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 include the 55″ plasma television in the family room, the play set in the backyard, of the gym equipment in the basement, make sure this is included in your written offer and in the final completed purchase contract contract.
Realtors have standard purchase agreements and will help you put together a written, legally binding offer that reflects not only the price, but also the terms and conditions which you’ve agreed to. Your Realtor will guide you through the offer, counteroffer, negotiating and closing process, and help you with everything from vendor referrals including recommendations for home inspectors, to who to contact for utilities and when to transfer them. The State of Ohio requires certain disclosure documents be completed by the seller, and the Realtor will ensure that this takes place.
If you are not working with a real estate agent, keep in mind that you must draw up a purchase offer or contract that incorporates all of the key items while conforming to both state and local laws. State laws vary, and certain provisions may be required in your area. It’s also important that you understand that the listing agent works for, and has a legal obligation to work on the behalf of the seller (or in the case of a new home, the builder), and their interest (ie to get them the best possible terms on the sale of the home.)
After the offer is drawn up and signed, it is usually presented to the seller’s agent by your buyer’s agent, unless of course the agent involved in the transaction is serving as a dual agent and representing both parties to the transaction. In a few areas, sales contracts are drawn up by the parties’ lawyers.
What is in an Offer?
The purchase offer you submit, if accepted as it stands, will become a binding legal contract (or purchase agreement). So it’s important that the purchase offer contain all the items that will serve as a “blueprint for the final sale.” The purchase offer includes items such as:
- address and the legal description of the property
- sales 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, whether it’s a check, cash or promissory note, 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, association dues, rents, water bills and utilities payments are to be adjusted (prorated) between buyer and seller
- provisions about who will pay for inspections, title insurance, survey, 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 final 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 / financing can’t be secured, 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 already have a preapproved mortgage and you don’t have a present house that has to be sold before you proceed to buy
- you’re able to close and take possession at a time that is especially convenient for the seller
In these circumstances, you may be in a better position to negotiate on pricing.
On the other hand, in a “seller’s market”, if the perfect house comes on the market, you may want to offer the list price (or more) to beat out other early offers. Click here for info on Strategies to Win in Multiple Offer Situations.
It’s very helpful to find out why the house is being sold and whether the seller is under pressure. Keep the following considerations in mind:
- every month a vacant house remains unsold represents considerable extra expense for the seller
- if the sellers are divorcing, they may want to sell quickly
- estate sales often yield a bargain in return for a prompt deal
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 cash deposit to show “good faith.” A real estate agent or an attorney usually holds the deposit, which is usually a percentage of the sales with the percentage varying from community to community. This will become part of your down payment.
Possible Seller Responses to Your Offer
The seller has four options after receiving your offer, they can accept it, reject it, submit a counteroffer, or not respond at all and ignore your offer. You will have a binding contract if the seller, upon receiving your written offer, signs and accepts it just as it stands, unconditionally. The offer becomes a firm contract as soon as you are notified in writing of acceptance (but are encouraged to push for the executed contract or counter offer to ensure the deal is sealed). If the offer is rejected, that’s it – the sellers can not later change their minds and hold you to it.
If the seller likes everything except the sale price, the proposed closing date, or the plasma television you want left with the property, you may receive a written counteroffer including the changes the seller prefers. You are then free to accept it, reject it or even make your own counteroffer. For example, “We accept the counteroffer with the higher price, except that we still insist on having the plasma television.”
Each time either party makes any change in the terms, the other side is free to accept, reject or counter again. The document becomes a binding contract only when one party finally signs an unconditional acceptance of the other side’s proposal.
Withdrawing an Offer
Can you take back an offer? In most cases the answer is yes, right up until the moment it is accepted, or even in some cases, if you haven’t yet been notified in writing of the acceptance. If you do want to revoke your offer, be sure to not only call the sellers but you’ll also want to provide them with a written letter rescinding your offer (we recommend you send the letter first). 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 and thus it’s best to provide a formal letter of rescission.
Sellers: Calculating Your Net Proceeds
When an offer comes in, you can accept it exactly as it stands, refuse it (seldom a useful response) or make a counteroffer to the buyers with the changes you want. In evaluating a purchase offer, you should estimate the amount of cash you’ll walk away with when the transaction is complete. For example, when you’re presented with two offers at the same time, you may discover you’re better off accepting the one with the lower sale price if the other asks you to pay points to the buyer’s lending institution.
Once you have a specific proposal before you, calculating net proceeds becomes simple. From the proposed purchase price you 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 you deposit money to be used for property tax bills and homeowner’s insurance. In that case, remember that you will receive a refund of money left in that account, which will add to your proceeds.
When you receive a purchase offer from a would-be buyer, remember that unless you accept it exactly as it stands, unconditionally, the buyer is free to walk away. Any change you make in a counteroffer puts you at risk of losing that chance to sell.
Who pays for what items is often determined by local custom. You can, however, negotiate with the buyer any agreement you want about 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
If you, or someone you know is considering Buying or Selling a Home in Columbus, Ohio please give us a call and we’d be happy to assist you!
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Downtown Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Galena 43021 Hilliard 43026 Lewis Center 43035 New Albany 43054 Pickerington 43147 Polaris Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235