Making an Offer on Your New Home

Article highlights:

• Elements of a good offer
• Drafting an offer that’s agreeable to the buyer and seller
• Common points and terms of an offer

Drafting a solid offer, or purchase contract, is like successfully cooking a new recipe. As a buyer, you want to pay the lowest possible amount for your new home, have flexible terms for items such as earnest-money deposits, mortgage commitments and closing dates. However, your offer must be acceptable to the home seller as well. Many first-time buyers forget that a contract should persuade the seller to negotiate and then reach an agreement that everyone is happy with.

There are many parts to an offer, and all of them are negotiable. Remember to choose your battles carefully. You can be flexible with some items, while with others you’ll have to decide on how to handle them. When you first begin your home search, ask your attorney or real estate agent for a blank copy of the contract. Take the time to familiarize yourself with its provision. This way, when it comes time to draft it, you’ll feel comfortable and will know how to address the various options in it.

Most contracts have standard (or boilerplate) language, in addition to blanks where you can fill in the exact terms and negotiating points of your offer. If you don’t want to fill in parts of the contract, you can simply cross them out and they will be excluded. Use an approved contract from your state’s real estate attorney association or local Board of Realtors. It’s a good idea to hire an attorney to review your contract before you submit it.

Here are common points and terms of a real estate contract (offer to purchase):

Real estate contract. A binding agreement between buyer and seller. It consists of an offer and an acceptance, as well as a consideration of money to make the contract legally binding.

Acceptance. An agreement of the contract terms by the buyer and seller.

Contract length. Forty-five days from contract to closing is a good rule of thumb, but inquire about typical contract lengths in your area.

Mortgage commitment. A document by a mortgage lender that commits him to provide a loan at agreed terms and conditions.

Mortgage term, rate and amount. The higher your down payment, the more negotiating leverage you’ll have.

Cash offers. In lieu of mortgage financing, cash offers should be confirmed with a letter from your financial institution stating that money is in deposit to close the contract.

Lead-based hazard. A written disclosure by the home seller reports lead-based hazards in a property. Buildings built after 1978 do not present these hazards. Federal law requires lead-based paint disclosures.

Real property disclosures. Written statements by the seller that discloses any known defects.

Local disclosures. Local requirements of disclosure, including certificates of occupancy, that the seller gives to the buyer.

W-9 Form. An IRS form requesting taxpayer identification and the certification number of the buyer.

Appraisal. The value of a property set by a licensed or certified appraiser.

Earnest-money deposit. The money you give the seller at the time the offer is made as a sign of good faith. Earnest-money deposits vary. The contract should provide for a refund of the entire earnest-money deposit within an agreed period.

Attorney approval period. Your attorney reviews and makes changes to the contract, typically within five to seven business days.

Property inspection period. Under the contract, the buyer has the right to conduct an inspection on the condition of the property within five to seven business days after signing.

Well and septic inspections. These are independent of structural and mechanical inspections.

Contingency. A provision in the contract requiring certain acts to be completed before the contract is binding. Timelines for contingencies run concurrently.

Closing/escrow date. The last day of the transaction process, when the deed is delivered, documents are signed, and funds are dispersed.

Possession date. The date when the buyer can move into the property, as agreed in the contract.

Final walk-through. Before the closing or escrow date, you can do a final check of the property’s condition, agreed-on repairs (based on the inspection) and personal property (such as appliances) to left in the home.

Tax prorations. A credit given to a buyer at closing for unpaid property taxes, when taxes are paid in arrears. Prorations should always be more than 100 percent.

Personal property. List and initial all personal property included with the sale, such as air-conditioners, appliances and playground equipment. Personal property should be conveyed to the buyer through a bill of sale.

Home-sale contingency. This states that the contract is contingent on the sale of the buyer’s existing property. Have your current home on the market when including a home-sale contingency in the contract.

Home-closing contingency. This states that the contract is contingent only on the buyer selling his existing property.

Next article: Handling Counteroffers and Negotiation Stalemates >>