Are you ready to take the exciting yet nerve-wracking step of making an offer on a house? Finding “the one” can bring a rush of emotions. But remember, once you sign the offer, it becomes a legally binding agreement that encompasses various crucial details. This is the time to pay attention to every little thing. While your real estate agent will be there to assist you throughout the process, it may also be wise to seek guidance from a real estate attorney.

1. Ensure that your financing and cash flow are in order

Ensure that your financing and cash are in order before proceeding. Unless you plan to pay in full with cash, it is crucial to obtain a mortgage preapproval from at least one lender prior to making an offer. Ideally, you would have obtained this preapproval before embarking on your house-hunting journey. A preapproval not only informs you of the amount you are qualified to borrow, but also determines the affordability of the houses you can consider. Moreover, it signals to the seller that you possess the necessary financial means to complete the purchase.

Furthermore, double-check that the funds required for the down payment, earnest money deposit, and closing costs are readily available in either your checking or savings account. It is important to have immediate and direct access to these funds.

Should you need to sell investments or transfer money between banks, brokerages, or even family members’ accounts, ensure that you allocate sufficient time for these transfers to settle before the funds are required.

2. Determine an Appropriate Offer Price

Your real estate agent is a valuable resource in determining a competitive offer amount. The decision to offer above or below the list price will depend on market conditions, such as the balance of buyers and sellers, as well as the condition and history of the house.

To gain further insight, delve into the comparative market analysis provided by your agent, and review recent listings and comparable sales. In a seller’s market, there may be increased pressure to offer above the list price. However, it’s important to remember that each property is unique. For homes in need of some tender loving care and those that have been on the market for an extended period, there may be room for negotiation. Your agent will have knowledge of the listing’s duration and can provide guidance accordingly.

Considering your budget is another crucial factor. Regardless of market competitiveness, it’s wise to avoid offering more than you can comfortably afford.

3. Determine the Appropriate Amount of Earnest Money to Offer

Earnest money serves as a sincere deposit, demonstrating your commitment to purchasing the home and building trust with the seller. Typically, this money is placed in an escrow account once the seller accepts your offer, and it can later be applied towards your down payment at the time of closing. It is important to note that if you decide to withdraw from the deal without a valid reason stated in the offer, the seller has the right to retain the earnest money. Conversely, if the agreement falls through due to actions initiated by the seller, such as favoring a higher offer after signing the purchase agreement, the deposit should be returned to you.

In most cases, an earnest money deposit ranges from 1% to 3% of the home price. Offering a higher amount can capture the attention of the seller, especially in competitive markets. Your trusted real estate agent can guide you on what amount the seller might reasonably expect.

4. Selecting the Appropriate Contingencies To Include

Contingencies are contractual clauses that outline the circumstances under which you can withdraw from a deal without losing your earnest money. Common contingencies include:

  • Final loan approval: This contingency provides a legal recourse if your mortgage application is not approved within a specified timeframe.
  • Home inspection: In addition to requiring a thorough home inspection, this contingency may also address how issues discovered during the inspection will be handled. For instance, it could allow the buyer to withdraw from the deal, renegotiate the price, or request repairs from the seller.
  • Appraisal: Lenders typically require an appraisal to ensure that they don’t lend you more than the property’s value. This contingency allows you to back out of the deal if the appraisal comes in lower than a specified amount, potentially jeopardizing your financing.

Your agent will guide you through each type of contingency, recommend which ones to include, and explain the risks associated with waiving any of them. While it is important to protect your interests and gather sufficient information for a wise purchase, it is worth noting that contingencies can sometimes pose obstacles to closing a deal, particularly in competitive markets. It is advisable for both buyers and sellers to include only the necessary stipulations in the contract.

Step 5: Drafting a Purchase Offer

Typically, the buyer’s real estate agent prepares the offer using a residential purchase agreement that adheres to state and local regulations. This agreement is then tailored to meet the specific needs of the buyer. Once both the buyer and seller sign the agreement, it becomes a legally binding contract.

In some states, certain aspects of the contract and closing process must be handled by a real estate lawyer. Even if it’s not required, hiring an attorney can be beneficial if the transaction is complex and raises legal questions.

A purchase agreement generally includes the following elements, among others:

  1. Property Address: The legal address of the home.
  2. Purchase Price: Details regarding the agreed-upon price.
  3. Earnest Money: The amount and terms of the earnest money deposit, including its disposition upon offer acceptance.
  4. Expiration Date and Time: The deadline by which the offer expires. In hot markets, this can be a matter of hours, but typically it is one or two days.
  5. Fixtures and Personal Property: Items included in the purchase, such as built-in systems (electrical, plumbing, and heating fixtures), and additional items like appliances.
  6. Opening of Escrow: The name of the title or escrow company and the designated escrow officer.
  7. Title: A stipulation that the seller will provide clear title to the property.
  8. Contingencies: Provisions that safeguard the buyer’s interests and allow them to walk away from the deal.
  9. Seller Disclosures: Requirements and timelines for sellers to provide necessary information.
  10. Projected Loan Closing Date: Typically 30 to 60 days, subject to the lender’s underwriting process.
  11. Closing Costs: Details regarding the party responsible for paying closing costs and fees, as well as proration of taxes and expenses between the buyer and seller at closing.
  12. Broker’s Fees: Specifies who will pay the commissions for the listing broker and buyer’s broker, with the seller typically covering both.
  13. Walk-through Inspection: Grants the buyer the right to inspect the property a few days before closing to ensure compliance with the agreement and seller’s disclosures.
  14. Delivery of Possession: The deadline for the seller to vacate the property and hand over the keys.

Sometimes, buyers are advised to include a personal letter with their offer to evoke an emotional connection with the seller. However, it’s important to note that these “buyer love letters” can contribute to housing discrimination and may deter certain sellers. Additionally, it’s crucial to understand that such letters hold no legal weight in the transaction.

6. Choose your approach: Walk away, negotiate, or move toward closing

Once the seller has reviewed your offer, they may choose to accept, counter, or decline it.

If the offer is accepted: Remember, a phone call, handshake, or verbal agreement doesn’t make it official. The deal is only done when both parties sign the purchase offer agreement. After a brief celebration and sigh of relief, it’s time to replace your preapproval with a full mortgage application and begin the remaining steps that will lead you to the closing day.

If the seller makes a counteroffer: You have two options. You can accept their counteroffer and proceed with the application and closing process. Alternatively, you can make your own counteroffer by submitting a new offer letter. Regardless of your excitement for your potential new place, it’s important to be prepared to negotiate or even walk away if the terms aren’t right for you at this stage.

If the offer is refused: It’s normal to feel disappointed, especially if this isn’t the first time it has happened. Take the time to regroup with your real estate agent, and when you are ready to face the market again, begin a fresh round of house hunting.