Purchase agreement. Deposit receipt. Earnest money agreement. Offer to purchase and contract.
These are all alternative names to a buyer’s purchase offer. This set of documents forms the basis for the interest of a buyer to purchase a particular house or property owned by a seller. The buyer’s offer may come in various shapes and sizes depending on the state where the house is located, but most of them involve pages upon pages of required documents.
When a person expresses interest in buying a home, the first step is to draft a real estate contract. The general notion is for an attorney to prepare this document, but some states allow real estate agents to create the contract. In the latter case, a state agency will provide a pre-printed set of forms applicable in the area where the property is sitting on.
Be involved with preparing documents
One of the most common misconceptions in making a real estate contract is that the real estate agent has the sole responsibility to prepare the documents and list down the clauses necessary to finalize the purchase. As the buyer, you should also be involved in coming up with the contract. Despite the fact that some agents have pre-formatted or “standard” real estate contracts to speed up the process, it is very important for you to not only understand the contract contents but also add or remove items to represent your best interest. You may do this on your own, but a better approach is to hire an attorney to help you dissect the contract. This way, you can check whether every line on the contract is satisfactory to you – purchase price, contingency clauses, financing terms, and closing details.
In preparing the real estate contract, expect the following steps to take place:
- Accomplish the purchase offer form provided by the real estate agent. Make sure that you and your attorney review the document before affixing your signature. For attorney-drafted contracts, ask your real estate agent for information about the property so that the details in the contract are accurate.
- The contract should include the purchase offer amount and an expiration date (and time) for the offer. The validity of an offer ranges between a few hours and a few days, depending on your location. It should also contain the offer terms such as payment details, closing date, home inspection procedure, and other requirements that you want the offer to hold.
- The seller may expect an earnest money deposit – in the form of check or money order – attached to the offer, so prepare for that as well.
- Your agent will hand over the purchase offer to the seller’s agent, who will consequently give it to the home seller.
- There are three possible decisions that the seller must make upon receiving and reviewing your offer:
- Accept the offer: The seller will sign the documents and returns them to you before the expiration date of the offer.
- Decline the offer: The seller will not sign the documents and will refuse the offer entirely.
- Make a counter-offer: The seller may edit some details in the contract, sign the document, and return it to you. In this case, you may accept the counter-offer, reject it outright completely, or make a counter counter-offer.
- It’s possible to make several counter-offers between seller and buyer until an amicable agreement is reached, but each counter-offer should specify an expiration date.
- Once both parties have agreed and signed on the contract, the purchase may now proceed to closing, where you and the seller have some more responsibilities to accomplish.
- The seller should prepare a property disclosure form, which will be sent to you.
- The buyer (you) will be given a few days to review the disclosure document. From this, you can decide to pursue or pull back the offer. If everything is done in writing and within the time frame for reviewing the disclosure form, you may be able to refund the earnest money deposit.
- You should arrange for loan processing through the mortgage lender, who will arrange for property appraisal.
- You need to hire a professional to conduct a home inspection, and take out a home insurance policy. Both of these items will be required by the mortgage lender.
- Days before the closing date, you should conduct a final walk-through of the property. Verify if all repair and maintenance requests have been granted, and all contract stipulations have been met.
Deciding on the offer price
Coming up with the price for the home that you want to buy isn’t a snap-of-the-finger action. The offer amount is based on a comparative market analysis (CMA) report, which lists down detailed market information on similar homes. The report is based on comparables (or “comps”) that will provide you with an idea as to the value of the property that you want to buy.
A typical CMA report contains information on listing and sales prices of properties similar to or near the home you are planning to purchase. The report may also include pending sales, where the properties in question are considered “in escrow”. Each of the homes listed in the CMA report will be described in terms of lot and floor area, number and dimensions of rooms and baths, age of the property, and presence of fireplaces or swimming pools. The report may also indicate the length of time the properties were available in market listings, as well as local info on nearby schools and property taxes.
The details appearing in the CMA report will become the basis for you and your agent to come up with an appropriate offer price for the home that interests you.
Aside from the CMA, you may also look into other related factors that affect the value of the home. These items may involve some biases on the part of the buyer or seller, but they all form part of the purchase offer price that you feel comfortable with.
- Is the seller’s asking price fair? Compare the seller’s preferred price with your purchase offer. Are you willing to bend a little to meet the seller’s demands, or would you rather negotiate the price to make it closer to your offer?
- What kind of market is the house in? Properties sold in a buyer’s market are beneficial to you, because you can negotiate to your advantage, say the inclusion of in-house appliances or a decrease in the seller’s asking price. On the other hand, a seller’s market restricts your negotiating plans, and homes usually end up being sold way higher than the original asking price.
- What is the motivation for selling? Talking to sellers may give you a great deal of information about why they’re selling the house. You can even use the information as leverage for your negotiations especially when you know you can accommodate the seller’s needs. Be warned, though: the seller’s agent probably won’t disclose much information about his / her client. However, it’s possible that frequent discussions with the seller’s party may give you enough details to determine their reason for selling.
- How long has the property been in the market? Newly listed homes in a seller’s market will not be in your favor, because the sellers will probably move on to the next prospective buyer if they don’t like your offer price. On the flip side, sellers who find their homes on the market for far too long may be attracted to your offer, even if it’s lower than their asking price.
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