Once
you find the home you want to buy, the next step is to write an
offer – which is not as easy as it sounds. Your offer is the
first step toward negotiating a sales contract with the seller.
Since this is just the beginning of negotiations, you should put
yourself in the seller’s shoes and imagine his or her reaction
to everything you include. Your goal is to get what you want, and
imagining the seller’s reactions will help you attain that
goal.
The
offer is much more complicated than simply coming up with a price
and saying, "This is what I’ll pay." Because of
the huge dollar amounts involved, especially in today’s litigious
society, both you and the seller want to build in 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 other details of the purchase as well.
This includes how you intend to finance the home, your down payment,
who pays what closing costs, what inspections are performed, timetables,
whether personal property is included in the purchase, terms of
cancellation, any repairs you want performed, which professional
services will be used, when you get physical 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 both the buyer and seller. It will affect
your finances more than any other previous purchase or investment.
The seller makes plans based on your offer that affect his finances,
too. However, it is more important than just money. In the half-hour
it takes to write an offer you are making decisions that affect
how you live for the next several years, if not the rest of your
life. The seller is going to review your offer carefully, because
it also affects how he or she lives the rest of their life.
That
sounds dramatic. It sounds like a cliché. Every real estate
book or article you read says the same thing.
They
all say it because it is true.
Contingencies
in an Offer to Purchase Real Estate
In
most purchase transactions there may be a slight challenge or two,
but most things will go quite smoothly. However, you want to anticipate
potential problems so that if something does go wrong, you can cancel
the contract without penalty. These are called "contingencies"
and you must be sure to include them when you offer to buy a home.
For
example, some "move-up" buyers often agree to purchase
a home before selling their previous home. Even if the home is already
sold, it is probably a "pending sale" and has not closed.
Therefore, you should make closing your own sale a condition 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 contingencies you should include in your offer.
Since you probably need a mortgage to buy the home, a condition
of your offer should be that you successfully obtain suitable financing.
Another condition should be that the property appraises for at least
what you agreed to pay for it. During the escrow period you are
likely to require certain inspections, and another contingency should
be that it pass those inspections.
Basically,
contingencies protect you in case you cannot perform or choose not
to perform on a promise to buy a home. If you cancel a contract
without having built-in conditions and contingencies, you could
find yourself forfeiting your earnest money deposit.
Or
worse.
Earnest
Money Deposit in an Offer to Purchase Real Estate
After
you have come up with an offer price, the next step is to determine
how large a deposit you want to make with your offer. You want the
"earnest money deposit" to be large enough to show the
seller you are serious, but not so large you are placing significant
funds at risk.
One
recommendation is to make sure your deposit is less than two percent
of your offered price. The reason for this is that if your deposit
is larger than that, the lender will pay particular attention to
how you came up with the funds. You might have to provide a copy
of a canceled check along with a bank statement showing you had
the money to begin with. Normally, this is not a problem, but if
you have a short escrow period or are barely coming up with your
down payment, it could pose an inconvenience.
Another
reason to limit your deposit is "just in case." Although
significant problems are the exception and not the rule, they do
occur. "Just in case" there is a nasty or prolonged dispute
between you and the seller, the less money you have tied up in a
deposit, the fewer funds you have placed at risk.
As
with practically everything in real estate, there are exceptions
to this rule, too. During a hot market there may be multiple offers
on the property that interests you. A large deposit may impress
a seller enough so they will accept your offer instead of someone
else’s, even when your unknown competitor is offering the
same price or slightly higher.
Since
large deposits do impress sellers, you may also find that by making
a large deposit you can convince the seller to accept a lower offer.
More money up front may save you money later.
copyright
2000 by Terry Light and RealEstate
ABC
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Art
Busch
ABR, GRI
316-686-7121
316-990-7039
e-mail
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PLAZA REAL ESTATE, INC.
12221 E. Central
Wichita, KS 67206
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