However, in rare occasions, it is notalways possible for you to occupy it immediately. This can happen forseveral reasons, but the most common is that the seller may bepurchasing a home, too. Usually, it is scheduled to close simultaneously with your purchase of their home.

It is sort of like being at a red lightwhen it turns green. Although all the cars see the light change at thesame time, the guy at the back of the line doesn’t begin moving until all the cars ahead of him have started.

As a result, it has become customary toallow the seller up to a maximum of three days to turn over actualpossession and keys to the home. When transfer of possession actuallyoccurs should be clearly laid out in your offer to prevent confusion later.

Disclosures From the Seller

Although you have toured the property,looked at the walls and ceiling, turned on the faucets and played withthe light switches, you have not lived in it. The seller has years ofknowledge about his or her home and there may be some things you wantto find out about as quickly as possible. For this reason, you will require certain disclosures as part of your offer.

Basically, you want the seller todisclose any adverse conditions that may have a substantial impact onyour decision to purchase the home. This would include any problemswith the house, whether the property is in a flood zone, a noise zone, or any other kind of hazardous area.

If you have an agent representing you,this is almost automatic, but many states do not require individualsselling their own home to provide you with this information. Often theydo not require banks selling foreclosed property to provide thesedisclosures, either. Obtaining these types of disclosures should always be a part of your offer, and time is of the essence.

Condition of the Property

The last thing you want when you assumepossession of your new home is to find it in a total mess. Therefore,you should make it clear in your offer that certain minimum standardsare required. If you do not, you might find out the seller or neighborshave begun using the back yard as a trash dump, or something worse – and you would not be able to do anything about it.

Some of the requirements you might wantto include in your offer are that the roof does not leak, theappliances work, the plumbing does not leak, that there are no brokenor cracked windows, the yard has been kept up, and any debris has been cleared away.

Inspections You Should Require

Besides appraisal and the termiteinspection, you should also have a professional go through the houseand seek out potential problems. Of course, you will have inspected thehome, but you are not used to looking at some things that aprofessional will find. Even if they are not things the seller isexpected to repair, at least you will have foreknowledge of any potential problems.

The seller will want this inspectionperformed quickly, so that you can approve the results and move forwardwith the purchase. Once you receive the inspection, you will want toallow yourself sufficient time to review and approve the report. If youdo not approve the report, you may negotiate with the sellers on whichrepairs should be performed and who should pay for those repairs.Otherwise, you can cancel the purchase without penalty, provided you have included timetables in your offer.

As part of your offer, you may requirea termite and pest inspection. This company not only inspects fortermite damage and pest infestations, but also inspects for dry rot andwater damage, among other things. The company that performs theinspection is important to you as a buyer, because you want to be surethey do a good job. It is important to the seller because it iscustomary that they pay for the inspection and some types of repairs that may be required.

You should determine which company youwant to perform this inspection and make it a part of your offer.Otherwise the seller will choose. If you do not know which company to hire, your agent will make a recommendation.

Final Walk-Through Inspection

Before closing, you will want torevisit the property to ensure it is in the condition you have requiredin your offer, and to inspect that any required repairs have been performed. You should do this at least by the day before closing.